Let’s look at Target one last time. Think about Target and all you’ve learned. Look again at Target’s 2010 financial statements contained in its 2010 annual report. For instructions on how to access the report online, see the Continuing Financial Statement Analysis Problem in Chapter 2. Now let’s do some financial analysis and answer the following questions:
1. Compute the ratios in Exhibit 12-10 for Target for 2010. Compute the ratios in Exhibit 1 2-10 for Walmart for 2010. As with Target, Walmart’s financial statements can be found in its annual report. You can access the annual report online in the investor relations area of Walmart’s web site at www.walmart.com/. For both companies, assume that all sales are credit sales. Compare the ratios of Target and Walmart. Which company do you think is doing a better job in managing the following?
a. Liquidity
b. Net income or loss
c. Financing with debt and equity
d. Investing in assets
e. Rewarding its stockholders
2. Compute Target’s ROE for the year ending January 29, 2011, including the elements of net income/sales, sales/average total assets, and average total assets/average stockholders’ equity. What does this analysis tell you about how Targetgenerates its ROE?
3. What are Target’s dividends per share and dividend payout ratio for the last two years? Why do you think Target pays a dividend? How do you think Target determines the amount of dividend they will pay?
4. Given Target’s stock price was $50 per share at the end of January 2011, what was Target’s PE ratio as of that date? If the average PE for companies is 15, what does this tell you the market is saying about Target’s future?