Target Corporation Analysis
Target corporation is a retail store that plays a crucial role in the supply of high-quality goods and services to its customers within the United States of America. The continued growth in profits reported by the organization is a result of the expansion of the business by opening up new department stores around the different states. Detailed financial ratio analysis will be done to determine the future growth potential and prospects of Target Corporation. The review will also cover the industry as a whole.
Financial Ratios
Liquidity ratios
| Current ratio | |||
| 2019 | 2018 | 2017 | |
| Current assets/ current liabilities | 12,902,000/ 14,487,000 =0.89 | 12,512,000/ 15,014,000 =0.83 | 12,564,000/ 13,201,000 =0.95 |
| Quick ratio | |||
| Current assets-inventory /current liabilities | 12,902,000- 8,992,000 /14,487,000 =0.27 | 12,512,000- 9,497,000/ 15,014,000 =0.20 | 12,564,000-8,657,000 / 13,201,000 =0.30 |
Asset turnover ratio
| Inventory turnover | |||
| 2019 | 2018 | 2017 | |
| COGS/ Average inventory | 54,864,000/ 8,922,000 =6.15 times | 53,299,000/ 9,497,000 =5.61 times | 51,125,000/ 8,657,000 =5.91 times |
Solvency ratios
| Debt to equity ratio | |||
| 2019 | 2018 | 2017 | |
| Total debt/ total equity | 30,946,000/ 11,833,000 =2.62 | 29,993,000/ 11,297,000 =2.65 | 27,290,000/ 11,709,000 =2.33 |
| Debt to total assets | |||
| Total debt/ total assets | 30,946,000/ 42,779,000 =0.72 | 29,993,000/ 41,290,000 =0.73 | 27,290,000/ 38,999,000 =0.70 |
Profitability ratios
| Return on Assets | |||
| 2019 | 2018 | 2017 | |
| Net Income/ Total assets | 3,281,000/ 42,779,000 =7.8% | 2,937,000/ 41,290,000 =7.8% | 2,934,000/ 38,999,000 =7.9% |
| Gross profit margin | |||
| Sales-cost of goods sold/ sales | 23,248,000/ 78,112,000 =30% | 22,057,000/ 75,356,000 =29% | 20,754,000/ 71,879,000 =29% |
Dividend policy ratios
| Payout ratio | |||
| 2019 | 2018 | 2017 | |
| Dividends per share/ earnings per share | 2.58/ 6.36 =40.57% | 2.5/ 5.51 = 45.44% | 2.43/5.33 =45.61% |
The current ratio of 0.89 implies that the current assets of the organization are less than the current liabilities of the firm. This means that the organization may find it tough to finance its current obligations when they fall due. Furthermore, the current ratio of the organization is below the industry average of 1.25 times in 2019 and 1.55 times in 2018 (Yahoo Finance, 2020). The quick ratio of the organization was 0.27 in 2019 and 0.20 in 2018. The value was higher than the industry average of 0.16 in 2019.
The firm’s solvency ratios show that the organization maintains a higher amount of debt than its equity. A higher volume of total assets of the organization is financed by debt. The high solvency ratios are above the industry average of 0.64 times in 2019 and 0.63 times in 2018 for the industry debt ratio and 1.95 times in 2019 for the debt to equity ratio. The high debt values being held by the organization undermine their profits significantly due to the high amounts of interest that the company pays annually.
The profitability ratios provide information about the company returns concerning different assets. From the analysis, the company reported a high value of return on assets. There have not been any significant changes in the amount of reported return on assets from the company. The company has reported an average return on assets of 7.8%. In 2018, the value was higher than the industry average that had been estimated to be 2.4%. This was, however, not the case in 2019, when the average ROA reported for the industry was 15.1%. Finally, the dividend payout ratio for Target Corporation is quite high. The ratio has been dropping for the last three years. However, the high dividend payout ratios for the organization makes the organization quite attractive to investors.
From the financial ratio analysis provided, Target Corporation is a good brand for investors to consider. The only downside to the performance of the organization is in the high volume of debt that the company has been holding for the last three years. Maximum Alpha Hedge Fund should consider acquiring Target Corporation. After the acquisition, the company should consider correcting the debt ratios to reduce the current value of debt in the organization.
References
Yahoo Finance. (2020). Target Corporation (TGT). New York City, New York, USA: Yahoo Finance. Retrieved from https://finance.yahoo.com/quote/TGT/analysis?p=TGT