BAD-312 CASE STUDY PROJECT - PART B

Gwen Moore

July 26, 2014

Target Company: Target

I was interested in this company mainly because I was just curious about what type of financial information I could find out in order to complete this project assignment. I also wanted to know how this company’s financial status is compared to Walmart. Honestly, I have not been very good with doing these types of financial calculations so I am really not sure what type of financial data I will find and what my financial calculations will really show.

Target Corp. (TGT)-NYSE Follow60.39 0.60(0.98%) Jul 25, 4:02PM EDTAfter Hours: 60.24 0.15 (0.25%) Jul 25, 5:57PM EDTPrev Close: 60.99Open: 60.76Bid: 60.01 x 100Ask: 62.00 x 5001y Target Est: 59.30Beta: 0.81Next Earnings Date: 20-Aug-14Day's Range: 60.29 - 60.8952wk Range: 54.66 - 72.07Volume: 2,629,205Avg Vol (3m): 5,480,590Market Cap: 38.27BP/E (ttm): 20.40EPS (ttm): 2.96Div & Yield: 2.08 (3.60%)

Business Summary  

Target Corporation operates general merchandise stores in the United States and Canada. It offers household essentials, including pharmacy, beauty, personal care, baby care, cleaning, and paper products; music, movies, books, computer software, sporting goods, and toys, as well as electronics that consist of video game hardware and software; apparel and accessories, such as apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as intimate apparel, jewelry, accessories, and shoes. The company also provides food and pet supplies, including dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and pet supplies; and home furnishings and décor, such as furniture, lighting, kitchenware, small appliances, home décor, bed and bath, home improvement, automotive, and seasonal merchandise comprising patio furniture and holiday décor. In addition, it offers in-store amenities. The company distributes its merchandise through a

network of distribution centers, as well as third parties and direct shipping from vendors. Further, it provides general merchandise through its Website, Target.com; and branded proprietary Target Debit Card and Target Credit Card. As of April 2, 2014, the company had 1,924 stores, including 1,797 in the United States and 127 in Canada. Target Corporation was founded in 1902 and is headquartered in Minneapolis, Minnesota.

CompetitorsDirect Competitor Comparison  

TGT AMZN SHLD WMT IndustryMarket Cap: 38.27B 149.10B 4.12B 244.90B 17.00BEmployees: 366,000 117,300 249,000 2,200,000 30.10KQtrly Rev Growth (yoy): 0.02 0.23 -0.07 0.01 0.07Revenue (ttm): 72.94B 78.12B 35.62B 477.18B 7.97BGross Margin (ttm): 0.29 0.28 0.24 0.25 0.29EBITDA (ttm): 5.96B 3.79B -692.00M 35.56B 814.72MOperating Margin (ttm): 0.05 0.01 -0.04 0.06 0.05Net Income (ttm): 1.89B 300.00M -1.49B 15.68B N/AEPS (ttm): 2.96 0.64 -14.03 4.84 2.96P/E (ttm): 20.40 505.48 N/A 15.69 20.61PEG (5 yr. expected): 1.27 90.03 0.03 1.80 1.77P/S (ttm): 0.53 2.11 0.12 0.52 0.87 AMZN = Amazon.com Inc.SHLD = Sears Holdings CorporationWMT = Wal-Mart Stores Inc.Industry = Discount, Variety Stores

Income Statement

View: Annual Data | Quarterly Data All numbers in thousands

Period Ending Feb 1, 2014 Feb 2, 2013 Jan 28, 2012

Total Revenue 72,596,000   73,301,000   69,865,000  

Cost of Revenue 51,160,000   50,568,000   47,860,000  

Gross Profit 21,436,000   22,733,000   22,005,000  

Operating Expenses

Research Development -   -   -  

Selling General and Administrative 15,375,000   15,381,000   14,552,000  

Non Recurring (391,000) (161,000) -  

Others 2,223,000   2,142,000   2,131,000  

Total Operating Expenses -   -   -  Operating Income or Loss 4,229,000   5,371,000   5,322,000  

Income from Continuing OperationsTotal Other Income/Expenses Net -   -   -  Earnings Before Interest And Taxes 4,229,000   5,371,000   5,322,000  Interest Expense 1,126,000   762,000   866,000  Income Before Tax 3,103,000   4,609,000   4,456,000  Income Tax Expense 1,132,000   1,610,000   1,527,000  Minority Interest -   -   -  Net Income From Continuing Ops 1,971,000   2,999,000   2,929,000  Non-recurring EventsDiscontinued Operations -   -   -  Extraordinary Items -   -   -  Effect Of Accounting Changes -   -   -  Other Items -   -   -  

Net Income 1,971,000   2,999,000   2,929,000  Preferred Stock And Other Adjustments -   -   -  Net Income Applicable To Common Shares 1,971,000   2,999,000   2,929,000  

Balance Sheet

View: Annual Data | Quarterly Data All numbers in thousands

Period Ending Feb 1, 2014 Feb 2, 2013 Jan 28, 2012AssetsCurrent Assets

Cash And Cash Equivalents 695,000   784,000   794,000  Short Term Investments -   -   -  Net Receivables -   5,841,000   5,927,000  Inventory 8,766,000   7,903,000   7,918,000  Other Current Assets 2,112,000   1,860,000   1,810,000  

Total Current Assets 11,573,000   16,388,000   16,449,000  Long Term Investments -   -   -  Property Plant and Equipment 31,378,000   30,653,000   29,149,000  Goodwill -   -   -  Intangible Assets -   -   -  Accumulated Amortization -   -   -  Other Assets 1,602,000   1,122,000   1,032,000  Deferred Long Term Asset Charges -   -   -  Total Assets 44,553,000   48,163,000   46,630,000  LiabilitiesCurrent Liabilities

Accounts Payable 11,617,000   11,037,000   10,501,000  Short/Current Long Term Debt 1,160,000   2,994,000   3,786,000  Other Current Liabilities -   -   -  

Total Current Liabilities 12,777,000   14,031,000   14,287,000  Long Term Debt 12,622,000   14,654,000   13,697,000  Other Liabilities 1,490,000   1,609,000   1,634,000  Deferred Long Term Liability Charges 1,433,000   1,311,000   1,191,000  Minority Interest -   -   -  Negative Goodwill -   -   -  Total Liabilities 28,322,000   31,605,000   30,809,000  Stockholders' EquityMisc. Stocks Options Warrants -   -   -  Redeemable Preferred Stock -   -   -  Preferred Stock -   -   -  Common Stock 53,000   54,000   56,000  Retained Earnings 12,599,000   13,155,000   12,959,000  Treasury Stock -   -   -  Capital Surplus 4,470,000   3,925,000   3,487,000  Other Stockholder Equity (891,000) (576,000) (681,000)Total Stockholder Equity 16,231,000   16,558,000   15,821,000  Net Tangible Assets 16,231,000   16,558,000   15,821,000

Cash Flow

View: Annual Data | Quarterly Data All numbers in thousands

Period Ending Feb 1, 2014 Feb 2, 2013 Jan 28, 2012Net Income 1,971,000   2,999,000   2,929,000  Operating Activities, Cash Flows Provided By or Used InDepreciation 2,223,000   2,142,000   2,131,000  Adjustments To Net Income 33,000   150,000   637,000  Changes In Accounts Receivables 157,000   (217,000) (187,000)Changes In Liabilities 566,000   457,000   353,000  Changes In Inventories (885,000) 15,000   (322,000)Changes In Other Operating Activities 2,455,000   (221,000) (107,000)Total Cash Flow From Operating Activities 6,520,000   5,325,000   5,434,000  Investing Activities, Cash Flows Provided By or Used InCapital Expenditures (3,453,000) (3,277,000) (4,368,000)Investments 3,253,000   356,000   151,000  Other Cash flows from Investing Activities (71,000) 66,000   37,000  Total Cash Flows From Investing Activities (271,000) (2,855,000) (4,180,000) Financing Activities, Cash Flows Provided By or Used InDividends Paid (1,006,000) (869,000) (750,000)Sale Purchase of Stock (1,005,000) (1,515,000) (1,753,000)

Net Borrowings (4,353,000) (88,000) 369,000  Other Cash Flows from Financing Activities -   (16,000) (6,000)Total Cash Flows From Financing Activities (6,364,000) (2,488,000) (2,140,000) Effect Of Exchange Rate Changes 26,000   8,000   (32,000)Change In Cash and Cash Equivalents (89,000) (10,000) (918,000)

Note: Dr. Kim, since I’m not a finance major, I was unclear if you meant for us to compute each year separately or together but I computed them together rather than separately.12. Target NWC (Net Working Capital) = CA (Current Assets) – CL (Current Liabilities) =2014: $11,573,000 + 2013: $16,388,000 = $27,961,000; 2014: $12,777,000 + 2013: $14,031,000 = $26,808,000 – 27,961,000 = $1,153,000 13. EBIT (Earnings Before Interest and Taxes) = 2014: $4,229,000 + 2013: $5,371,000 = $9,600,00014. Income Taxes 2014: $1,132,000; 2013: $1,610,000 Total = $2,742,00015. Depreciation 2014: $2,223,000; 2013: $2,142,000 Total = $4,365,00016. OCG (Operating Cash Flow) = 2014: $6,520,000 + 2013: $5,325,000 Total = $11,845,000   17. CapEX (Capital Expenditures) - Depreciation = 2014: ($3,453,000) + 2013: ($3,277,000) = ($6,730,000) - $4,365,000 = ($2,365,000)18. FCF (Free Cash Flow) = 2014: ($271,000) + 2013: ($2,855,000) = ($3,126,000) 19. NI (Net Income) = 2014: $1,971,000; 2013: $2,999,000 Total = $4,970,00020. CR (Current Ratio) = Current Assets (CA)/Current Liabilities (CL) = 2014: $11,573,000 + 2013: $16,388.000 = $27,961,000; 2014: $12,777,000 + 2013: $14,031,000 = $26,808,000/$27,961,000 = 95.88 times

21. TATO (Total Asset Turnover) = Sales/Total Assets = 2014: $15,375,000 + 2013: $15,381,000 = $30,756,000; 2014: $44,553,000 + 2013: $48,163,000 = $92,716,000; $30,756,000/$92,716,000 = 33.17 times

22. D/E (Debt-to-Equity) TD (Total Debt)/TE (Total Equity) = 2014: $28,322,000 + 2013: $31,605,000 = $59,927,000; 2014: $16,231,000 + 2013: $16,558,000 = $32,789,000; 2014: $59,927,000 – 2013: $32,789,000 = $27,138,000/$32,789,000 = 82.77%; Interest Coverage Ratio = EBIT/Interest Charges = $9,600,000/$1,126,000 + 762,000 = $18,880,000 = 197 times23. ROE (Return on Equity) = Net Income/Total Equity =$4,970,000/$32,789,000 = 15.16%; PM (Net Profit Margin) = Total Revenue – Total Expenses/Total Revenue = Net Profit/Total Revenue = 2014: $72,596,000 + 2013: $73,301,000 = $145,897,000; 2014: $4,229,000 + 2013: $5,371,000 = $9,600,000 - $145,897,000 = $49,987,000/$145,897,000 = 34.26% X (TATO) 33.17 X 2.83 = 32.16%Equity Multiplier = Total Assets/Total Stockholders Equity = (2014 + 2013) $92,716,000/$32,789,000 = 2.83

24. Recent year: P/E (Price-to-Earnings) = Market Price Per Share/Earnings Per Share = $60.39/$2.96 = 20.40 times25. Recent Year: M/B (Market-to-Book) = (Market Value Per Share/Book Value Per Share??? Ch.4 Notes Slide #15) Market Capitalization/Total Stockholders’ Equity = $38.27B/$32,789,000 = 116.72 or 1.17 times 26 Beta = 0.8127. E(Rj) (Expected Return on the Stock) = Rf (Risk-free Rate) 0.2 + B (Beta) 0.81 X (E(Rm) (Expected Market Return) 16% – Rf) 0.2 = 3.84%28. Recent Year: DY (Dividend Yield) = RD (Recent Dividend)/SP (Stock Price) = 2.08/$60.39 = 3.44% 30. (16) 17.94; (17) 8.12; (18) 45.95; (19) 2,648,835; (20) 1.09; (21) 1.99; (22) 46.91; (23) 19.06) (24) 984.17

Comparable Company: WalmartI was interested in this company mainly because I was just curious about what type of financial information I could find out in order to complete this project assignment. I also wanted to know how this company’s financial status is compared to Target since I shop here more than I shop at Target.

Wal-Mart Stores Inc. (WMT)-NYSE Follow75.97 0.38(0.50%) Jul 25, 4:01PM EDTAfter Hours : 75.97 0.00 (0.00%) Jul 25, 6:30PM EDTPrev Close: 76.35Open: 76.19Bid: 75.90 x 300Ask: 76.03 x 3001y Target Est: 80.39Beta: 0.37Next Earnings Date: 14-Aug-14Day's Range: 75.80 - 76.3652wk Range: 71.51 - 81.37Volume: 3,948,442Avg Vol (3m): 5,660,730Market Cap: 244.90BP/E (ttm): 15.69EPS (ttm): 4.84Div & Yield: 1.92 (2.50%)

Business Summary  Wal-Mart Stores Inc. operates retail stores in various formats worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sams Club. It operates discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, restaurants, apparel stores, drug stores, and convenience stores, as well as various retail Websites, such as walmart.com and samsclub.com. The company’s stores offer meat, produce, deli, bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, and floral and dry grocery; health and beauty aids, baby products, household chemicals, paper goods, and pet supplies; electronics, toys, cameras and supplies, photo processing services, cellular phones, cellular service plan contracts and prepaid service, movies, music, video games, and books; and pharmacy, optical services, and over-the-counter drugs. Its merchandise also include stationery, automotive accessories, hardware and paint, sporting goods, fabrics and crafts, and seasonal merchandise; apparel for women, girls, men, boys, and infants, as well as shoes, jewelry, and accessories; and home furnishings, housewares and

small appliances, bedding, home décor, outdoor living, and horticulture products. The company also provides financial services and related products, including money orders, prepaid cards, wire-transfers, check cashing, and bill payment. In addition, it offers brand name merchandise, including hard-goods, soft-goods, and selected private-label items, such as Member’s Mark and its own proprietary brands, such as Artisan Fresh, Bakers & Chef, Daily Chef, and Simply Right. Further, the company operates banks that provide consumer financing programs. As of June 5, 2014, it operated approximately 11,000 stores under 71 banners in 27 countries; and ecommerce Websites in 10 countries. Wal-Mart Stores Inc. was founded in 1945 and is headquartered in Bentonville, Arkansas.

CompetitorsDirect Competitor Comparison  

WMT PVT1 COST TGT IndustryMarket Cap: 244.90B N/A 51.52B 38.27B 17.00BEmployees: 2,200,000 364,7951 103,000 366,000 30.10KQtrly Rev Growth (yoy): 0.01 N/A 0.07 0.02 0.07Revenue (ttm): 477.18B 102.28B1 109.60B 72.94B 7.97BGross Margin (ttm): 0.25 N/A 0.13 0.29 0.29EBITDA (ttm): 35.56B N/A 4.09B 5.96B 814.72MOperating Margin (ttm): 0.06 N/A 0.03 0.05 0.05Net Income (ttm): 15.68B 1.74B1 1.98B 1.89B N/AEPS (ttm): 4.84 N/A 4.47 2.96 2.96P/E (ttm): 15.69 N/A 26.31 20.40 20.61PEG (5 yr. expected): 1.80 N/A 2.51 1.27 1.77P/S (ttm): 0.52 N/A 0.47 0.53 0.87 Pvt1 = Carrefour SACOST = Costco Wholesale CorporationTGT = Target Corp.Industry = Discount, Variety Stores1 = As of 2013  

Income StatementView: Annual Data | Quarterly Data All numbers in thousands

Period Ending Jan 31, 2014 Jan 31, 2013 Jan 31, 2012

Total Revenue 476,294,000   468,651,000   446,509,000  

Cost of Revenue 358,069,000   352,297,000   334,993,000  

Gross Profit 118,225,000   116,354,000   111,516,000  

Operating Expenses

Research Development -   -   -  

Selling General and Administrative 91,353,000   88,629,000   85,025,000  

Non Recurring -   -   -  

Others -   -   -  

Total Operating Expenses -   -   -  Operating Income or Loss 26,872,000   27,725,000   26,491,000  

Income from Continuing OperationsTotal Other Income/Expenses Net 119,000   186,000   161,000  Earnings Before Interest And Taxes 26,991,000   27,911,000   26,652,000  Interest Expense 2,335,000   2,249,000   2,320,000  Income Before Tax 24,656,000   25,662,000   24,332,000  Income Tax Expense 8,105,000   7,958,000   7,924,000  Minority Interest (673,000) (757,000) (688,000)Net Income From Continuing Ops 16,551,000   17,704,000   16,408,000  Non-recurring EventsDiscontinued Operations 144,000   52,000   (21,000)Extraordinary Items -   -   -  Effect Of Accounting Changes -   -   -  Other Items -   -   -  

Net Income 16,022,000   16,999,000   15,699,000  Preferred Stock And Other Adjustments -   -   -  Net Income Applicable To Common Shares 16,022,000   16,999,000   15,699,000  

Balance Sheet

View: Annual Data | Quarterly Data All numbers in thousands

Period Ending Jan 31, 2014 Jan 31, 2013 Jan 31, 2012AssetsCurrent Assets

Cash And Cash Equivalents 7,281,000   7,781,000   6,550,000  Short Term Investments -   -   -  Net Receivables 6,677,000   6,768,000   5,937,000  Inventory 44,858,000   43,803,000   40,714,000  Other Current Assets 2,369,000   1,588,000   1,774,000  

Total Current Assets 61,185,000   59,940,000   54,975,000  Long Term Investments -   -   -  Property Plant and Equipment 117,907,000   116,681,000   112,324,000  Goodwill 19,510,000   20,497,000   20,651,000  Intangible Assets -   -   -  Accumulated Amortization -   -   -  

Other Assets 6,149,000   5,987,000   5,456,000  Deferred Long Term Asset Charges -   -   -  Total Assets 204,751,000   203,105,000   193,406,000  LiabilitiesCurrent Liabilities

Accounts Payable 57,174,000   59,099,000   55,952,000  Short/Current Long Term Debt 12,082,000   12,719,000   6,348,000  Other Current Liabilities 89,000   -   -  

Total Current Liabilities 69,345,000   71,818,000   62,300,000  Long Term Debt 44,559,000   41,417,000   47,079,000  Other Liabilities -   -   -  Deferred Long Term Liability Charges 8,017,000   7,613,000   7,862,000  Minority Interest 5,084,000   5,395,000   4,446,000  Negative Goodwill -   -   -  Total Liabilities 127,005,000   126,243,000   121,687,000  Stockholders' EquityMisc. Stocks Options Warrants 1,491,000   519,000   404,000  Redeemable Preferred Stock -   -   -  Preferred Stock -   -   -  Common Stock 323,000   332,000   342,000  Retained Earnings 76,566,000   72,978,000   68,691,000  Treasury Stock -   -   -  Capital Surplus 2,362,000   3,620,000   3,692,000  Other Stockholder Equity (2,996,000) (587,000) (1,410,000)Total Stockholder Equity 76,255,000   76,343,000   71,315,000  Net Tangible Assets 56,745,000   55,846,000   50,664,000  

Cash FlowView: Annual Data | Quarterly Data All numbers in thousands

Period Ending Jan 31, 2014 Jan 31, 2013 Jan 31, 2012Net Income 16,022,000   16,999,000   15,699,000  Operating Activities, Cash Flows Provided By or Used InDepreciation 8,870,000   8,478,000   8,106,000  Adjustments To Net Income 515,000   417,000   1,539,000  Changes In Accounts Receivables (566,000) (614,000) (796,000)Changes In Liabilities (590,000) 2,313,000   2,746,000  Changes In Inventories (1,667,000) (2,759,000) (3,727,000)Changes In Other Operating Activities -   -   -  Total Cash Flow From Operating Activities 23,257,000   25,591,000   24,255,000  Investing Activities, Cash Flows Provided By or Used InCapital Expenditures (13,115,000) (12,898,000) (13,510,000)Investments (15,000) (316,000) (3,548,000)

Other Cash flows from Investing Activities 832,000   603,000   449,000  Total Cash Flows From Investing Activities (12,298,000) (12,611,000) (16,609,000) Financing Activities, Cash Flows Provided By or Used InDividends Paid (6,861,000) (5,775,000) (5,574,000)Sale Purchase of Stock (6,683,000) (7,600,000) (6,298,000)Net Borrowings 3,015,000   1,487,000   3,485,000  Other Cash Flows from Financing Activities (488,000) (84,000) (71,000)Total Cash Flows From Financing Activities (11,017,000) (11,972,000) (8,458,000) Effect Of Exchange Rate Changes (442,000) 223,000   (33,000)Change In Cash and Cash Equivalents (500,000) 1,231,000   (845,000) Note: Dr. Kim, since I’m not a finance major, I was unclear if you meant for us to compute each year separately or together but I computed them together rather than separately. 12. Walmart NWC (Net Working Capital) = CA (Current Assets) – CL (Current Liabilities) = 2014: $61,185,000 - 2013: $59,940,000 = $1,245,000; 2014: $69,345,000 + 2013: $71,811,000 = $141,156,000 - $1,245,000= (-$139,911,000) 13. EBIT (Earnings Before Interest and Taxes) = 2014: $26,991,000 + 2013: $27,911,000 = $54,902,00014. Income Taxes: 2014: $8,105,000; 2013: $7,958,000 Total = $16,063,00015. Depreciation: 2014: $8,870,000; 2013: $8,478,000 Total = $17,348,00016. OCG (Operating Cash Flow) = 2014: $23,257,000 + 2013: $25,591,000 Total = $48,848,000   

17. CapEX (Capital Expenditures) – Depreciation = 2014: (-$13,115,000) + 2013: (-$12,898,000) = (-$217,000) - $17,348,000 = ($17,131,000)18. FCF (Free Cash Flow) = 2014: ($11,017,000) + 2013: ($11,972,000) = (-$955,000) 19. NI (Net Income) = 2014: $16,022,000; 2013: $16,999,000 Total = $33,021,00020. CR (Current Ratio) = Current Assets (CA)/Current Liabilities (CL) = 2014: $61,185,000 + 2013: $59,940,000 = $121,125,000; 2014: $69,345,000 + 2013: $71,818,000 = $141,163,000/ $121,125,000 = 85.81 times

21. TATO (Total Asset Turnover) = Sales/Total Assets = 2014: $91,353,000 + 2013: $88,629,000 = $179,982,000; 2014: $204,751,000 + 2013: $203,105,000 = $407,856,000; $179,982,000/$407,856,000 = 44.13 times

22. D/E (Debt-to-Equity) TD (Total Debt)/TE (Total Equity) = 2014: $127,005,000 + 2013: $126,243,000 = $253,248,000; 2014: $76,255,000 + 2013:76,343,000 = $152,598,000; 2014: $253,248,000 – 2013; $152,598,000 = $100,650,000/$152,598,000 = 65.96%Interest Coverage Ratio = EBIT/Interest Charges = $54,902,000/2014: $2,335,000 + 2013: $2,249,000 = $4,584,000 = 11.98 times or 120 times23. ROE (Return on Equity) = Net Income/Total Equity = $33,021,000/$152,598,000 = 21.64%; PM (Net Profit Margin) = Total Revenue – Total Expenses/Total Revenue = Net Profit/Total Revenue = 2014: $476,294,000 + 2013: $468,651,000 = $944,945,000; 2014: $26,872,000 + 2013: $27,725,000 = $54,597,000 - $944,945,000 = $890,348,000/$54,597,000 = 16.31% X (TATO) 44.14 X 2.67 = 19.22%Equity Multiplier = Total Assets/Total Stockholders Equity = (2014 + 2013) $407,856,000/$152,598,000 = 2.67

24. Recent year: P/E (Price-to-Earnings) = Market Price Per Share/Earnings Per Share = $75.97/$4.84 = 15.70 times