Analysis and Interpretation of Profitability
Balance sheets and income statements for Target Corporation follow.
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Income Statement |
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| For Fiscal Years Ended ($ millions) | 2006 | 2005 | 2004 |
| Sales | $ 51,271 | $ 45,682 | $ 40,928 |
| Credit card revenues | 1,349 | 1,157 | 1,097 |
| Total revenues | 52,620 | 46,839 | 42,025 |
| Cost of sales | 34,927 | 31,445 | 28,389 |
| Selling, general and administrative expenses | 11,185 | 9,797 | 8,657 |
| Credit card expenses | 776 | 737 | 722 |
| Depreciation and amortization | 1,409 | 1,259 | 1,098 |
| Earnings before interest and income taxes | 4,323 | 3,601 | 3,159 |
| Net interest expense | 463 | 570 | 556 |
| Earnings before income taxes | 3,860 | 3,031 | 2,603 |
| Provisions for income taxes | 1,452 | 1,146 | 984 |
| Net earnings | $ 2,408 | $ 1,885 | $ 1,619 |
|
Balance Sheet |
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| ($ millions, except footnotes) | January 28, 2006 | January 29, 2005 |
| Assets | ||
| Cash and cash equivalents | $ 1,648 | $ 2,245 |
| Credit card receivables | 5,666 | 5,069 |
| Inventory | 5,838 | 5,384 |
| Other current assets | 1,253 | 1,224 |
| Total current assets | 14,405 | 13,922 |
| Property and equipment | ||
| Land | 4,449 | 3,804 |
| Buildings and improvements | 14,174 | 12,518 |
| Fixtures and equipment | 3,219 | 2,990 |
| Computer hardware and software | 2,214 | 1,998 |
| Construction-in-progress | 1,158 | 962 |
| Accumulated depreciation | (6,176) | (5,412) |
| Property and equipment, net | 19,038 | 16,860 |
| Other noncurrent assets | 1,552 | 1,511 |
| Total assets | $ 34,995 | $ 32,293 |
| Liabilities and shareholders’ investment | ||
| Accounts payable | $ 6,268 | $ 5,779 |
| Accrued and other current liabilities | 2,567 | 1,937 |
| Current portion of long-term debt and notes payable | 753 | 504 |
| Total current liabilities | 9,588 | 8,220 |
| Long-term debt | 9,119 | 9,034 |
| Deferred income taxes | 851 | 973 |
| Other noncurrent liabilities | 1,232 | 1,037 |
| Shareholders’ investment | ||
| Common stock | 73 | 74 |
| Additional paid-in-capital | 2,121 | 1,810 |
| Retained earnings | 12,013 | 11,148 |
| Accumulated other comprehensive income (loss) | (2) | (3) |
| Total shareholders’ investment | 14,205 | 13,029 |
| Total liabilities and shareholders’ equity | $ 34,995 | $ 32,293 |
(A) Compute ROE for 2006.
Do not round until your final answer. Round answers to two decimal places.
ROE = Answer 17.68%
(B) Confirm that ROE equals ROE computed using the component measures for profit margin, asset turnover, and financial leverage using: ROE = PM * AT * FL.
Compute the components of ROE.
Do not round until your final answer. Round answers to two decimal places.
PM = Answer 4.58 %
AT = Answer 1.56%
FL = Answer 2.47 %
(C) Compute adjusted ROA. Assume a tax rate of: 38.3%.
Do not round until your final answer. Round your answer to two decimal places.
Adjusted ROA =Answer 8.01%