MF620 Financial Statement Development. Instructions: Target Corporation describes itself as “an upscale discounter that provides high-quality, on-trend merchandise at attractive prices in clean, spacious and guest-friendly stores.” Target has over 350,000 employees and operates over 1,700 stores in the United States. The firm recently opened stores in Canada, and—like Walmart (see chapter 14 in your text)—it has an online business component. Target also offers branded proprietary credit and debit cards. MF620 Financial Statement Development
Part A Target Corporation: ROIC
For the fiscal year ending January 31, 2012, Target’s EBIT was $5,322,* and its tax rate was 34.3 percent. Its short-term borrowings were $3,786, and its long-term debt was $13,697. In addition, the firm’s book value of equity was $15,821.
* All amounts related to Target are in millions of dollars, unless otherwise noted.
Part B Target Corporation: ROE
For the fiscal year ending January 31, 2012 (2011), Target had total revenues of (in millions) $69,865 ($67,390) and net earnings of $2,929 ($2,920). Its total assets were $46,630 ($43,705) and its equity was $15,821 ($15,487).
Part C Target Corporation: Cost of Capital
According to its annual report, as of January 31, 2012, Target’s borrowing costs averaged 4.6 percent, and its tax rate was 34.27 percent. A research report estimated Target’s cost of capital at 10.5 percent. The firm had interest-bearing debt of $17,483. Moreover, Target’s stock was trading at $50.81 per share, and there were 679.1 million shares outstanding. Now, let’s assume Target’s amount of debt is also a market value estimate of the debt. Let’s also assume the current debt and equity values are at Target’s optimal capital structure. MF620 Financial Statement Development
Part D Target Corporation: EVA
Earlier, you were provided with the information necessary to estimate Target’s operating profit (EBIT) after-tax, also known as NOPAT; invested capital (the book value of equity plus interest-bearing debt); cost of capital; and market value of equity. Based on this information,
Part E Target Corporation: EV/EBITDA Analysis
Let’s suppose you forecast Target’s EBIT for the year ending January 31, 2013, to be $5,352, and you forecast Target’s depreciation and amortization to be $2,361. A research analyst determines that an appropriate forward-looking EV/EBITDA multiple for Target is 6.9 times. Based on this information,
MF620 Financial Statement Development