Case 6-1 You chair the Board of Directors at Target Corporation. After the firm

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Case 6-1 You chair the Board of Directors at Target Corporation. After the firm released its 2014 financial statements, you are faced with an important decision. The first agenda item at the next board meeting is whether to retain or dismiss the company's chief executive officer. As head of the board, you will introduce this issue, state your position, and moderate the ensuing discussion. As you contemplate this important recommendation, you consider the following items about your company and its industry. Target Corporation is a Minnesota company incorporated in 1902. Target described itself in its 2014 annual report by stating, "We offer our customers everyday essentials and fashionable differentiated merchandise at discounted prices." Target is the second largest discount retailer in the United States behind Walmart when measured by sales revenues, total assets, and market capitalization the Retailing is the economic sector that links the producer of products to end-use customers. It is largest segment of the American economy. The totality of retail transactions constitutes about two-thirds of the gross domestic product (GDP) in the United States, according to U.S. Department of Commerce. Financial analysts view merchandising as a mature industry, defined by intense competition, low profit margins, and business consolidation. Numerous economic factors affect retailers. Notable among them are real changes (inflation- adjusted) in GDP, levels of disposable income, and consumer confidence. In short, people shop when they have money, and they are confident that they will have it in the future. Consequently, retailers tend to thrive during economic expansions and suffer during economic contractions. The 2007-2009 economic down turn hurt sales for all retailers. Sales have rebounded in the five years after the recession, but many analysts feel that industry performance remains sluggish. Marketers note the post-recession watchword for retail customers is value. Consumers, regardless of economic standing, want quality at a relatively low price. A recent threat to traditional bricks and mortar retailers, such as Target, has been the rise of online retailing. Firms such as Amazon have taken sales and market share away from Target, Walmart and others who primarily sell their goods at fixed locations. In addition to this general industry threat, Target has faced numerous company issues. The primary ones are an ill-fated attempt to launch stores irn Canada, an extensive data breach to its customers' information, and the erratic performance of its Target credit card business. More importantly, some analysts have criticized Target from losing sight of its objective as the upscale discounter, a purveyor of cheap chic, wh competitors. ich differentiated the firm from its You turn your attention to Target's four most recent income statements, balance sheets, and statements of cash flows excerpts

Explanation / Answer

Hi,

Sure, I will help you with the formulas and how to arrive at the ratios. See the attached file for all ratios relating to Target Corporation. You can use the same equations for wellmart.

Year 2014

Year 2013

Year 2012

Year 2011

2014 Ratio Equation First Part/Numerator Second Part/Denominator Ratio Return on Equity Net Income/Shareholder's Equity 1,971 16,231 12.1% Return on Total Assets EBIT/Total Assets 4,229 44,553 9.5% Operating Profit Margin Operating Income/Sales Revenue 1,971 72,596 2.7% Asset Turnover Turnover/Total Assets 72,596 44,553 1.63 Working Capital Current Assets - Current Liabilities 11,573 12,777 14,031 Current(Working Capital) Ratio Current Assets/Current Liabilities 11,573 12,777 0.906 Inventory Turnover Cost Of Sales/Inventory 51,160 8,766 5.84 Days in Inventory 365/Inventory Turnover 365 5.84 62.5 Account Receivable Turnover Turnover/Accounts Receivable 72,596 -   NA Days in Accounts Receivable 365/Account Receivable Turnover 365 NA NA Operating Cycle Days Inventory Outstanding + Days Sales Outstanding 63 -   62.54 Accounts Payable Turnover Cost Of Sales/Accounts Payable 51,160 7,683 6.66 Days in Accounts Payable 365/Account Payable Turnover 365 7 54.81 Net Cash Conversion Cycle Days Inventory Outstanding + Days Sales Outstanding - Days in Accounts Payable 62.54 (54.81) 7.73 Debt to Capital Total Debt/Capital 28,322 44,553 0.64 Debt to Equity Total Debt/Equity 28,322 16,231 1.74 Times Interest Earned Earnings/Interest Expense 1,971 1,126 1.75 Cash Flow Adequacy (Cash Flow from Operations) / ( Long-term debt paid + Fixed assets purchased + Cash dividends distributed) 6,520 4,459 1.46

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