Target and Best Buy arc two companies that participate in the merchandising indu

Question

Target and Best Buy arc two companies that participate in the merchandising industries and are direct competitors. The financial structure and performance of the two companies differ. The links to the two companies' 2013 financial statements arc as follows: Target - https://corporatc.target.com/annual-reports/2013/10-K/form-10-K [PDF] Best Buy - - http://www.sec.gov/Archives/cdgar/data/764478/000076447813000014/bby-2013xl0kt.htm [PDF] Please address the following: Read the Management Discussion & Analysis (MD&A;) for both of the companies. Decrease how the MD&A; gives investors information about the strategic direction of both of the companies. Comment on the leverage position of both companies. Compute the debt to equity ratio for both companies. Based on your analysis in Part I (see below), compare and contrast the overall financial position of the companies.

Explanation / Answer

Part 1 Analysis answers

1: What are some of the differences in the capital structure of the two companies?

            The capital structure of Target is primarily comprised of long-term debts, borrowings, and common stock. The capital structure of Best Buy is comprised of long-term debt, borrowings, preferred stock, and common stock.

2: What classes of stock exist in these companies? How many shares are authorized, issued, and outstanding in each company? What is the book value of these shares?

            Target has authorized 6,000,000,000 common stock shares with an $0.0833 par value; there are currently 645,294,423 issued and outstanding shares with a par value of $0.0833. The book value of these shares equals approximately: 54+3925 = $3979 million. Target has only issued common stock shares; they have authorized preferred stock, however, currently none has been issued. 5,000,000 shares of preferred stock have been authorized with a par value of $0.01.

Best Buy has authorized 1,000,000,000 common stock shares with an $0.10 par value; there are currently 338,276,000 issued and outstanding shares with a par value of $0.10. The book value of these shares equals approximately: 54+34 = $88 million. Best Buy has only issued common stock shares; they have authorized preferred stock, however, currently none has been issued. 400,000 shares of preferred stock have been authorized with a par value of $1.00.

3: Compare and contrast the dividend policy of each of the companies. Which companies has a more generous dividend policy?

Target has paid $1.65 as dividends, whereas Best Buy has only paid $0.58 dividends. This allows the determination that Target is more generous in the distribution of dividends than Best Buy.

4: Compute the following metrics for each of the companies: EBITDA Price Earnings Ratio Dividend Payout Ratio.

             Target had the following EBITDA price earning ratio: EBITDA/ p/e ratio

=(4229+2223) / (67.41/ 3.10) = 296.71. Target’s dividend payout ratio is as follows: Total dividend / Net Income = 1051/1971 = 0.533.

Best Buy had the following EBITDA price earning ratio: EBITDA/ p/e ratio

=(3609-1175) / (17.64/ 441) = 608. Best Buy’s dividend payout ratio could not be calculated as the company suffered losses and did not declare dividends on their 2013 form 10-K

5: Given the analysis of the items in 1-4, which company you would more likely invest in? Explain your answer.

            I would be more likely to invest in Target because a: the cost of stock is less, b: they pay better dividends, and c: Target is not experiencing the current losses that Best Buy is suffering from.

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