Calculate the Cost of Sales and the Gross Margin as a percentage of Target’s Sal

Question

Calculate the Cost of Sales and the Gross Margin as a percentage of Target’s Sales for the 2017, 2016 and 2015 Fiscal Years. Comment on the changes and the significance of changes in these ratios.

Consolidated Statements of Operations - USD ($) shares in Millions, $ in Millions 12 Months Ended Feb. 03, 2018 Jan. 28, 2017 Jan. 30, 2016 Income Statement [Abstract] Sales $ 71,879 $ 69,495 $ 73,785 Cost of sales (a) 51,125 49,145 52,241 Gross margin 20,754 20,350 21,544 Selling, general and administrative expenses 14,248 13,356 14,665 Depreciation and amortization (exclusive of depreciation included in cost of sales) 2,194 2,025 1,969 Gain on sale 0 0 (620) Earnings from continuing operations before interest expense and income taxes 4,312 4,969 5,530 Net interest expense 666 1,004 607 Earnings from continuing operations before income taxes 3,646 3,965 4,923 Provision for income taxes 718 1,296 1,602 Net earnings from continuing operations 2,928 2,669 3,321 Discontinued operations, net of tax 6 68 42 Net earnings $ 2,934 $ 2,737 $ 3,363 4.1% 3.9% 4.6%

Explanation / Answer

($ in millions) 2017 2016 2015 Feb 03,2018 28-Jan-17 30-Jan-16 Cost of Sales 51125 49145 52241 Sales 71879 69495 73785 % Cost of Sales to Sales 71.13% 70.72% 70.80% The % of cost of sales to sales in 2015 was 70.80% which had slightly drop to 70.72% which is a good indicator as this would lead to increase in margin by reduction in costs but subsequently in 2017, this percentage has increased to 71.13% which is higher as compared to both 2016 and 2015. This represents that the drop in sales in 2017 is not in proportion to drop in expense of producing the goods. Though the sales has drop the company is not able to manage the reduction in expense. This signifies the cost incurred in producing or buying the goods which are sold This would have impact on the profitability of the company ($ in millions) 2017 2016 2015 Feb 03,2018 28-Jan-17 30-Jan-16 Gross Margin 20754 20350 21544 Sales 71879 69495 73785 Gross Margin Ratio 28.87% 29.28% 29.20% Cost of sales % would have impact on Gross Margin. Since in 2016 the cost of sales has drop, the gross margin for the company had increased slightly and since cost of sales % had increase in 2017, the gross margin percentage has drop in 2017 Gross margin is Sales less the direct expense of producing or buying goods which are sold Due to lower gross margin, there is possibility of impact on the net income of the company which may not be good a indicator

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