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Target Corporation 1-Year MBA ACCY 640 Spring 2021 Application -- Analysis · Understand the Business · Use Financial Statements to Develop Key Financial Ratios · Key Value Measures Complete individually. Submit (both Word and Excel) via Bb by 6:00PM on April 8, 2021. Application: Target Corporation The Application case integrates and applies key business, accounting, and finance concepts. An introduction to the Application is in the box below, followed by the full instructions. Application (47 points) · Calculate and analyze key financial ratios and value measures for Target Corp. · Compare Target’s ratios & measures to competitors’ ratios & measures. · Identify key facts regarding Target (that an investor would want to know). · Present highlights in a written professional summary (limited to 3 pages; at your election, you may embed charts/graphics in your text, or have charts/graphics on 3rd page). · In addition to (separate from) the written professional summary, submit all calculations (prepared in Excel, well-labeled and well-documented; see page 5 of these instructions.) Using Target’s 2019 10-K Annual Report (Feb 1, 2020 fiscal year-end), and any other source you believe is reliable and relevant (but if so, identify/cite that source): A. Define the nature of Target’s business. B. Concisely define 3 facts you believe would be of high interest to a prospective investor. · You are not restricted to purely Target Corp facts; you are very-much encouraged to consider industry and macro-environment facts. · Also: Top analysts always read the footnotes to the F/S, and always study subsequent 10-Q’s, so one of your 3 facts might come from those sources. Note that for this first section, there are no truly right or wrong answers (especially part B) – the goal is to provoke thought (i.e., critical thinking). · After the Application is turned in, we’ll discuss what the Six-Forty Analysts (that’s you!) listed for parts A and B. That is, was there lots of overlap/agreement, or was there a wide variety of answers?? Calculate (using Excel) the seven ratios as shown below, and then compare/analyze: · Compare/discuss Target’s 3-year trend (FY 2019 ratios compared to the prior 2 years), as outlined below. ………………………………………………………………………………………. Target Corp FY 2019 FY 2018 FY 2017 % Revenue Growth Gross Profit % Profit Margin % ROE CAPEX / Depreciation EBITDA Coverage Debt-to-Equity Round all percentages/ratios to one decimal place (e.g., 17.3%, or 5.2x). · % Revenue Growth: (Revenue minus Prior-Year Revenue) / Prior-Year Revenue · Gross Profit %: Gross Profit / Sales · Profit Margin %: Net Income / Revenue · ROE (Return on Equity): Net Income / Average Stockholders’ Equity (2-pt avg) · Capital Expenditures / Depreciation Expense*: self-defining · EBITDA Coverage: EBITDA / Interest Expense · EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization · Debt-to-Equity: (Long-Term Debt** + Short-Term Debt) / Stockholders’ Equity (**including the current portion of L-T Debt, if any, and Lease liabilities, if any) For all ratios, use the GAAP (unadjusted) amounts, but in your analysis, describe (if or as applicable) what adjustments you would have made to make the ratios more “trend-worthy” (i.e., comparable). These adjustments can just be briefly defined/described; you need not calculate adjusted ratios^. For example, you could say “For FY 201X, to better define ongoing operating earnings, the 1-time $XX million gain should be excluded.”^ However, equity analysts regularly calculate adjusted ratios, as we’ll discuss. Please see Appendix A (pages 7 & 8 of these instructions) for Additional Guidance & Tips. * For this ratio, use just depreciation expense (not depreciation and amortization). May need to analyze the Cash Flow Statement and/or the Notes to F/S info to determine/isolate depreciation expense. Also, to be clear, you want all depreciation expense; the Depreciation and amortization shown on Target’s Income Statement is not all D&A (because there is more depreciation embedded in Cost of Sales). Calculate (using Excel) the same seven ratios for Walmart, Costco, and Dollar General (and also a 4-company Average), and then compare/analyze: · Compare/discuss Target’s seven FY 2019 ratios to 3 major competitors, as outlined below. [See page 6 of these instructions for a complete list of the retailers in Target’s Peer Group, as determined and disclosed by Target in their 10-K.] What do these ratios tell you about how Target measures up against its competitors/industry? Again, use unadjusted GAAP amounts, but add a brief comment if you believe an amount should be adjusted. …………………………………………………………………………………………………… FY 2019/2020 Target Walmart Costco Dollar G Average Ticker Symbol TGT WMT COST DG Annual Report Cover “2019” “2020” “2019” “2019” Fiscal year-end Feb 1, 2020 Jan 31, 2020 Sep 1, 2019 Jan 31, 2020 % Revenue Growth Gross Profit % Profit Margin % ROE CAPEX / Depreciation EBITDA Coverage Debt-to-Equity Round all percentages/ratios to one decimal place (e.g., 17.3% or 5.2x). The Average (a simple 4-point unweighted average of the 4 companies) is intended to serve as a (very rough) approximation of the industry. Please see Appendix A (pages 7 & 8 of these instructions) for Additional Guidance & Tips. Note: In your written summary, it’s not necessary to discuss every ratio; highlight those ratios that “popped out” at you. If you find the ratios to be complementary (i.e., a pattern in, or observation about, one ratio helps you better understand another ratio), use those relationships. You may find that some companies in the industry provide more useful comparisons to TGT than others. If this is the case, please feel free to comment on those particular companies. Find* (and for MV/BV, calculate) the six value measures for Target, Walmart, Costco, and Dollar General (and also a 4-company Average), and then compare/analyze: * Use Yahoo Finance data as of Apr 1, 2021 COM (close of market) Other than stock price (which is not comparative across companies): Compare/discuss Target’s value measures to 3 major competitors, as outlined below. What do these value statistics tell you about how Target measures up against its competitors/industry? …………………………………………………………………………………………………… Apr 1, 2021 COM Target Walmart Costco Dollar G Average Ticker Symbol TGT WMT COST DG Stock Price ----N/A---- Market Capitalization P/E^ Dividend Yield Beta* MV / BV Round amounts/ratios/percentages to one decimal place (e.g., $70.3 billion, 11.7x, or 3.7%), except use 2 decimal places for Stock Price and Beta. The Average (a simple 4-point unweighted average of the 4 companies) is intended to serve as a (very rough) approximation of the industry. ^Yahoo Finance shows P/E (Price/Earnings ratio) using EPS for the TTM (trailing twelve months) * Beta, a measure of stock-price volatility, is discussed on page 12-12 of our text. - · MV / BV: Market Value of Equity (i.e., Market Capitalization) / Book Value of Equity (at the fiscal year-end used for ratios on the prior page) · This is the only value measure you need to calculate (using Excel) for the table above. · This will not be a ‘perfect’ value statistic (because the MV is at Apr 1, 2021, and the BV is at FYE), but nevertheless will be very representative/useful. There are 47 possible points for the Application: * Recall that for the 3 facts of interest to an investor, you are very-much encouraged (though not required) to list one or more industry or macro-environment facts (and indicate their source). Target – Application Points Define the business 2 3 facts of interest to an investor* 6 Accurate Target ratios (2017-2019) (spreadsheet) 10 Analysis of Target ratio trends (written) 4 Accurate 2019/20 competitor ratios (spreadsheet) 10 Analysis/comparison of Target’s 2019 ratios to competitors (written) 4 Accurate value measures as of Apr 1, 2021 (table and MV/BV calc) 8 Analysis/comparison of value measuresto to competitors (written) 3 Total 47 In addition to earning points for i) clear, concise, insightful analysis, and ii) accurate calculations, grading will also take into consideration the following: · Your written analysis (and charts/graphs, at your discretion), prepared in Word, should look as if it’s going to a partner or CFO – so of course should use proper grammar, spelling, and punctuation. · Your Excel spreadsheet should also look as if it’s going to a partner or CFO – so uses appropriate labels, and clearly shows amounts used to develop the ratios. That is, in addition to summary tables (like above on pages 2, 3, and 4), also show the supporting calculations/details: · For example, for Profit Margin %