Reference no: EM133173913
Question - Analysis and Interpretation of Profitability - Balance sheets and income statements for Target Corporation follow.
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Income Statement For Fiscal Years Ended ($ millions)
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2008
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2007
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2006
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Sales
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$ 61,471
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$ 57,878
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$ 51,271
|
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Credit card revenues
|
1,896
|
1,612
|
1,349
|
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Total revenues
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63,367
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59,490
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52,620
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Cost of sales
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41,895
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39,399
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34,927
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Selling, general and administrative expenses
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13,704
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12,819
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11,185
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Credit card expenses
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837
|
707
|
776
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Depreciation and amortization
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1,659
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1,496
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1,409
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Earnings before interest and income taxes
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5,272
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5,069
|
4,323
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Net interest expense
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647
|
572
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463
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Earnings before income taxes
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4,625
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4,497
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3,860
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Provisions for income taxes
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1,776
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1,710
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1,452
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Net earnings
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$ 2,849
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$ 2,787
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$ 2,408
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Balance Sheet ($ millions, except footnotes)
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February 2, 2008
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February 3, 2007
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Assets
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|
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Cash and cash equivalents
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$ 2,450
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$ 813
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Credit card receivables
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8,054
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6,194
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Inventory
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6,780
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6,254
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Other current assets
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1,622
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1,445
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Total current assets
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18,906
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14,706
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Property and equipment
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|
|
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Land
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5,522
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4,934
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Buildings and improvements
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18,329
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16,110
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Fixtures and equipment
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3,858
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3,553
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Computer hardware and software
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2,421
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2,188
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Construction-in-progress
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1,852
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1,596
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Accumulated depreciation
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(7,887)
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(6,950)
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Property and equipment, net
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24,095
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21,431
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Other noncurrent assets
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1,559
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1,212
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Total assets
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$ 44,560
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$ 37,349
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Liabilities and shareholders' investment
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|
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Accounts payable
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$ 6,721
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$ 6,575
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Accrued and other current liabilities
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3,097
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3,180
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Current portion of long-term debt and notes payable
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1,964
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1,362
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Total current liabilities
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11,782
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11,117
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Long-term debt
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15,126
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8,675
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Deferred income taxes
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470
|
577
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Other noncurrent liabilities
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1,875
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1,347
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Shareholders' investment
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|
|
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Common stock
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68
|
72
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Additional paid-in-capital
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2,656
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2,387
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Retained earnings
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12,761
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13,417
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Accumulated other comprehensive income (loss)
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(178)
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(243)
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Total shareholders' investment
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15,307
|
15,633
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Total liabilities and shareholders' equity
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$ 44,560
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$ 37,349
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Required -
(a) Compute net operating profit after tax (NOPAT) for 2008. Assume that the combined federal and statutory rate is: 39%.
(b) Compute net operating assets (NOA) for 2008 and 2007.
(c) Compute Target's RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2008.
(d) Compute net nonoperating obligations (NNO) for 2008 and 2007.
(e) Compute return on equity (ROE) for 2008.
(f) Infer the nonoperating return component of ROE for 2008.
(g) Which of the following statements reflects the best inference we can draw from the difference between Target's ROE and RNOA?
ROE > RNOA implies that Target's equity has grown faster than its NOA.
ROE > RNOA implies that Target has taken on too much financial leverage.
ROE > RNOA implies that Target is able to borrow money to fund operating assets that yield a return greater than its cost of debt; the excess accrues to the benefit of Target's stockholders.
ROE > RNOA implies that Target has increased its financial leverage during the period.