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Question

Analysis and Interpretation of Profitability

Balance sheets and income statements for Target Corporation

follow.


Income Statement

For Fiscal Years Ended ($ millions) 2006 2005 2004

Sales $ 51,271 $ 45,682 $ 40,928

Credit card revenues 1,349 1,157 1,097

Total revenues 52,620 46,839 42,025

Cost of sales 34,927 31,445 28,389

Selling, general and administrative expenses 11,185 9,797 8,657

Credit card expenses 776 737 722

Depreciation and amortization 1,409 1,259 1,098

Earnings before interest and income taxes 4,323 3,601 3,159

Net interest expense 463 570 556

Earnings before income taxes 3,860 3,031 2,603

Provisions for income taxes 1,452 1,146 984

Net earnings $ 2,408 $ 1,885 $ 1,619

 


Balance Sheet

($ millions, except footnotes) January 28, 2006 January 29, 2005

Assets

Cash and cash equivalents $ 1,648 $ 2,245

Credit card receivables 5,666 5,069

Inventory 5,838 5,384

Other current assets 1,253 1,224

Total current assets 14,405 13,922

Property and equipment

Land 4,449 3,804

Buildings and improvements 14,174 12,518

Fixtures and equipment 3,219 2,990

Computer hardware and software 2,214 1,998

Construction-in-progress 1,158 962

Accumulated depreciation (6,176) (5,412)

Property and equipment, net 19,038 16,860

Other noncurrent assets 1,552 1,511

Total assets $ 34,995 $ 32,293

Liabilities and shareholders' investment

Accounts payable $ 6,268 $ 5,779

Accrued and other current liabilities 2,567 1,937

Current portion of long-term debt and notes payable 753 504

Total current liabilities 9,588 8,220

Long-term debt 9,119 9,034

Deferred income taxes 851 973

Other noncurrent liabilities 1,232 1,037

Shareholders' investment

Common stock 73 74

Additional paid-in-capital 2,121 1,810

Retained earnings 12,013 11,148

Accumulated other comprehensive income (loss) (2) (3)

Total shareholders' investment 14,205 13,029

Total liabilities and shareholders' equity $ 34,995 $ 32,293




HINT: For Sales use "Total revenues" for your computations, when applicable. 


(a) Compute net operating profit after tax (NOPAT) for 2006. Assume that the combined federal and statutory rate is: 38.3%. (Round your answer to the nearest whole number.)

2006 NOPAT = $Answer

0

 million


(b) Compute net operating assets (NOA) for 2006 and 2005.

2006 NOA = $Answer

0

 million

2005 NOA = $Answer

0

 million 


(c) Compute Target's RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2006. (Do not round until final answer. Round two decimal places. Do not use NOPM x NOAT to calculate RNOA.)

2006 RNOA = Answer

0

%

2006 NOPM = Answer

0

%

2006 NOAT = Answer

0


(d) Compute net nonoperating obligations (NNO) for 2006 and 2005. 

2006 NNO = $Answer

0

 million 

2005 NNO = $Answer

0

 million 


(e) Compute return on equity (ROE) for 2006. (Do not round until final answer. Round answer two decimal places.)

2006 ROE = Answer

0

%


(f) Infer the nonoperating return component of ROE for 2006. (Use answers from above to calculate. Round your answer to two decimal places.)

2006 nonoperating return = Answer

0

%


(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.

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