Trevor Welborn

Accounting 470-102
Professor Isberg
May 4, 2020
Target Financial Statement Analysis

While discussing and analyzing the health and operations of a company, Target in this
case, an essential place to start is their financial statements. Through a company’s financial
statements, their Balance Sheet, Income Statement and Statement of Cash Flows, specifically,
one is able to gain insights into the innerworkings of the business, the general health of the
business, and the consequences of decisions made by the business.
When analyzing a company’s financial statements, one should start with the Balance
Sheet of the most recent year available. On the Balance Sheet, one should first look at Total
Assets, from there, scan each Asset section to determine the nature of the business and the
composition of their assets, doing so can also show the growth strategy of a business whether
that be organic or through acquisitions. As can be seen in Exhibit 1, Target has a huge amount of
their assets tied in their Plant, Property and Equipment, 2/3 to be exact; this makes sense given
their business model as a primarily brick and mortar retailer, this also shows that they own their
locations versus leasing the retail space. Target’s second largest category of assets is their
inventory, this is not surprising given the average Target location is over 100,000 square feet and
filled with inventory. As mentioned above, this graph, highlighting the asset configuration of
Target’s balance sheet, shows that Target’s growth is almost entirely organic. With little to no
intangibles, which signifies Goodwill, a common byproduct of the purchasing of a company, it
appears that Target has made very few to no acquisitions of other companies to grow their
business. Though Target has a relatively small Cash and Equivalents section, it does not appear
to be a liquidity risk and shows they successfully funnel profits back into the business.
From here, the next step is to view the total Liabilities and total Equities sections, their
relative sizes, and the largest components of each, much like the Asset analysis above. In
Target’s case, one can see that they heavily utilize liabilities, or debt, rather than equities, or
investments, shown in Exhibit 2. Though Target has a healthy balance in their Capital Surplus, or
Additional Paid in Capital of Common Stock, section and Retained Earnings section, their Long-
Term Debt is significant, with Accounts Payable not far behind. These figures show that given
Target’s relatively low risk to their suppliers, Target is able to utilize interest-free “loans” and
defer their payment for their inventories in an efficient manner to allow these funds to be utilized
elsewhere. This also shows that much of Target’s growth and large business decisions are funded
by long term loans, something to be discussed in more detail following.
Once a glimpse at the most recent balance sheet information has been made, one should
view how a company’s balance sheet figures have changed over a length of time. Exhibit 3
shows indices of Target’s Inventory and Gross PPE in relation to an index of their sales. As can
be expected, PPE, Inventory and Sales have a fairly positive relationship, however one may be
surprised by the relatively small increase in Sales relative to a steep one in PPE, this will be
discussed further below.
As was mentioned previously, Target’s Long-Term Debt seems to be the driving factor in
their ability to invest in their business, Exhibit 4 shows that this investment is going into their
PPE, but as has been alluded to, this doesn’t seem to be in an attempt to grow more stores but
rather reinvest into their current locations. Exhibit 4 shows a massive spike in LTD in 2008
however with little increase in PPE or number of stores. Over coming years, 2007-2015, PPE
steadily increases however Target’s number of locations stays almost exactly the same, this
shows Target’s decision to reinvest into their current locations through their long-term
borrowing. This seems to have been a good decision as their PPE steadily rose, they didn’t
overextend themselves in trying to open many more stores that may have not been viable, sales
steadily rose and they were able to taper off their Long-Term Debt balance.
Now that the Balance Sheet has been analyzed, one can move onto the Income Statement.
Unlike the Balance Sheet, when analyzing the Income Statement, one should first start with the
Sales figure and analyze how this figure has changed with time, horizontally, something we have
already begun doing in analyzing Exhibits 3 and 4 above. Next, now that we have determined
that Target’s Sales figures are healthily growing, one should look to the Gross Profit, Operating
Profit and Net Profit figures and how they change through time, as shown in Exhibit 5. This
graph is distracting, however, given the massive loss faced in 2015. While all other sections
seem to be relatively stagnant, Net Profit took a major loss in 2015 in an adjustment section
known as discontinued operations. This loss from discontinued operations stemmed from an
attempt at moving Targets into Canada, a venture which proved disastrous according to an article
from CanadianBusiness.com (Castaldo, J.).
With Net Profit removed from view, yearly differences through indices of Sales, Gross
Profit and Operating Profit can be more easily seen in Exhibit 6. While Sales and Gross Profit, in
theory, should mirror each other in a stable business, there is a disconnect in 2008 which widens
in the next decade, though the two figures do have a relatively strong positive relationship. The
disconnect can be speculated as the recession faced in 2008 and Target feeling the need to be as
competitively priced as possible to encourage their customers to buy. Operating Profit shows
more dramatic changes as time passes, most drastically in 2014, most likely representing the lack
of success in their Canadian venture.
With the Balance Sheet and Income Statement analyzed, the Statement of Cash Flows is
left to review. When it comes to the Statement of Cash Flows, the most logical analysis is simply
through reviewing each section, Operating, Investing and Financing and relating each back to
another. Target’s Operating section shows their Net Earnings, then adds back non-cash expenses
taken out in the Income Statement such as Depreciation and Amortization. Each section from
here is then describing how Target utilizes the Cash produced in the Operating section. The
Investing section shows that about half of the amount available shown from the Operating
section was put into reinvestment of property and equipment. The Financing section shows that
in 2020, approximately the same amount that Target paid to reduce their long-term debt was
reacquired through additional long-term debt. This section also shows that Target has
consistently paid out dividends to their stockholders and, surprisingly, makes large repurchases
of their own stock, known as Treasury Stock. This is surprising because Treasury Stock is
usually shown in the Equity section of the Balance Sheet, because it was not, we can conclude
that Target immediately retires the stock it repurchases in an attempt to increase the value of
their stock.
Overall, though they had experienced some economic turmoil due to the effects of a
recession and a failed business venture, Target has seen a steady growth in Sales, has managed to
reinvest capital into their locations, increasing their value, has managed to utilize Accounts
Payable and Long-Term Debt in an effective manner to fund these ventures, and has utilized
these funding techniques to return value to their shareholders as well.
Exhibits
 Works Cited

 Castaldo, J., & Hallberg-Campbell, J. (n.d.). The Crazy Story of What Really Went Wrong at Target
Canada. Retrieved from https://www.canadianbusiness.com/the-last-days-of-target-canada/
 O'Connell, L. (2020, April 28). Total number of Target stores in the North America 2006-2019.
Retrieved from https://www.statista.com/statistics/255965/total-number-of-target-stores-in-
north-america/