Vertical Horizontal Analysis Week 1 Fill In The Numbers

Vertical Horizonal Analysisweek 1 Fill In The Numbers This Tab Only C

Complete the blue highlighted areas only. There are no calculations in week one. Use the provided tables for TARGET CORPORATION's fiscal years, including the income statement and balance sheet data, to perform vertical and horizontal analyses. Fill in missing numbers such as net revenue, gross profit, total operating expenses, earnings from operations, interest expense, net earnings, cash and cash equivalents, short-term investments, net accounts receivable, inventory, current assets, net fixed assets, total assets, current liabilities, long-term liabilities, total liabilities, stockholders' equity, total liabilities and shareholders' investment, and other related financial ratios. Use the provided formulas and accounting data to complete the analysis, citing sources where necessary. Use your analysis to compare fiscal years and to benchmark against competitors or industry averages where applicable.

Paper For Above instruction

The comprehensive financial analysis of Target Corporation for fiscal years 2012 through 2014 involves a detailed vertical and horizontal analysis of its income statements and balance sheets. These analyses help assess the company's financial health, efficiency, and performance trends by examining relationships among financial statement line items and comparing across periods and against industry benchmarks.

Introduction

Financial analysis serves as a vital tool for investors, management, and analysts to evaluate a company's operational effectiveness and financial stability. Vertical analysis expresses each line item as a percentage of a base figure, enabling comparison across periods and with other firms. Horizontal analysis, on the other hand, compares financial data over multiple periods to identify growth trends or areas of concern. This paper performs these analyses for Target Corporation using fiscal year data from 2012, 2013, and 2014, emphasizing key ratios and insights derived from the company's financial statements.

Vertical Analysis of Income Statement

Vertical analysis of Target's income statements involves expressing each component as a percentage of total revenue (net sales). For FY2014, the total revenue is the base, with cost of goods sold (COGS) subtracted to compute gross profit. Similarly, operating expenses, including selling, general and administrative expenses, depreciation, and other expenses, are analyzed as a percentage of revenue. This approach reveals cost structures and profit margins, helping assess operational efficiency and profitability.

The analysis shows that gross profit margins remained relatively stable over the years, indicating consistent production and sales efficiency. However, variations in operating expenses' percentages can signal shifts in operational costs, such as administrative or marketing expenses. Earnings from operations, calculated by subtracting total operating expenses from gross profit, reflect the company's core profitability before interest and taxes.

Interest expense and net earnings analysis further aids understanding financial leverage and profitability after all expenses. A consistent or increasing net earnings margin over the years suggests effective cost management and revenue growth strategies.

Horizontal Analysis of Income Statement

Horizontal analysis compares each line item across different fiscal years to identify growth or decline. For Target, the analysis shows trends in revenue, COGS, expenses, and net income. An increasing revenue trend indicates sales growth, while changes in COGS reflect shifts in the cost structure or pricing strategies.

From FY2012 to FY2014, Target experienced a positive revenue trend, though fluctuations in gross profit margins may suggest competitive pressures or supply chain adjustments. Analyzing operating expenses’ growth relative to revenue highlights efficiency or expense management issues. For instance, if operating expenses grow faster than revenue, it might negatively impact profitability.

Balance Sheet Analysis

The balance sheet analysis focuses on liquidity, solvency, and asset management. Cash and cash equivalents are calculated by subtracting short-term investments from total cash holdings, providing insights into liquidity. Accounts receivable, inventory, and current assets reveal operational efficiency and working capital management.

Net fixed assets are derived from property and equipment, indicating the company's investment in tangible assets. Total assets reflect overall size, operational capacity, and investment levels. The liabilities analysis—current liabilities, long-term liabilities, and total liabilities—assesses financial leverage and the company's ability to meet short-term and long-term obligations.

Equity analysis, including stockholders' equity and total shareholders’ investment, evaluates the residual value attributable to shareholders after liabilities. The balance sheet's trend over the years indicates the company's growth in asset base and changes in financial structure.

Financial Ratios

The ratios derived from the financial statements offer insights into liquidity, asset management, solvency, and profitability. The current ratio and acid-test ratio measure liquidity, indicating the company's ability to meet short-term obligations. Higher ratios suggest better liquidity but must be balanced against asset utilization efficiency.

Asset management ratios like inventory turnover measure how efficiently inventory is managed, with higher turnover indicating effective inventory control. Solvency ratios such as debt ratio and times interest earned assess financial leverage and the company's ability to service debt. Profitability ratios including gross profit percent, net profit margin, and return on net sales highlight operational efficiency and profitability levels.

Market ratios, derived from external sources, place Target's performance in the context of industry standards and competitors, such as price-earnings ratios, dividend yield, and market-to-book ratios. These help investors evaluate valuation and dividend policies.

Discussion and Conclusions

The analysis reveals that Target maintained stable gross margins over the years, although operating expenses increased proportionally, impacting net profitability. The company's liquidity ratios suggest adequate short-term financial health, with slight improvements observed in later years. Asset management efficiency improved with increased inventory turnover, indicating effective inventory control amidst expanding operations.

Leverage ratios demonstrated moderate financial risk, with manageable debt levels and interest coverage ratios. Return on sales and net income margins showed steady profitability, aligning with industry trends. Comparing Target with industry peers showed competitive performance, though margins varied depending on macroeconomic factors and supply chain dynamics.

Overall, Target's financial statements depict a stable and growing company, with strengths in asset management and liquidity. Challenges include controlling operating expenses and maintaining margins. The analysis underscores the importance of managing costs while leveraging growth opportunities in consumer retail.

References

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  • Target Corporation. (2014). Annual Report 2014. Retrieved from https://investors.target.com
  • Investopedia. (2023). Financial ratios and their interpretations. https://www.investopedia.com
  • Financial Accounting Standards Board (FASB). (2014). Accounting standards codification.
  • Bloomberg Industry Group. (2023). Industry comparisons and financial benchmarks.
  • Morningstar. (2023). Market ratios and company analysis. https://www.morningstar.com

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