Target Corporation is seeking additional capital to fulfill its business requirements. At present the company is faced with two propositions which would allow it to generate sufficient capital as required. This memo is being drafted to provide information that would help alternate fund providers to make a suitable decision regarding their interest in the company.
Company Profile
Target Corporation based in Minnesota is a retailing company which incepted in 1908 as then the company was called Dayton Dry Goods Company. In 1962 the company opened its first Target store and later in 2000 the company’s name was changed from Dayton Dry Goods Company to Target in 2000.
Investor’s Perspective
Company #1 is considering investing in the company through issue of new stocks by Target. This would allow part ownership in the company and it is only possible if Target issues new stocks at an agreed priced between both parties. The following information is gathered and presented for Company#1 to assess Target’s financial position:
Table 1: Key Performance Indicators – Investor’s Perspective
Table 1 provides key highlights of the financial position of the company from shareholders perspective and also the performance of its stock listed on NYSE. The P/E has shown gain over the year and higher P/E multiplier suggests that the company is expected to have higher earnings in the coming periods. The EPS showed a decline however remains healthy despite of the crunch in the retailing sector. This decline is also reflected in the decline in the profit by 22.29%. The company’s stock is still trading at a lower value compared to its book value that implies possible increase in its value and thus a good buying opportunity. Cash flow from operating activities increased by 7.39% over two years period which was mainly due to the increase in bad debt provision as the company expected more customers defaulting on their outstanding amounts. The company has a healthy dividend payout ratio of 21.6% which showed an increase of 35.48% over the two years. The shareholders equity declined however additional paid in capital increased reflected in company’s increased investment in the improvement plans. The retained earnings declined by 10.33% compared to 2007 however it remains high despite of the tough conditions in the market. It could be concluded that the company’s stock is trading at a discounted price that suggests a good buying opportunity for investors.
Lenders Perspective
Company #2 has offered to provide funds through loan facility to Target Corporation and expects to earn interest on it. The following table highlights important information for assessing Target’s financial position from the perspective of Company #2:
Table 2: Key Performance Indicators – Lender’s Perspective
Table 2 presents useful information suggesting that the current ratio remains above 1 suggesting company’s ability to meet its current liabilities from its current assets. The company has improved its inventory management by implementing a new strategic setup which has allowed the company to manage stock levels and payments efficiently by shrinking its supply chain. Debt to total assets has increased by almost 5% whereas the company’s financing activities suggests negative balance of company’s borrowing and payments. The long term liabilities have increased by 13.80% compared to 2007. Free cash flow should improvement and remain positive despite of the increased capital expenditure. The company’s interest cover declined to 5.08 in 2008 compared to 8.15 in 2007. The profit has declined by 22.29% but it is concluded that the company has strong position with respect of its financing activities.
References
Forbes. (2009). Web.
Target Corporation. (2008). Target Corporation Annual Report 2008. Minnesota: Target Corporation.