Question

In: Accounting

Following are the financial statements of Target Corporation from its FY2015 annual report. Target Corporation Consolidated...

Following are the financial statements of Target Corporation from its FY2015 annual report.

Target Corporation
Consolidated Statements of Operations
12 Months Ended
$millions Jan. 30, 2016 Jan. 31, 2015 Feb. 01, 2014
Sales 76,785 72,618 71,279
Cost of sales 54,133 51,278 50,039
Gross margin 22,652 21,340 21,240
Selling, general and administrative expenses 15,280 14,676 14,465
Depreciation and amortization 2,213 2,129 1,996
Gain on sale (620) - (319)
Earnings from continuing operations before interest expense & income taxes 5,779 4,535 5,170
Net interest expense 607 882 1,049
Earnings from continuing operations before income taxes 5,172 3,653 4,121
Provision for income taxes 1,681 1,204 1,427
Net earnings from continuing operations 3,491 2,449 2,694
Discontinued operations, net of tax 42 (4,085) (723)
Net earnings (loss) 3,533 (1,636) 1,971


Target Corporation
Consolidated Statements of Financial Position
$millions Jan. 30, 2016 Jan. 31, 2015
Assets
Cash and cash equivalents, inc. short-term investments of $3,008 and $1,520 $4,046 $2,210
Inventory 8,601 8,282
Assets of discontinued operations 322 1,058
Other current assets 1,161 2,074
Total current assets 14,130 13,624
Property and equipment, net 25,817 25,952
Noncurrent assets of discontinued operations 75 717
Other noncurrent assets 840 879
Total assets $40,862 $41,172
Liabilities and Shareholders' investment
Accounts payable $7,418 $7,759
Accrued expenses and other current liabilities 4,236 3,783
Current portion of LT debt and other borrowings 815 91
Liabilities of discontinued operations 153 103
Total current liabilities 12,622 11,736
Long-term debt and other borrowings 11,945 12,634
Deferred income taxes 823 1,160
Noncurrent liabilities of discontinued operations 18 193
Other noncurrent liabilities 1,897 1,452
Total noncurrent liabilities 14,683 15,439
Shareholders' investment
Common stock 50 53
Additional paid-in-capital 5,348 4,899
Retained earnings 8,788 9,644
Accumulated other comprehensive loss
Pension and other benefit liabilities (588) (561)
Currency translation adjustment and cash flow hedges (41) (38)
Total shareholders' investment 13,557 13,997
Total liabilities and shareholders' investment $40,862 $41,172


We forecast Target's income statement using the following forecast assumptions for both years:

Sales (growth rate) 10%
Cost of sales/Sales 70.5%
Selling, general and administrative expenses/Sales 19.9%
Depreciation and amortization (% of prior year PPE, net) 8.4%
Net interest expense No change
Provisions for income taxes/Pretax income 32.5%
Assume Target disposes of the net assets from discontinued operations (assets less liabilities) in FY2016 for proceeds of $350 million.


Instructions: Forecast Target's fiscal year ended 2016 and 2017 income statements.

  • Use the same forecasting assumptions for both years.
  • Round forecasts to $ millions.
  • Use rounded figures for subsequent forecast calculations.
  • Do not use negative signs with your answers in the income statement.

Hint: Forecasted FY2016 gain on sale is computed as proceeds from the disposal of net assets from discontinued operations minus net assets from discontinued operations ($350 million - $226 million). Forecast $0 for gain on sale in FY2017.

Target Corporation
Consolidated Statements of Operations
$ millions FY2016 Est. FY2017 Est.
Sales $Answer

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$Answer

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Cost of sales Answer

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Gross margin Answer

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Selling, general and administrative expenses Answer

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Depreciation and amortization Answer

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Gain on sale Answer

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Answer

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Earnings from continuing operations before interest and tax Answer

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Net interest expense Answer

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Earnings from continuing operations before tax Answer

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Answer

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Provisions for income taxes Answer

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Answer

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Net earnings $Answer

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$Answer

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We forecast Target's financials using the following forecast assumptions for both year:

Inventory/Sales 11.7%
Other current assets/Sales 1.6%
Other noncurrent assets/Sales 1.1%
Accounts payable/Sales 10.1%
Accrued and other current liabilities/Sales 5.7%
Deferred income taxes/Sales 1.1%
Other noncurrent liabilities/Sales 2.6%
CAPEX/Sales 1.90%
Dividends/Net income 40.5%
Common stock No change
Additional paid-in capital No change
Accumulated other comprehensive loss No change
Current Maturities L-T Debt for 2016 $751
Current Maturities L-T Debt for 2017 $2,251
Current Maturities L-T Debt for 2018 $201

Assume Target buys back common stock at $2,000 million in FY2016 and retires the stock.

(Hint: Retained earnings are reduced by the cost of the stock buy back.) No stock buybacks happen in FY2017.

Instructions: Forecast Target's fiscal year ended 2016 and 2017 balance sheets.

  • Use the same forecasting assumptions for both years.
  • Round forecasts to $ millions.
  • Use rounded figures for subsequent forecast calculations.
  • Do not use negative signs with your answers in the income statement.
Target Corporation
Consolidated Statements of Financial Position
$ millions FY2016 Est. FY2017 Est.
Assets
Cash and cash equivalents, inc. short-term investments $Answer

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$Answer

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Inventory Answer

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Answer

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Other current assets Answer

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Answer

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Total current assets Answer

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Answer

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Property and equipment, net Answer

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Answer

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Other noncurrent assets Answer

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Answer

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Total assets $Answer

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$Answer

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Liabilities and Shareholders' investment
Accounts payable $Answer

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$Answer

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Accrued expenses and other current liabilities Answer

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Answer

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Current portion of LT debt and other borrowings Answer

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Answer

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Total current liabilities Answer

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Answer

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Long-term debt and other borrowings Answer

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Answer

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Deferred income taxes Answer

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Answer

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Other noncurrent liabilities Answer

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Answer

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Total noncurrent liabilities Answer

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Answer

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Shareholders' investment
Common stock Answer

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Answer

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Additional paid-in capital Answer

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Answer

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Retained earnings Answer

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Answer

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Accumulated other comprehensive loss Answer

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Answer

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Total shareholders' investment Answer

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Answer

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Total liabilities and shareholders' investment $Answer

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$Answer

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