Question

Question text

Analysis and Interpretation of Profitability
Balance sheets and income statements for Target Corporation follow.

Income Statement
For Fiscal Years Ended ($ millions)	2008	2007	2006
Sales	$ 61,471	$ 57,878	$ 51,271
Credit card revenues	1,896	1,612	1,349
Total revenues	63,367	59,490	52,620
Cost of sales	41,895	39,399	34,927
Selling, general and administrative expenses	13,704	12,819	11,185
Credit card expenses	837	707	776
Depreciation and amortization	1,659	1,496	1,409
Earnings before interest and income taxes	5,272	5,069	4,323
Net interest expense	647	572	463
Earnings before income taxes	4,625	4,497	3,860
Provisions for income taxes	1,776	1,710	1,452
Net earnings	$ 2,849	$ 2,787	$ 2,408

Balance Sheet
($ millions, except footnotes)	February 2, 2008	February 3, 2007
Assets
Cash and cash equivalents	$ 2,450	$ 813
Credit card receivables	8,054	6,194
Inventory	6,780	6,254
Other current assets	1,622	1,445
Total current assets	18,906	14,706
Property and equipment
Land	5,522	4,934
Buildings and improvements	18,329	16,110
Fixtures and equipment	3,858	3,553
Computer hardware and software	2,421	2,188
Construction-in-progress	1,852	1,596
Accumulated depreciation	(7,887)	(6,950)
Property and equipment, net	24,095	21,431
Other noncurrent assets	1,559	1,212
Total assets	$ 44,560	$ 37,349
Liabilities and shareholders' investment
Accounts payable	$ 6,721	$ 6,575
Accrued and other current liabilities	3,097	3,180
Current portion of long-term debt and notes payable	1,964	1,362
Total current liabilities	11,782	11,117
Long-term debt	15,126	8,675
Deferred income taxes	470	577
Other noncurrent liabilities	1,875	1,347
Shareholders' investment
Common stock	68	72
Additional paid-in-capital	2,656	2,387
Retained earnings	12,761	13,417
Accumulated other comprehensive income (loss)	(178)	(243)
Total shareholders' investment	15,307	15,633
Total liabilities and shareholders' equity	$ 44,560	$ 37,349

a. Compute ROE for 2008.

Do not round until your final answer. Round your answers to two decimal places.

ROE =Answer%

b. Confirm that ROE equals ROE computed using the component measures for profit margin, asset turnover, and financial leverage using: ROE = PM * AT * FL.

   Compute the components of ROE.

   Do not round until your final answer. Round answers to two decimal places.
PM = Answer%
AT = Answer
   FL = Answer

    
c. Compute adjusted ROA. Assume a tax rate of: 39.0%.

Round your answer to two decimal places.
Adjusted ROA =Answer%

Answer 1

a)

=> We can find the Return on Equity (ROE) by using the formula:

=> Net earnings in 2008 is given as $ 2,849, shareholder's equity in 2008 is $ 15,307 and in 2007 is $ 15,633. Now we can substitute the values into the formula:

=> Therefore, ROE = 18.42 %

b)

=> Net earnings in 2008 is given as $ 2,849, Total Revenue in 2008 is given as $ 63,367, total assets is given as $ 44,560, shareholder's equity in 2008 is $ 15,307 and in 2007 is $ 15,633. Now we can substitute the values into the formula:

=> Therefore, it is confirmed that ROE equals ROE computed using the component measures for profit margin, asset turnover, and financial leverage and also:

* PM = 4.50%

* AT = 1.42

* FL = 2.88

c)

=>

=> Net earnings in 2008 is given as $ 2,849, Interest Expense in 2008 is given as $ 654 , Tax rate is given as 39%, Total assets in 2008 is $ 44,560 and in 2007 is $ 37,349. Now we can substitute the values into the formula:

=> Therefore the Adjusted ROA = 7.93 %