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

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%

Solutions

Expert Solution

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 %


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