Question

Analysis and Interpretation of Liquidity and Solvency

Refer to the financial information for Target Corporation (TGT), presented below, to answer the following.

Target Corporation Balance Sheets
($ millions)	January 31, 2015	February 1, 2014
Assets
Cash and cash equivalents	$2,210	$670
Inventory	8,790	8,278
Other current assets	3,087	2,625
Total current assets	14,087	11,573
Property and equipment, net	25,958	26,412
Other noncurrent assets	1,359	6,568
Total assets	$41,404	$44,553
Liabilities and shareholders’ investment
Accounts payable	$7,759	$7,335
Accrued and other current liabilities	3,886	4,299
Current portion of long-term debt and notes payable	91	1,143
Total current liabilities	11,736	12,777
Long-term debt	12,705	11,429
Deferred income taxes	1,321	1,349
Other noncurrent liabilities	1,645	2,767
Total shareholders’ investment	13,997	16,231
Total liabilities and shareholders’ investment	$41,404	$44,553

Target Corporation Income Statement
($ millions)	Fiscal year ended January 31, 2015
Sales revenue	$72,618
Cost of sales	51,278
Selling, general and administrative expenses	14,676
Depreciation and amortization	2,129
Earnings from continuing operations before interest and income taxes	4,535
Net interest expense	882
Earnings from continuing operations before income taxes	3,653
Provision for income taxes	1,204
Net earnings from continuing operations	2,449
Discontinued operations, net of tax	(4,085)
Net earnings (loss)	$(1,636)

a. Compute Target's current ratio and quick ratio for January 2015 and February 2014. (Round your answers to one decimal place.)

2015 Current Ratio Answer

2014 Current Ratio Answer

2015 Quick Ratio Answer

2014 Quick Ratio Answer

b. Compute Target’s times interest earned for the year ended January 31, 2015, and its debt-to-equity ratios for January 2015 and February 2014. (Round your answers to one decimal place.)

2015 Times Interest Earned Answer

2015 Debt-to-Equity Ratio Answer

2014 Debt-to-Equity Ratio Answer

Answer 1

a. Computation Target's current ratio and quick ratio for January 2015 and February 2014 is as follows:

Current Ratio = Total Current Assets / Total Current Liabilities

2015 Current Ratio = $ 14,087 / $ 11,736 = 1.2

2014 Current Ratio = $ 11,573 / $ 12,777 = 0.9

Quick Ratio = (Total Current Assets - Inventory) / Current Liabilities

2015 Quick Ratio = ( $ 14,087 - $ 8,790 ) / $ 11,736 = 0.5

2014 Quick Ratio = ( $ 11,573 - $ 8,278 ) / $ 12,777 = 0.3

Thus,

2015 Current Ratio	1.2
2014 Current Ratio	0.9
2015 Quick Ratio	0.5
2014 Quick Ratio	0.3

b. Computation Target’s times interest earned for the year ended January 31, 2015, and its debt-to-equity ratios for January 2015 and February 2014 is as follows:

2015 Times Interest Earned = Earnings before interest and tax / Interest Expense

= $ 4,535 / $ 882

= 5.1 times

Thus, 2015 Times Interest Earned is 5.1 times

2015 Debt to Equity Ratio = Total Debt / Total Shareholder's Equity

= $ 12,796 / $ 13,997

= 0.9

2014 Debt to Equity Ratio = Total Debt / Total Shareholder's Equity

= $ 12,572 / $ 16,231

= 0.8

Note: Total debt = Short term debt + Long term debt

Current portion of long-term debt and notes payable is a short term debt

Working Note:

Debts consist of followings:

Debts	2015	2014
Current portion of long-term debt and notes payable	$          91	$    1,143
Long-term debt	$ 12,705	$ 11,429
Total Debts	$ 12,796	$ 12,572

Shareholder's Equity consist of followings:

Shareholder's Equity	2015	2014
Total shareholders’ investment	$ 13,997	$ 16,231
Total Shareholder's Equity	$ 13,997	$ 16,231

Thus,

2015 Times Interest Earned	5.1
2015 Debt to Equity Ratio	0.9
2014 Debt to Equity Ratio	0.8

Note: Final answers are rounded off to nearest one decimal.