Question

Leases

What are the differences between operating and capital leases?

Describe the particular leases of Target Corporation based on the liability section of Target Corporation's balance sheet.

What impact have the leases had on Target Corporation's financial statements for the most recent year?

Discuss the advantages and disadvantages of leasing a building versus purchasing one.

Income statements Period Ending 1/28/2017 1/30/2016 Total Revenue $69,495,000 $73,785,000 Cost of Revenue $48,872,000 $51,997,000 Gross Profit $20,623,000 $21,788,000 Research and Development $0 $0 Sales, General and Admin. $13,356,000 $14,665,000 Non-Recurring Items $0 $0 Other Operating Items $2,298,000 $2,213,000 Operating Income $4,969,000 $4,910,000 Additional income/expense items $0 $620,000 Earnings Before Interest and Tax $4,969,000 $5,530,000 Interest Expense $1,004,000 $607,000 Earnings Before Tax $3,965,000 $4,923,000 Income Tax $1,296,000 $1,602,000 Minority Interest $0 $0 Equity Earnings/Loss Unconsolidated Subsidiary $0 $0 Net Income-Cont. Operations $2,669,000 $3,321,000 Net Income $2,737,000 $3,363,000 Net Income Applicable to Common Shareholders $2,737,000 $3,363,000 Balance Sheet Current Assets Cash and Cash Equivalents $2,512,000 $4,046,000 Short-Term Investments $0 $0 Net Receivables $0 $0 Inventory $8,309,000 $8,601,000 Other Current Assets $1,169,000 $1,483,000 Total Current Assets $11,990,000 $14,130,000 Long-Term Assets Long-Term Investments $0 $0 Fixed Assets $24,658,000 $25,217,000 Goodwill $0 $0 Intangible Assets $0 $0 Other Assets $783,000 $915,000 Deferred Asset Charges $0 $0 Total Assets $37,431,000 $40,262,000 Current Liabilities Accounts Payable $10,989,000 $11,654,000 Short-Term Debt / Current Portion of Long-Term Debt $1,718,000 $815,000 Other Current Liabilities $1,000 $153,000 Total Current Liabilities $12,708,000 $12,622,000 Long-Term Debt $11,031,000 $11,945,000 Other Liabilities $1,878,000 $1,915,000 Deferred Liability Charges $861,000 $823,000 Misc. Stocks $0 $0 Minority Interest $0 $0 Total Liabilities $26,478,000 $27,305,000 Stock-Holders Equity Common Stocks $46,000 $50,000 Capital Surplus $5,661,000 $5,348,000 Retained Earnings $5,884,000 $8,188,000 Treasury Stock $0 $0 Other Equity ($638,000) ($629,000) Total Equity $10,953,000 $12,957,000 Total Liabilities & Equity $37,431,000 $40,262,000 Cash Flow Net Income $2,737,000 $3,363,000 Cash Flow-Operating Activities Depreciation $2,298,000 $2,213,000 Net Income Adjustments $508,000 ($812,000) Changes in Operating Activities Accounts Receivable $0 $0 Changes in Inventories $293,000 ($316,000) Other Operating Activities $36,000 $227,000 Liabilities ($543,000) $579,000 Net Cash Flow-Operating $5,436,000 $5,958,000 Cash flows-Investing Activities Capital Expenditures ($1,547,000) ($1,438,000) Investments $28,000 $24,000 Other Investing Activities $46,000 $1,922,000 Net Cash Flows-Investing ($1,473,000) $508,000 Cash Flows-Financing Activities Sale and Purchase of Stock ($3,485,000) ($3,183,000) Net Borrowings ($664,000) ($85,000) Other Financing Activities $0 $0 Net Cash Flows-Financing ($5,497,000) ($4,630,000) Effect of Exchange Rate $0 $0 Net Cash Flow ($1,534,000) $1,836,000 Financial Ratios Liquidity Ratios Current Ratio 94% 112% Quick Ratio 29% 44% Cash Ratio 20% 32% Profitability Ratio Gross Margin 30% 30% Operating Margin 7% 7% Pre-Tax Margin 6% 7% Profit Margin 4% 5% (www.nasdaq.com)

Answer 1

Sorry I couldnt clearly understand the 2&3 question of yours.

4. Leasing a Commercial Space/Building :

Advantages:

1. No Down Payment: While lease may require a deposit, the cash outlay is significantly less than a typical down payment requirement fr financing a purchase. That can have a positive impact on your cash flow and the amount of money in the company.

2. Tax Deduction: Each of your lease payments in a business expense that will reduce your taxable income and lower your tax payments.

3. No repairing, maintenance cost: Depending on your lease terms, you may nout have to spend money on repairing and maintaining it.

4. Easier to Qualify: Many times obtaining a lease does not require a credit report. This makes qualifying for a lease easier.

5. Quicker ann more choices:In most markets, there are more leaseable commercial sites than buldings for sale. Leasing process takes less time than purchasing and so you can more your business quickly.

   Disadvantages

   1.Lease Increases: Leases are set up to allow annual rent increases, while other often increase cost when you lease expires and needs to be renewed.

6. Change of Business Location : The owner of the building may decide for various reasons not to let your business renew your lease when it expires . This will force your company to move to a new location.Can turn out to be costly impact

7. No equity in Building :By not owning the building you lease, you have no equity in it. As the value of the building increases, there's no capital growth benefit to your company.

8. Little Control : With many leases, you have little control over needed property improvements, maintenance, repairs and other factors. In this case have to reply on building owners.

9. Less growth space: The space you lease is specifi foot, and ussually cannot be exanded because other companies leasing space in the building. It is important to lease enough space or get an option to lease additional space that allows for future growth.

The advantages for leasing becomes the disadvatages for purchashing a building and disadvatages of leasing becomes the advtages of purchasing.

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