My Financial Analysis of the Target Corporation

My Financial Analysis of the Target Corporation

In order to determine whether a company is doing well you can look at a few things. One of these things is liquidity. This is the ability of a business to meet its short term cash requirements. Another factor is efficiency. This refers to how productive a company is in using assets. Both liquidity and efficiency are important and complement each other.

To find a company's short term liquidity you need to figure out the working capital and current ratio. Working capital is the current assets minus the current liabilities. To find the current ratio you divide the company's current assets by its current liabilities.

In looking at the Target Company's financials for years 2004,2005 and 2006 we can see how well they are doing over the years. In 2004 the working capital was 4,638. We find this by subtracting the current liabilities of 8,134 from its current assets of 12,952. In years 2005 and 2006 the working capital is 5702 and 4817.

Now we need to look at the current ratio for these same years. In 2004 the current ratio for the Target Company is 1.56. We find this number by dividing 12,952, which is its current assets, by 8,314, its current liabilities. In 2005 and 2006 the current ratio is 1.69 and 1.50.

Looking at these numbers you can see that Target's current ratio decreased from 2004 to 2006. This means that the ability to pay its current liabilities had decreased a little over 2 years.

We also can look at a company's asset turnover. This reflects the company's ability to use assets to generate sales. This ia an important factor in a company's operating efficiency. To find this you divide the net sales by the average total assets.

For the Target Company the asset turnover for 2004 was .20. This is determined by taking its net sales of 3,198 and dividing it by the average of total assets of 15,708. For 2005 the asset turnover rate is .15.

In looking at years 2004, 2005 and 2006 you can see that from 2004 and 2005 there was an increase in relative liquidity and efficiency but in 2006 there was a drop.

Even though there was a drop, Targets results are not that uncommon from other like companies, in fact some had even greater decreases and struggled more within the same time period. I would invest in the Target corporation, even with the drop from 2005 to 2006. Looking at the overall picture the drop was not that significant. You have to consider other factors as well, for instance the overall economy. The economy is not nearly as strong as past years and people are not as quick to spend. But considering this, the drop in Targets numbers were not that large. Other companies had decreases so big they had to close down. During this time Target remained