Target Corporation: A Century of Service & Giving Back - Essay Example

Introduction

Target Corporation has been in operation for more than a century and a decade. The company offers its ‘guests’ essentials for everyday use and fashion wear of differentiated merchandise at discounted prices. As per the company’s philosophy, the organization treats customers as guests of the business. Incorporated in 1902 in Minnesota, the company gives 5% of its profit to communities as part of its corporate social responsibility (Target Corporation, 2018). With over 360,000 employees on board, Target Corporation is an international company whose activities determine families’ livelihood across the globe. The following discussion evaluates the financial statements and position of target Corporation concerning the changes in financial ratios, cash, accounts receivable balance, and the type of inventory valuation method that the company uses. The paper presents the plans for Target Corporation based on the industry trends and prediction of the company’s performance against its competitors.

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Changes in Financial Ratios

Away from the conventional tradition of most companies, target Corporation has its own set of financial ratios that the organizations use to evaluate performance over time. The first financial ration concerns comparable sales growth. From 2018 to 2019 this ratio declined by 1.6% from 5.0% to 3.4% (Target Corporation, 2019). This percentage represents a decline in sales that is attributable to harsh economic conditions that impacted most economies towards the end of 2019. As per the gross margin percentage of sales, the company had a 0.5% improvement from 2018 to 2019 (Target Corporation, 2019). Looking over the trend for this ratio over the past five years indicates that the company does not have a significant improvement in its gross profit margins of sales. Selling, general and administrative expenses (SG&A) is the other financial metric for Target Corporation. As the gross margin percentage of sales, this SG&A ratio shows little increase or decrease over the years. From 2018 to 2019, the ratio reduced by 0.1% (Target Corporation, 2019). The financial report for Target Corporation (2019) further reported a 0.5% increase in the company’s operating income margin.

Changes Regarding Cash

There is a slight improvement in cash and cash receivables between 2018 and 2019. Operating cash flow for the year 2019 was $7,099 million compared to $5,970 million in 2018. This increase is credited partly due to higher net earnings and the decrease in inventory held by the company. Accounts payable for the company also increased during this period, but the duration of the payment terms favored the 2019 accounting period. The sales for the year improved by $2,697 million, from $74,433 in 2018 to $77,130 in 2019 (Target Corporation, 2019).

Accounts Receivable Account Balance

The accounts receivable section of the company does not tell much about the financial position of the Target Corporation. Other than receivables from its merchant organizations, the company does not have any other income stream. Target Corporation is more dependent on direct selling with minimum or no credit whatsoever. As such, the company had receivables worth $441 million by the first quarter of the 2020 financial year against $428 million under the same period in the past year (Target Corporation, 2019). Though a slight improvement in trading, this figure is little compared to the industry’s performance.

Inventory Valuation Method

The company utilizes ‘last in first out’ (LIFO) inventory valuation method. As of the end of the 2019 financial year, the company had $8,992 million worth of inventory (Target Corporation, 2019). This figure is contrasted against $9,497 million from the prior year’s inventory readings by the company at the end of the 2018 financial year. This year’s results received from the first quarter of the 2020 project a less profitable year than 2019. The company has optimized the sale of highly movable products to offset inventory costs and expenditure to management. The advantage of utilizing LIFO under the retail inventory accounting method is the tax advantage. This method manages inventory by charging a higher cost of goods sold during a particular period against a lower remaining inventory. This action, in turn, results to lower net income margins, which translates to reduced tax liabilities.

Industry Trends and Future Plans

As a merchandise retailer, Target Corporation operates in a highly competitive industry. The industry is presently revolutionizing online shopping, and most consumers spend more time over the internet seeking for best deals. Social media marketing has now become a common trend in the fashion retail industry and merchandise. Fashion wear items are also generational products, meaning that what is a fashion today might not necessarily be the same another time. As such, Target Corporation should employ ‘fashion cops,’ who will be on the lookout of trending products. The marketing team also has to increase promotional activities to make the company the most preferred organization for the purchase of merchandise and fashion items.

Summary and Conclusion

The company’s filed financial year report stated that the best trading period for the organization is the fourth quarter of the year; November and December. These two months represent the holiday festivities at the end of the year, a time when people do much of their shopping. In contrast to competition Target Corporation still operates in safe margins. Though showing little improvements, the company’s financial ratios show a stable company. It seems the company’s management wants to maintain equilibrium amidst the present economic struggles. Moreover, the company is hopeful that it will meet its operational targets and get desirable returns on its investment.

References

Target Corporation. (2019). Form 10-K 2019. [Pdf]

Target Corporation. (2018). Form 10-K 2018. [Pdf]