please see the attached file.

Your parents have been left a substantial amount of money and want to invest in a company. Your father trusts you to make a recommendation, but also wants to see the reasoning behind your choice
You have an idea of which company to choose and you decide to prepare three sets of documents for your parents to consider: business analysis, combined income and cash flow statement, and trend analysis.
Business analysis
Select a public company that trades on either the NYSE or the NASDAQ. Perform a business analysis (both external and internal) for your company using various sources of information. Possible sources include the following:
• Annual report and/or Form 10-K
• Magazine or newspaper articles
• Company website
• Government information
• Industry information
• Value Line, Standard & Poor's, Moody's, etc.
• Analyst reports
• Internet articles
Your analysis should be approximately five pages long. Be sure to cite your sources using APA guidelines.

Business analysis
We have selected Target Corporation
Target Corporation was founded in Minnesota in 1902. It is the sixth largest retailer in the United States and is ranked 27th on the 2005 Fortune 500. Target is performing very well in the market place though its stock’s performance is subdued.
Target Corporation operates large-format general merchandise discount stores in the United States and sells online through its website www.target.com. Target Corporation operates large-store general merchandise formats, including discount stores, moderate-priced promotional and traditional department stores, as well as a direct mail and on-line business. Target offers both everyday essentials and fashionable, differentiated merchandise.
The company operates over 1,450 stores in 47 states in USA. It has following sub categories:
Target Stores
Target stores are generally 95,000 to 125,000 square feet (12,000 m²) and carry hardlines ("normal" products and goods), softlines (clothing), and a limited amount of groceries. They also carry seasonal merchandise such as patio furniture during the summer and Christmas decorations during November and December. Many stores also have one-hour photo processing, a portrait studio, an optical store, and a pharmacy.

Target Greatland
It is targeted as a place for fun and is much bigger than average target store. It averages about 150,000 square feet (14,000 m²) and carries a larger selection of general merchandise than basic Target stores. It is provided with an expanded snack bar.

Target.com
The company entered an agreement in 2001 to outsource its technology services, order fulfillment and customer service to Amazon.com. Apparently, the arrangement has worked out well for both parties. In August 2003, the companies signed an agreement to extend their original five-year contract by another two years.
(Wikipedia)

According to the articles referred, Target’s growth in April 2006 is expected to be more than 10% and the last year it has been 5.6% outperforming Wal Mart. (Shoppers Flock) This can be attributed to the target segment of Target. They are targeting more upper-class people as its target segment has higher income demographic. Thus its strategy is differentiated, as it is target is combining upscale trends with discounting and productivity. The designing of the Target stores is more attractive than Wal-Mart. Target stores do not sell firearms or tobacco. Target has many exclusive deals with various designers, including Isaac Mizrahi, Michael Graves, Mossimo, Fiorucci, Liz Lange, Luella, among others to attract the youth.

Moreover Recently, Sony created a line of electronics under the Sony LIV name geared towards women. The collection included a CD player that resembled a purse, and a CD player that was equipped to be mounted under the kitchen counter. Another example of this is Target having an exclusive deal with Food Network for selling DVD's of TV shows featuring popular chefs such as Rachel Ray, Alton Brown, and Paula Deen. (Wikipedia) All this will enhance its upscale image, which will help in better realizations. This will lead to higher return on investment and better value addition. (Shoppers Flock) Many financial analyst companies have rate the stock “overweight “ due to its well articulated and executed strategy. (Rating game) In addition to that the Target is better positioned to handle rising oil prices given its higher- income demographic.
Conclusion

Its segmentation is appropriate. Its strategy of attracting the young customers is appropriate. In future they will drive the growth. Moreover it should internationalize its operations to cater to the emerging markets like India and China. This is because there is limited growth in USA. US market is at maturity stage of Product life cycle as per the above discussion.

Combined income and cash flow statement

Financial statements are useful tools for evaluating both profitability and liquidity. Used separately, or in combination, the income statement and balance sheet help interested parties to measure a company’s current financial performance, and to forecast its profit and cash flow potential. Many different users have need for accounting information in order to make important decisions. These users include investors, creditors, management, governmental agencies, labor unions, and others. Because the primary role of accounting information is to provide useful information for decision-making purposes, it is sometimes referred to as a means to an end, with the end being the decision that is helped by the availability of accounting information. Investors and other stakeholders in the firm need regular financial information to help them monitor the firm’s progress. Balance sheet, tells about the assets and liabilities of business. It portrays the picture of the organization on a particular date. Income statement discloses the performance of the organization. It tells about the profitability of the organization.
• Confirm that the firm's income, dividends, and other capital transactions explain the change in equity for the most recent year. (You may need to consult the statement of shareholders' equity.)
Yes it is confirmed, See excel sheet attached.

• Confirm that the firm's cash flow statement begins with the same net income amounts found in the income statement.
Yes it is confirmed, See excel sheet attached.

• Confirm that the firm's cash flow statement shows a change in cash that is equal to the difference between cash shown on the balance sheet at the beginning and end of the year. In Excel, construct a combined income statement and cash flow statement.

Yes it is confirmed, See excel sheet attached.

• Write 1-2 paragraphs that answers the following: what would you do if you found there was a huge difference in the net income amounts and the reported cash flow amounts? How could technology limit the likelihood of this happening again?
If there is a huge difference then we will find the reason of variation. It can be any technical error or variation in accounting standard or omission of certain transactions.
Now by the use of computer and software on can avoid the technical error and omission of the transactions.

Trend analysis
Finally, prepare a trend analysis of operating ratios for at least three years' worth of financial data. Prepare the analysis in Excel.
In financial analysis, we need qualitative information and try to read between the numbers. We have to ask all the right questions. Over the years, there are some ratios, which have become more popular and handy for rule of thumb analysis of financial statements. Our purpose in this note is not deride them but to advice the reader to use them properly to derive the correct results. Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In other words it helps in inter firm and intra firm comparison.
Operating Ratios
Company who wants to invest into Target will be interested in knowing about the profitability of the organization and the return that the Target is giving to its shareholders. The following ratios will help in knowing the profitability and about the Return on its investments:

Profitability ratios try to measure how profitable the firm is. Note that their success in this endeavor depends on how accurately the financial statements reflect reality. They include the profit margin on sales, basic earning power, return on total assets (ROA) and return on common equity (ROE).
• Profit Margin on Sales = Net Income available to Common Shareholders / Sales
Gross Margin on Sales = Gross Operating margin / Sales

Investment ratios

• Return on Assets = Net Income available to Common Shareholders / Total Assets
• Return on Equity = Net Income available to Common Shareholders / Common Equity
The profitability ratios, indicates a company’s financial health and how effectively the firm is being managed to earn a satisfactory profit and return on investment. Its net profitability has increased to 4.83% in 2006 from 3.82% in 2004 but its less than 2005 levels. The gross profit margins have been consistent around 33%. Its operating margin has increased positively. Return on equity and assets have declined in 2006 as compared to 2005. The company’s return on equity and assets is marginally low indicating average performance. For example it has lower return on equity of 16.95% as compared to desired level of 20%.
(For details refer excel file)
Thus we can highlight the increase in profits, which is positive for the company
(See Excel file)
Debt Management ratios measure the utilization of financial leverage by the firm and, indirectly, the level of risk the firm faces. They include the debt ratio, time-interest- earned ratio
• Debt Ratio = Total Liabilities / Total Assets
• Times-Interest-Earned Ratio = EBIT / Interest Charges

The debt management ratios, measures the company’s ability to meet its obligations as they become due. Target has higher interest coverage, lower leverage ratio than the industry, which indicates high safety. For example its interest coverage ratio is 9.34 times. As a lender you will s prefer to see a low debt ratio because there is a greater cushion for creditor losses if the firm goes bankrupt. Its debt equity ratio is low. This is positive for the company. Lower debt ratios (Debt equity is 0.64 in 2006 which has reduced from .92 in 2004), which indicate high safety. Liquidity Position
Liquidity is a company’s ability to meet its maturing short-term obligations. Liquidity is important for conducting business activity especially in times of adversity such as when operating losses occur due to economic conditions or drastic price increases of raw materials or parts. Liquidity must be sufficient to cushion such losses. If not, serious financial difficulties may result. The Target has a high current ratio and quick ratio in all the years so its liquidity position seems to be strong.
3. Cash Conversion cycle
Operating Cycle is defined as the time duration, which the firm requires to manufacture and sell the product and collect cash. Thus operating cycle refers to the acquisition of resources, conversion of raw materials into work-in-process into finished goods, conversion of finished goods into sales and collection of sales. Operating Cycle (OC) = Inventory Conversion Period + Receivables Conversion Period

Cash Conversion Cycle (CCC) = Operating Cycle (OC) - Payables Deferral Period

Larger is the operating cycle, larger will be the investment in current assets.
Overall cash conversion cycle is low (7.98 days) which indicates less investment in working capital. Moreover it has reduced considerably from the previous years This also indicates operational efficiency.

If you adjusted for any nonrecurring items in step (1), explain the adjustments in a separate Word document. Use any other information in your company's annual report to explain the change in revenues, gross margin percentage, and operating margin percentage. Add this information to the Word documents.

Non recurring Items are not there in the Target. (Refer Income statement)

Conclusion
After in-depth analysis I have found that it is one of the outstanding companies in the retail industry. It is also outperforming its peers consistently. Thus there is a good scope of appreciation of Target’s stock in future owing to its better operational efficiency and differentiated strategy.

SOURCE:
• MARKETING MANAGEMENT BY PHILIP KOTLER
• WWW.INDIAINFOLINE.COM
• Target Corp's Vendor Compliance
• Target Corporation Facts as of March 2, 2006 - in .pdf format
• Rowley, Laura (2003) On Target: How the World's Hottest Retailer Hit a Bull's-eye John Wiley & Sons; Hoboken, New Jersey. ISBN 0-471-25067-8.
• Target's Bioplastic Gift Card
• en.wikipedia.org
• target.com
• Annual report of target

ATTACHED ARTICLES

Shoppers Flock to Target,
But Not Investors
April Sales Likely to Jump by 10%
Yet Stock Finds No More Takers
Than That of Slowing Wal-Mart
By ANN ZIMMERMAN
May 4, 2006; Page C1
Style-conscious bargain hunters love Target, but investors prefer to shop elsewhere.
By almost every measure, Target Corp. is a retailing darling. The Minneapolis-based discounter lures shoppers with its smart-looking products, name-brand designers, airy aisles and affordable prices.
Last year, Target racked up a 5.6% gain on sales at stores open at least a year. That compares with a 3.6% increase that rival Wal-Mart Stores Inc. posted for the period. And sales are still going strong. Today, Target expects to report a jump of 10% in such same-store sales for April. That is boosted in part by Easter—a big holiday for apparel sellers—landing in the month, versus a month earlier last year. But taken together, Target will notch at least a 12.5% increase for the March/April period, compared with a 7.5% rise last year.
Yet Target’s stock is down 2.6% so far this year, while the Dow Jones Industrial Average is up 6.4% and the DJ Wilshire Retail index is up about 3%. In 4 p.m. New York Stock Exchange composite trading yesterday, Target’s shares were down seven cents to $53.52, giving the company a market value of $47.39 billion.
With about 1,400 stores in the U.S. and sales of $53 billion last year, Target is where the Wal-Mart juggernaut, with roughly 3,900 stores currently, was about 10 years ago. But instead of investors rewarding Target richly, they treat it the same as its Bentonville, Ark., competitor, which faces slowing sales growth and profit-margin pressure. Both companies trade at about 16 times this fiscal year’s estimated earnings.
Adrianne Shapira, a retail analyst at Goldman Sachs who recently upgraded Target to a “buy” with a fair-market estimate of $60 a share, thinks Target’s stock is unfairly hurt because of Wal-Mart’s much-publicized effort to upgrade its merchandise and store ambiance. “People think Wal-Mart doing better has to come out of Target’s hide, but it’s not a zero-sum game,” says Ms. Shapira, who doesn’t own any shares of Target. Goldman has done investment-banking business with the retailer in the past year.
“Besides, Target doesn’t have to turn anything around,” Ms. Shapira adds. “They just have to keep doing what they’re doing.”
In some ways, the stars are aligned to allow Target to do just that. Target was founded by people from the department-store industry, and it practically created the cheap-chic category of retailing. Now, the consolidation of the department-store sector paves the way for more customers to migrate Target’s way, especially if Federated Department Stores Inc. aims some of the May chain’s stores at a more upscale market and Sears Holdings Corp. keeps missing the mark with its outlets.
At the same time, Target has a higher income demographic than Wal-Mart, so its customers’ discretionary spending is more cushioned from spiraling energy costs—particularly at the gasoline pump.
Using a barrage of television and print advertisements, Target has lured upscale shoppers by stocking clothes and household appliances from trendy designers like Isaac Mizrahi, Liz Lange and Michael Graves. The consolidation among apparel manufacturers means some hot brands could soon be available for Target shelves. That is because several designers and manufacturers that once cared more about cachet than cash now have private-equity owners who know that Target is a sure-fire way to speed up the return on investment by carrying their styles.
When it comes to financial results, Target management lately has a reputation for conservative promises and then beating its predictions. The company has warned Wall Street not to expect improvements in Target’s gross profit margin for the rest of the year. However, Charles Grom, a retail analyst at J.P. Morgan Securities, says Target, which saw its margins rise last year, is poised to do it again.
“With inventories in great shape, strong same-store sales numbers and store checks suggesting little markdown activity, I believe Target could outperform in the first quarter,” he says. “Importantly, this isn’t in the stock, in my opinion.” Mr. Grom, who doesn’t own Target shares, rates the stock “overweight.” J.P. Morgan does business with Target.
Wall Street also considers Target’s credit-card business a lucrative opportunity. Analysts think there is a good chance that Target will put that unit on the block and say it could fetch as much as $6.1 billion—the amount of its receivables.
“We have no plans to sell our credit-card operation at the current time, because it is integral to our core retail business, strengthening our guest relationships, building loyalty to our brand and fueling incremental sales and profits,” says Cathy Wright, Target spokeswoman. “It is so highly profitable, we don’t believe that there is incremental value to be captured in selling the business that isn’t being realized through its continued operation and earnings stream.”
Patricia Edwards, managing director and retail specialist at investment-management firm Wentworth, Hauser & Violich in Seattle, says the firm has been adding to its position in Target in recent months as fast as she has been adding Target merchandise in her own home. Wentworth Hauser, which manages $8 billion, held 800,000 Target shares as of the end of February.
Ms. Edwards points to Target’s recent decision to stock trendy black-and-white dishes—the same color scheme being used by many higher-end home-decor stores. Says Ms. Edwards: “As they used to say about Wayne Gretzky, Target does a phenomenal job of skating where the puck is going to be.”
Write to Ann Zimmerman at [email address auto removed by BrainMass]

THE RATINGS GAME
Target's in a sweet spot but Kohl's is nearing fair-market value
By Jennifer Waters, MarketWatch
Last Update: 12:32 PM ET Apr 24, 2006

CHICAGO (MarketWatch) - Shares of Target Corp. and Kohl's Corp. moved in opposite directions Monday after a Goldman Sachs analyst said she likes the merchandise at both retailers, but thinks Kohl's stock value is peaking while Target's is undervalued.
Adrianne Shapira raised her rating on Target (TGT :
target corp com
TGT54.11, +0.96, +1.8%) to outperform from inline while paring her rating on Kohl's to inline from outperform.
As for Target, Shapira said the Minneapolis-based discounter is "honing its niche as today's 'accessible' department store," a "well-articulated and executed strategy."
"It is fast-becoming the new accessible department store combining upscale trends and image with discount-store productivity and growth - a highly differentiated and defensible niche within the discount-store industry," she said in a note to clients.
Concerns that Target could lose some market share to a more aggressive and upscale-oriented Wal-Mart Stores (WMT :
Wal-Mart Stores, Inc.
WMT46.92, +0.52, +1.1%) Inc. are largely overblown, she said. "A number of factors suggest that these two dominant retailers have and should continue to coexist side-by-side as they have carved out distinct strategies that resonate with customers," she said.
For starters, Wal-Mart's inventory focus did not hurt Target in the past. Wal-Mart's recovery, she said, is about stabilizing returns by improving inventory management to drive return on invested capital and the stock multiple. Wal-Mart took this same strategy in 1996 to 1998 and Target didn't suffer then.
She also believes that a less-aggressive Wal-Mart translates into a more benign promotional environment for its competitors. "With Wal-Mart focused on cleaning up its image, brand and stores, we do not see Wal-Mart setting an overly aggressive pricing environment," she wrote.
"While dedicated to everyday low prices, Wal-Mart sees greater opportunity de-cluttering its stores to appeal to a more affluent set with more disposable income," she said. "This is good news for everyone, particularly Target's margins."
She also believes that Target is better positioned to handle rising oil prices given its higher- income demographic.
By her calculations in best/worst case scenario, Target's prices per share would range from $66 to $48 with a base case of $58. On a weighted basis, that would average at $59 a share. Shares were trading in late-morning action at $51.69, up 1.6%, or 83 cents.
Kohl's (KSS :
Kohl's Corporation
, on the other hand, is facing valuation issues, Shapira said. The stock is up 26% since the end of January and is within 3% of her fair-market value.
"We believe the market has recognized its improved merchandising and marketing efforts that should continue to win back customers," Shapira said. "At the same time, the near-term catalyst of its credit sale and first (share) buyback program also have unfolded."
That means that the stock-price performance will hinge on better-than-expected same-store sales - and that could be daunting. "While we believe Kohl's is well positioned to benefit from share shaken loose from middle-market consolidation, a potential tougher macro-consumer spending backdrop could pressure discretionary apparel sales," she said.
Jennifer Waters is a reporter for MarketWatch based in Chicago.