Target’s Debt Structure

Please read each passage below, I need a few sentences in response to each part. Please use at least one source. Please cite the reference(s) properly. Part 1, 2 and 3 can be on the same page, however, please keep them separate by labeling them Part 1, Part 2 and 3. No Title Page Needed DUE TOMORROW 2/14/22 by 6PM CST

PART 1 Instr.

Good work on this topic! Target is one of the largest retailers in America and has large liabilities on their balance sheet. Do you know if WalMart and Costco have similar liabilities on their balance sheet? This may be a common way of doing business in this industry. Knowing this may change your opinion of Target or may make you advise Liz to look at one of the other two retailers. While leasing is a more costly way to do business, why do you think Target has chosen to lease so many buildings? What advantage could this give them over their competitors?

PART 2 TR

By reviewing the balance sheet, Liz would be correct in her calculations at 65% debt to assets. However, this isn’t the whole picture as the balance sheet is merely a snapshot of what Target’s financials look like at a specific point in time. When investing in a company, the overall health of the company’s financials need to be considered which would need more than a single balance sheet. By reviewing the income statement Tom has calculated the debt to asset correctly at 74% and this would likely be a more accurate picture of Target’s debt structure.

Whether this debt structure for Target is risky would need a lot more information since a store such as Target has everything from raw materials, finished products, warehouses, stores, trucks, etc. Without understanding the whole picture of where these numbers are drawn from it would be difficult to make that determination.

Reference:

Epstein, L. (2014). Financial decision making: An introduction to financial reports. Zovio. Retrieved from: https://content.uagc.edu/

PART 3 PM

One of the things I noticed is that Liz only looked at current liabilities, long-term debt and other liabilities without taking into consideration that lease payments on property needs to also be considered, as it is a financial obligation as well. These were listed in the notes section of the balance sheet.  Tom made sure to use all of the financial obligations in his calculations, including the notes, to determine a percentage that told a more accurate story of the company’s financial standing. The information that Liz used was the information solely on the statement section of the balance sheet and it did not take into consideration the information that was also given on the notes of the balance sheet.

Liz’s calculations= current liabilities+ long + term liabilities + other liabilities, divide that sum by total assets

(11,782+15,126+2,345)/44560

29,253/44,560=0.65648

Tom’s calculations= current liabilities+ long + term liabilities + other liabilities + total future minimum lease payments (provided in the notes section) + minimum capital lease payments (provided in the notes section), divide that sum by total assets

(11,782+15,126+2,345+3,694+127)/44560

33,074/44560= 0.74223

References

Epstein, L. (2014). Financial Decision Making: An Introduction to Financial Reports. Bridgepoint Education, Inc.