Using the Consolidated Statement of Income (may also be called Statement of Earnings or Statement of Operations) of a publicly traded company of your choosing, answer the following questions. o What are the Sales (also called Net Sales, Net Revenue, or Operating Revenue) for the most recent three years? This is normally the largest number. o What are the Net Incomes (also called Net Earnings) for the most recent three years? o How well do you think this company is operating? Explain your answer. The audited Income Statement will have only three years of data. Post the name of your selected company and the link to the statement with your answer.
The chosen company is Target Corporation which is one of the largest retailer and chain stores in the world. It's one of those giant retailer having predominant presence in North America. It has currently more than 2000 stores.It is listed in the NYSE.
Reasons for selecting this company.
Target Corporation is recently in news for its decision to raise the minimum wage rate to $9 per hour and thus match the efforts made by other retail behemoths like Walmart and TJX. However very recently Targets Canada operations were not performing as per market expectations and there are reports in the market that the firm would close all the 133 stores in Canada in 2015-16.
The financial highlights for the firm for the last three years as follows:
In $ millions
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Net Sales
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Net Profit
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2014
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72,618
|
2449
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|
2013
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71,279
|
2694
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|
2012
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71,960
|
3315
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Net Profit Ratio calculates the net profit in % terms earned by the firm after deducting all the expenses and operating expenses. Different industries have different benchmark for this ratio. A higher Net margin indicates lower operating expense and higher efficiency and productivity.(J R MONGA).
The net margin % of the Target Inc. is calculated as follows:
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Net profit Margin
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2014
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2449/72,618 = 3.37%
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2013
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2694/71,279 = 3.77%
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2012
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3315/71960 = 4.60%
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The Net margin of Target was pretty decent in 2012 at 4.6% when compared to an industry wide ratio of 4.5-5% in this industry. But since then the margin has nosedived instead of improving. Both 2013 and 2014 has seen absolute and % decrease in profit numbers. Profit percentage has reduced to 3.77% in 2013 and 3.37% in 2014. This indicates towards increase in operating expenses for the firm and some of the stores not doing well. Particularly the firm has done very badly in its Canadian operations. That's the primary reason the firm has decided to shut down its Canadian operations and close all the 130 odd stores in the next 2 years.
Calculation of change in sales for Target
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Net Sales
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Change in sales
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2014
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72,618
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1.88%
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2013
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71,279
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- .9463%
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|
2012
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71,960
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|
If I look at the above figures I see a pattern. Although this pattern is small - the sales has almost gone down in 2013 by 1% approx. and then increased or recovered by 1.88% in 2014. When the 2014 value is compared to that of 2012, the sales has only increased very marginally and at the same time there is a larger gap in the profit margin. This indicates that between 2012 and 2014, the sales of the firm has grown (albeit a small margin of $658mn) but the profits for the firm has gone down by an amount of $866mn. This is an indication that there is a supply chain issue at the operative level and costs have risen.