Return on Assets (ROA) (2005) = 5.84% (2006) = 6.88%
Return on equity (ROE) (2005) = 24.55% (2006) = 16.95%
Asset turnover ratio (2005) = 1.44 (2006) = 1.50
Inventory turnover rate (2005) = 5.84 (2006) = 5.98 Website design By BotEap.comTable 2: Target financial ratios Website design By BotEap.comTable 2 shows that Target’s net profit margin has decreased since 2005. ROE has also decreased since 2005, but ROA has increased since 2005. Target’s net profit margin decreased since 2005 because it decreased its interest expense in 2006 Target experienced sales growth and a decrease in interest expense from 2005 to 2006, which is a good sign for the company, even though this resulted in a decrease in the net profit margin. This decrease in net income also led to a decrease in ROE. The decrease in ROE is not a bad sign for Target, as total shareholders’ equity increased from 2005 to 2006, which also caused the decrease in ROE. ROA improved from 2005 to 2006, which shows that management is really good at managing Target’s assets to generate profit. Website design By BotEap.comThe asset turnover ratio and inventory turnover ratio have improved since 2005, indicating that Target is becoming more efficient in managing its assets and inventories. Turnover rates are very important in the retail industry to ensure that the company can keep costs down and generate significant profits. Target’s inventory turnover improvement shows that Target can reduce its inventory and warehouse costs in 2006 by effectively managing its inventory. This also led to Target’s increased sales in 2006. Website design By BotEap.comIII. Comparison of capital budgeting projects Website design By BotEap.comA. Gopher Place Website design By BotEap.comThe total population of the area in which it is located is one of the lowest among the others. There is the potential for cannibalism in that area if Target undertakes this project, as there is a high density of Target stores in that area. Additionally, Wal-mart also plans to add two new super centers there. Competition in this area will be quite high with such a low population and so many stores. This project may not be able to generate a large number of sales or profits for Target despite the huge population increase and high median income. Website design By BotEap.comB. Whalen Court Website design By BotEap.comIt has the highest NPV due to its location in the most populated area. It will also bring the brand awareness that Target has always sought and provide free advertising to all passersby. However, the initial investment required for this project is huge and raises concerns about Target’s ability to finance it. The risks associated with this project are too high, as a small decrease in the amount of sales will result in a huge negative NPV and losses for the company. This project may not be able to generate the large amount of sales or profit for Target, as sales are expected to remain constant with a low population increase. Website design By BotEap.comC. The barn Website design By BotEap.comIt requires the least investment and produces a very favorable NPV. This small rural area will allow Target to expand its stores into a new market. However, it is in an area with the second lowest total population. The average income of the population is also quite low. Target can make big profits in this area as only a small amount of sales is required to generate large returns and Target will not experience losses when sales decline. This project will generate a large amount of profit for Target despite the possibility that the number of sales will be one of the lowest compared to the other projects. Website design By BotEap.comD. Goldie Square Website design By BotEap.comIt has the lowest NPV among all the other projects and does not seem attractive from a NPV point of view. However, it is in a densely populated area that has a high median income. An upper-middle-income population can lead to Target acquiring many loyal customers. There is also high population growth, indicating that sales will increase in the future. This project can generate a great deal of sales and profit for Target as growth materializes. Website design By BotEap.comE. Stadium remodeling Website design By BotEap.comIt is located in an area with the highest median income and the highest percentage of adults with more than 4 years of college. The sales potential looks promising. However, there is not enough information to support this as sales have been declining previously. The prospects do not look too promising for this project. It is not a profitable project to do at this time. Website design By BotEap.comIV. Conclusion and recommendation Website design By BotEap.comBased on my evaluation of Target, I saw an overall improvement in Target’s performance. I believe that Target will be able to achieve great profits and sales if it sticks to its marketing strategy and a thorough analysis of future projects. The Barn and Goldie’s Square projects are the two projects I would recommend, as these are the most profitable projects among the others. .