Target Corporation, Essay Example

Each company, having great growth potential, sooner or later faces a barrier – inability to finance the growth solely, only with own resources. Such situation can weaken market position of a big company. In order to exclude it, company is seeking for a financing from a third party. The type of entity, which will provide financing, depends on the type of financing – selling of issued stocks or a drawing up.

In both situations the company has to provide an entity, which supplies the company with additional financing, with financial information. This is made in order to make the entity assured of the safety of investments and confident in their profitability. All data, presented to the investor can be found in company’s annual reports.

The main parts of annual reports are: balance sheet, statement of retained earnings, income statement, cashflow statement and notes to the financial statements. All these information is important for investors, but each particular investment need special parts of financial statements

Company #1

This company wants to buy a new issue of Target’s stocks. The first data they want to look at is share prices. Share prices represented in the form of graph is the first part of memo, which shall be presented to potential investments.

Being future shareholders, they are also interested in dividends paid per share. In Target’s annual report all data concerning earnings per share are in the block ‘Consolidate? statement of operations’. In order to present all information, which is useful for investors, memo has to contain all sorts of information on earnings per share: basic earnings per share , diluted earning per share, dividends per share. All this data has to be represented for several years – investor must be given an ability to track changes in company’s policy and associate all events in company with its financial indicators.

Beside information on earnings, information on the amount of stocks, privilege stocks, options and bonds with an ability to be converted into shares. These data makes investor informed, what part of the company he can acquire buying shares.

Another bulk of information, which is common for both companies, is data, representing company’s liquidity and financial stability. So, memo has to include liquidity ratios, leverage ratio and all account from balance sheet, influencing these ratios.

Company #2

Company #2 is ready to give a loan. Therefore, it will pay more attention to company’s liquidity – all liquidity ratios will be included in memo for this company too. All ratios and account shall be represented for several years in order to make investor capable to analyze data.

Except liquidity, creditor is interested in data, which shows how the company can generate profit to repay debt and cover interest expenses. For these purpose EBIT, EBITDA and Net earnings values have to be included in memo. After performing an analysis of these performance indicators investors can decide whether the company is able to generate profits, repay debt and keep on growing. The main indicator is Net earning, because installment will be subtracted from this sum.

To be able to analyze debtor in details, memo has to include detailed accounts containing information on company’s debt, both long-term and short-term. So, company has to include detailed list of current and non-current liabilities: their sums, creditors and mature dates. Having these information, creditor can easier calculate his risks.

References

Target’s Annual Reports. Retrieved July 12, 2009 from http://investors.target.com/phoenix.zhtml?c=65828&p=irol-reportsAnnual

Financial Statements: Introduction. In Investopedia.com. Retrieved July 12, 2009 from http://www.investopedia.com/university/financialstatements/

Liquidity Ratios. In Investopedia.com. Retrieved July 12, 2009 from http://www.investopedia.com/terms/l/liquidityratios.asp