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Solutions 6-56
6.32 continued.
in cash and marketable securities. It generates interest revenue from
these investments, which it includes in other revenues. It is interesting to
This leaves Firms (3) and (5) as Nestle and Toyota Motor in some
combination. Firm (5) has a larger amount of receivables relative to sales
than Firm (3), consistent with Toyota Motor providing financing for its
Toyota Motor and Firm (5) is Nestle. Toyota Motor, however, has
implemented just-in-time inventory systems, which speed its inventory
turnover. Nestle tends to manufacture chocolates to meet seasonal
demands, and therefore carries inventory somewhat longer than one
6-57 Solutions
Solutions 6-58
6.32 continued.
Firms (10) and (11)—Firms (10) and (11) are unique in that they are
both very fixed-asset intensive. Electric utilities and telecommunication
Firms (6) and (8)—Two of the remaining industries are also capital
intensive, but not to the extent of Deutsche Telekon and Tokyo Electric
Firm (7)—Firm (7) has an unusually high proportion of its assets in
receivables and in current liabilities. Although this pattern would be
Firm (1)—Firm (1) is distinguished by its high cost of goods sold to sales
6-59 Solutions
current assets.
Solutions 6-60
6.32 continued.
Firm (4)—The remaining firm is Firm (4), which is Marks & Spencer the
6.33 (Target Corporation; preparing pro forma financial statements requires
Appendix 6.1.)
a. See attached pro forma financial statements and related financial
ratios.
b. Target Corporation needs to increase borrowing. Cash flow from
operations is positive in each year. Thus, the financing need does not
c. The pro forma financial statement ratios indicate a decreasing ROCE.
The projected profit margin for ROCE and total assets turnover ratios
are stable. The declining ROCE results from a declining capital
6-61 Solutions
6.33 a. continued.
TARGET CORPORATION
PRO FORMA INCOME STATEMENT
YEAR ENDED JANUARY 31
(Amounts in Millions)
2008 2009 2010 2011 2012 2013
Expenses:
Cost of Goods
Selling and Ad-
Net Income ............ $ 2,849 $ 3,118 $ 3,465 $ 3,831 $ 4,233 $ 4,652
Less Dividends ...... 442 513 595 690 800 928
Increase in Re-
tained Earnings $ 2,407 $ 2,606 $ 2,870 $ 3,141 $ 3,433 $ 3,724
Assumptions:
Solutions 6-62
6.33 a. continued.
TARGET CORPORATION
PRO FORMA BALANCE SHEET
JANUARY 31
(Amounts in Millions)
2008 2009 2010 2011 2012 2013
Cash ....................... $ 2,450 $ 1,778 $ 768 $ 680 $ (668) $ 292
Accounts Receiv-
Accounts Payable .. $ 6,721 $ 7,507 $ 8,001 $ 8,902 $ 9,523 $ 10,561
Notes Payable ....... 0 0 0 0 0 0
Current Portion—
Long-Term Debt 1,964 1,951 1,251 2,236 107 2,251
Other Current
Other Noncurrent
Liabilities .......... 2,345 2,556 2,786 3,037 3,310 3,608
Total Lia-
bilities ........ $ 31,066 $ 31,876 $ 32,477 $ 34,162 $ 34,767 $ 37,910
Common Stock ...... $ 68 $ 68 $ 68 $ 68 $ 68 $ 68
Additional Paid-in
Total Liabilities
and Share-
holders’
Equity........... $ 46,373 $ 49,773 $ 53,227 $ 58,033 $ 62,052 $ 68,896
6-63 Solutions
(See Following Page for Assumptions)
Solutions 6-64
6.33 a. continued.
(Assumptions for Pro Forma Balance Sheet)
Assumptions:
Cash ............................. PLUG
Accounts Receivable .... Sales Growth Rate
Notes Payable .............. No change
Other Current
Liabilities ................. Sales Growth Rate
Long-Term Debt .......... Property, Plant and Equipment Growth Rate
6-65 Solutions
6.33 a. continued.
TARGET CORPORATION
PRO FORMA STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 31
(Amounts in Millions)
Cash Flow Statement 2008 2009 2010 2011 2012 2013
counts Payable ...... 111 786 495 901 621 1,038
Inc./(Dec.) in Other
Current Liabilities 186 279 304 331 361 393
Financing:
Inc./(Dec.) in Short-
Term Borrowing .... $ 500 $ 0 $ 0 $ 0 $ 0 $ 0
Inc./(Dec.) in Long-
Term Borrowing .... 6,291 (465) (427) 201 (649) 1,413
Inc./(Dec.) in Com-
mon Stock .............. (2,598) 0 0 0 0 0
Solutions 6-66
(See Following Page for Assumptions)
6-67 Solutions
6.33 a. continued.
(Assumptions for Pro Forma Statement of Cash Flows)
Assumptions:
TARGET CORPORATION
PRO FORMA FINANCIAL RATIOS
2008 2009 2010 2011 2012 2013
Rate of Return on Assets ..... 7.7% 7.7% 7.8% 7.9% 8.0% 8.0%
Accounts Receivable Turn-
over Ratio ..................... 8.6 8.0 8.0 8.0 8.0 8.0
Inventory Turnover Ratio .... 6.4 6.4 6.4 6.4 6.4 6.4
Current Liabilities .......... 36.0% 38.4% 37.8% 40.9% 41.0% 44.0%
Accounts Payable Turnover
Ratio ................................ 6.4 6.5 6.5 6.5 6.5 6.5
Solutions 6-68
Debt-Equity Ratio ................ 110.7% 92.1% 80.8% 66.9% 64.0% 54.0%
6-69 Solutions
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