Swot Analysis Of Target Corporation
The DuPont equation is a method that analyzes the return on equity ratio by breaking it into three different components. It gives a better understanding about the ROE of a company by analyzing which components are responsible for the changes. The DuPont equation consists of the following parts: Return on Equity = Net Profit Margin x Total Asset Turnover x Equity Multiplier
• Net profit margin ratio: Measures the operating efficiency of a company. It presents how well the company has managed its expenses to sales.
• Total asset turnover ratio: This measure the efficiency of a company to use their asset to generate revenue.
• Equity multiplier ratio: Measures the financial leverage of the company, which show if the company uses debt or equity to finance their asset purchases. The higher the ratio, the more debt financing the company is using. …show more content…
My choice of variable in the DuPont equation would be the total asset turnover.
This ratio measures the performance of a company in using its assets to generate revenue, which shows how efficient the company is using their resources.
The Target Corporation is the second largest merchandise retailer in the Unites States with 1,803 stores located in U.S. The first Target store opened in 1962 in the state of Minnesota. Their focus is, competitive prices, convenient shopping, and provide differentiated merchandise for their customers. Target is also a socially responsible retailer by giving 5% of its profit to the community, which equals about $ 4 million a week. This is distributed through a variety of programs, but mainly supporting education.
To evaluate Target Corporation performance on the basis of the DuPont method, we can look at the following table:
ROE = Net Profit Margin × Asset Turnover × Leverage
Jan 30, 2016 25.96% 4.56% 1.83 3.11
Jan 31, 2015 -11.69% -2.25% 1.75 2.96
Feb 1, 2014 12.14% 2.72% 1.63
2.74
If you look at the ROE of 2016 and 2015, Target had a large increase of 37.65% in its ROE. This is an increase mainly due to the changes in net profit margin ratio, which increased by 6.81%. This could be the result of increase in sales and management control on expenses. For every dollar of sales, Target is keeping .0456 in profits. The asset turnover ratio increased by .08%, which states that Target is more efficient in using their assets to generate sales. Finally, the financial leverage has increased by .15%, this means that Target has increased their use of debt financing. It is earning a higher rate of return on its investment compared to paying interest on its loans. The ROE increase of Target was mainly due to the net profit margin ratio.
• Net profit margin ratio: Measures the operating efficiency of a company. It presents how well the company has managed its expenses to sales.
• Total asset turnover ratio: This measure the efficiency of a company to use their asset to generate revenue.
• Equity multiplier ratio: Measures the financial leverage of the company, which show if the company uses debt or equity to finance their asset purchases. The higher the ratio, the more debt financing the company is using. …show more content…
My choice of variable in the DuPont equation would be the total asset turnover.
This ratio measures the performance of a company in using its assets to generate revenue, which shows how efficient the company is using their resources.
The Target Corporation is the second largest merchandise retailer in the Unites States with 1,803 stores located in U.S. The first Target store opened in 1962 in the state of Minnesota. Their focus is, competitive prices, convenient shopping, and provide differentiated merchandise for their customers. Target is also a socially responsible retailer by giving 5% of its profit to the community, which equals about $ 4 million a week. This is distributed through a variety of programs, but mainly supporting education.
To evaluate Target Corporation performance on the basis of the DuPont method, we can look at the following table:
ROE = Net Profit Margin × Asset Turnover × Leverage
Jan 30, 2016 25.96% 4.56% 1.83 3.11
Jan 31, 2015 -11.69% -2.25% 1.75 2.96
Feb 1, 2014 12.14% 2.72% 1.63
2.74
If you look at the ROE of 2016 and 2015, Target had a large increase of 37.65% in its ROE. This is an increase mainly due to the changes in net profit margin ratio, which increased by 6.81%. This could be the result of increase in sales and management control on expenses. For every dollar of sales, Target is keeping .0456 in profits. The asset turnover ratio increased by .08%, which states that Target is more efficient in using their assets to generate sales. Finally, the financial leverage has increased by .15%, this means that Target has increased their use of debt financing. It is earning a higher rate of return on its investment compared to paying interest on its loans. The ROE increase of Target was mainly due to the net profit margin ratio.