Target Asset Utilization

Asset Utilization measures a company’s efficiency in managing its assets to generate sales. Receivable Turnover Ratio tells how quickly Target customers are paying. A high turnover ratio is generally a good thing since it means that customers are paying their bills. It also shows that the Target is very responsive in its credit and collection policies and extending credit to enough customers. Average collection period measures the timeframe of which Target customers are paying their debt. The lower this number is the better because it means payments are being made faster. Applying the effects of the economy, the fluctuation in the receivable turnover ratio over time can indicate that customers have less disposable income and are still inclined
It shows the company’s ability to meet its short-term financial obligations. Current Ratio is the most popular financial ratio used to test company liquidity by providing the number of times current assets can cover current liabilities. Here it shows that for every dollar in current liabilities, on average Target has roughly $1.60 in current assets. Quick Ratio is similar to the current ratio, as it measures the amount of the most liquid current assets there are to cover current liabilities. A general rule of thumb states that the ratio should be 1 to 1. Here Target has been able to closely maintain a 1 to 1 ratio. The increase in inventories over the years has contributed a great deal to the increase in current assets. Since Target’s current ratio is significantly higher than the quick ratio, it is a clear indication that the Target’s current assets are dependent on inventory. Inventory Turnover tells how often Target’s inventory turns over during the course of a year. By calculating Days of Inventory on Hand, it shows that Target maintains 60 days of inventory that can be readily converted into cash. Overall, Target’s liquidity ratios indicate that the company has high cash flows and is very efficient in managing and selling its