Question

Analysis and Interpretation of Profitability
Balance sheets and income statements for Target Corporation follow.

Income Statement
For Fiscal Years Ended ($ millions)	2006	2005	2004
Sales	$ 51,271	$ 45,682	$ 40,928
Credit card revenues	1,349	1,157	1,097
Total revenues	52,620	46,839	42,025
Cost of sales	34,927	31,445	28,389
Selling, general and administrative expenses	11,185	9,797	8,657
Credit card expenses	776	737	722
Depreciation and amortization	1,409	1,259	1,098
Earnings before interest and income taxes	4,323	3,601	3,159
Net interest expense	463	570	556
Earnings before income taxes	3,860	3,031	2,603
Provisions for income taxes	1,452	1,146	984
Net earnings	$ 2,408	$ 1,885	$ 1,619

Balance Sheet
($ millions, except footnotes)	January 28, 2006	January 29, 2005
Assets
Cash and cash equivalents	$ 1,648	$ 2,245
Credit card receivables	5,666	5,069
Inventory	5,838	5,384
Other current assets	1,253	1,224
Total current assets	14,405	13,922
Property and equipment
Land	4,449	3,804
Buildings and improvements	14,174	12,518
Fixtures and equipment	3,219	2,990
Computer hardware and software	2,214	1,998
Construction-in-progress	1,158	962
Accumulated depreciation	(6,176)	(5,412)
Property and equipment, net	19,038	16,860
Other noncurrent assets	1,552	1,511
Total assets	$ 34,995	$ 32,293
Liabilities and shareholders' investment
Accounts payable	$ 6,268	$ 5,779
Accrued and other current liabilities	2,567	1,937
Current portion of long-term debt and notes payable	753	504
Total current liabilities	9,588	8,220
Long-term debt	9,119	9,034
Deferred income taxes	851	973
Other noncurrent liabilities	1,232	1,037
Shareholders' investment
Common stock	73	74
Additional paid-in-capital	2,121	1,810
Retained earnings	12,013	11,148
Accumulated other comprehensive income (loss)	(2)	(3)
Total shareholders' investment	14,205	13,029
Total liabilities and shareholders' equity	$ 34,995	$ 32,293

(a) Compute Costco’s current ratio and quick ratio for 2006 and 2005. (Round answers two decimal places.)

2006 current ratio =Answer

2005 current ratio =Answer
2006 quick ratio =Answer
2005 quick ratio =Answer

(b) Compute Target's times interest earned and its liabilities-to-equity ratios for 2006 and 2005. (Round your answers to two decimal places.)

2006 times interest earned =Answer

2005 times interest earned =Answer
2006 liabilities-to-equity =Answer
2005 liabilities-to-equity =Answer

Comment on any observed trends. Which of the following statements best describes any trend in Target's liabilities-to-equity ratios?

The decrease in Target's liabilities-to-equity ratio remained constant.

Target's liabilities-to-equity ratio decreased slightly in 2006, we have no concerns about Target's's ability to meet its debt obligations.

Target's liabilities-to-equity ratio increased during the year primarily due to a decrease in its equity.

Target's liabilities-to-equity ratio decreased due to a decrease in its equity.

Answer 1