Comparative Financial Analysis of Target Corporation and JC Penney Term Paper

Comparative Financial Analysis of Target Corporation and JC Penney - Term Paper Example JC Penney likewise had its beginnings in a small dry goods store in 1902 (JC Penney, 2011). Target operates some 1,750 stores within the United States; JC Penney also operated some 2,000 stores at one time, although some have since then been closed due to the economic crisis. Sources of data Data for this study were sourced from the companies’ respective 10-K reports and annual stockholders’ reports from the years 2005 to 2010,and from thence sourced the needed financial statements (income statement and balance sheet), and their accompanying notes and explanations. The reports and additional data were downloaded from the companies’ official websites. Capital accounts: Market and book values The spreadsheets attached to this report show the six-year comparative balance sheets and income statement as they originally appear; as common size, per cent of assets balance sheet and per cent of sales income statement; and then as ratios to the accounts for 2005, the desig nated base year. Then a spread sheet shows the comparative financial ratios computed for the two companies, indicating liquidity, activity, debt, profitability, and per share ratios. For the capital accounts, the most recent per share valuation figures, which are drawn from the spread sheets, are as follows: Indicator Target JC Penney Earnings per share (EPS) $4.03 $1.64 Book value per share (BVPS) $21.99 $22.94 Market price per share (MPS) $44.09 $29.17 Price to earnings ratio (PER) 10.78 X 17.8 X Price to book value (PBV) 2.0 X 1.27 X Dividends per share $0.92 $0.80 Payout ratio 23 % 50 % Data sources: JC Penney 2010 10-K Report; Target 2010 Annual Report From these figures, it is apparent that the two companies have nearly identical book value per share, but significantly different EPS. Target’s EPS is nearly three times that of JC Penney, and in that sense it is more profitable for the shareholders. This higher profitability makes Target more attractive to investors, so i ts market price is considerably higher (Cooper & Argyris, 1998:505; Lee & Lee, 2006:176; De Pamphilis, 2009:292). Target may have a higher price to book value (PBV) and therefore appears more expensive than JC Penney in this regard, but based on PER Target is still cheaper at only 10 times, compared to JC Penney’s nearly 18 times. Target also gives out a higher cash dividend per share, even though payout ratio is smaller and more earnings are being retained in the company. Fixed and non-current assets The balance sheets show that Target’s assets are more than two times that of JC Penney although they have roughly the same number of outlets. The common-size balance sheets show that Target’s current assets average only 40% of the total assets, while JC Penney’s current assets average 50% of its total assets. This does not necessarily mean that JC Penney is under-invested and holds too much liquidity. The sales figures show that JC Penney is only undertaking one-third the business of Target, therefore it may need a greater proportion of its assets for working capital and to bankroll the inventory turnover. Target appears to be operating more efficiently than JC Penney, devoting a lower proportion of its assets to generate a higher volume of sales. Both companies have a measure of goodwill and intangible assets, although their fair values exceed their carrying value. Deferred tax accounts and tax