Question

QUESTION 2 Incorrect Mark 0.00 out of 10.00P Flag 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 Credit card revenues Total revenues Cost of sales Selling, general and administrative expenses Credit card expenses Depreciation and amortization Earnings before interest and income taxes Net interest expense Earnings before income taxes Provisions for income taxes Net earnings 51,271 45,682 40,928 1,349 57 1,097 52,620 46,839 42,025 4,927 31,445 28,389 8,657 722 1,409 1,259 1,098 4,323 3,601 3,159 556 3,860 3,03 2,603 984 $2,408 $1,885 1,619 11,185 9,797 776 737 463 570 1,452 1,146

Answer 1

1)
2006 ROE = Net Margin/ Average Shareholder Equity
Year	2006	2005
Net Margin	$       2,408.00
Total shareholders' investment	$     14,205.00	$     13,029.00
Average Shareholder Equity = (14205+13029)/2	$     13,617.00
ROE = 2408/13617	17.68%
2)
ROE = profit margin x asset turnover x financial leverage
Profit Margin = Net margin /Total Sales = 2408 /52620	4.58%
Asset Turnover = Total sales/ Average Total assets
Average Total assets = (34995+32293)/2	$     33,644.00
Asset Turnover = 52620/33644	1.56
Financial Leverage = Average Total Assets/ Average Total Shareholder equity
Financial Leverage = 33,644/13617	2.47
ROE = 4.58% x 1.56 x 2.47	17.68%
3)
ROA = Net income + (interest Expense x (1 - tax rate))/ Average Total assets
Adjusted ROA = 2408 + (463 x (1 - 38.3%))/ 33644	8.01%