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MEMORANDUM
To: Mr. Y. Boss, Financial Services Company
From: Aisol Casillas, Financial Analyst
Date: September 29, 2014
Re: Investment Recommendation on Target Corporation
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The purpose of this memo is to provide a reliable direction upon investment concerning Target Corporation. After careful and thorough investigation, an analysis regarding the company’s background and financial highlights result in a final recommendation towards our companies approach on Target. Target’s Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended February 1, 2014 was employed for this analysis.

Background- Target Corporation is categorized as a general merchandise discount store offering everyday essentials from household items to an assortment of food. It is the second largest discount retailer in the US and number 36 on Forbes Fortune 500 companies as of 2014. They most currently operate as two reportable segments: US and Canada (due to their first expansion consisting of 124 stores opening in Canada totaling 14,189 square footage during 2013). US stores total 1,793 with total square footage of 240,054 and 37 distribution centers as of 2013. The three largest states by total sales include California, Texas, and Florida where natural disasters are more common. The majority of US stores are owned while Canadian stores are leased under a purchase of Zellers leases in 2013. The larger share of annual revenues and earnings traditionally occur within the 4th quarter with peak sales from Thanksgiving to the end of December.

Their retail operations include In-store, Online, and Mobile Devices allowing for Target Corp. to maintain a strong supply chain and technology infrastructure. By keeping pace with a changing environment and multichannel retailing, Target has been able to create a personalized guest experience to differentiate from its competitors. The use of efficient inventory management and trend-right decisions have allowed for Target to compete with industry competitors among price, quality, and in-store amenities. As of March 2013, Target sold their US Credit Card portfolio to TD Bank Group for a total of $5.7 billion cash received. Due to the Data Breach announcement during the fourth quarter of 2013, Target experienced weaker than expected sales and a loss of guest confidence. Sales began to recover in January 2014 and REDcard penetration continued to increase at a slower rate. Currently working on the Data Breach issue, Target’s biggest concern lies on the negative impact the breach will cause the companies reputation among consumers and the possibility of participation on their brand proprietary REDcard program.

Financial Highlights
Short Term Liquidity: Target reports a decrease between years 2012 and 2013 in Current and Quick Ratios. Cash Flow Liquidity ratio however produces an increase from 2012 to 2013 of 0.13. This is due to the increase of cash flow from operating activities in 2013 increasing by 22% compared to 2012’s CFO. Proceeds of sale of accounts receivable originated at Target were included as a new section added to Operating Activities accounting for $2.7 billion of the total. This was due to the sale of Target Credit Card Portfolio. Additionally, we see an increase of accounts payable.

Cash conversion cycle in 2013 is 8 days resulting in a decrease of 28 days compared to 2012’s 36 day total. This total results from days inventory held at 63 and days payable outstanding at 55 with no average collection period to calculate due to the sale of Target’s Credit Card portfolio. The decline in cash conversion is a result of the increased cash flow from operating activities. While accounts receivable and accounts payable both experienced positive