Accounting Analysis Essay Sample

Target's current liabilities as at 30th January 2016 comprise of accounts payables, accrued and other current liabilities, current portion of long-term debt and other borrowings, and liabilities of discontinued operations ("Target Corp. - AnnualReports.com", 2018). The accounts payables refer to the short-term obligations that the firm owes to its creditors or suppliers. In the case scenario, the accounts payables comprise of book overdrafts. The accounts payables, in this case, are beneficial to the company as they aid payment to suppliers even when there is no available liquid cash. It acts as short-term financing that allows the company to issue checks to suppliers to an amount exceeding the available bank balance. Therefore, there is no disruption of supplies in a case where the company runs low on cash.

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The accrued and other current liabilities entails aspects such as wages and salaries, dividends payable, interest payable, and income tax payable among others ("Target Corp. - AnnualReports.com", 2018). The accrued liabilities refer to the services that the company has consumed but has not yet paid for them. While some of these aspects are beneficial to the company, others reduce the realized profits in the company. For instance, the salaries and wages allow the company to sustain the services that employees offer. Ideally, employees are essential towards the achievement of the organizational goals and objectives as they contribute towards the daily activities of the company. Nevertheless, aspects such as interest payable and income tax payable act as expenses and thus reduce the company's profits.

The current portion of long-term debt (CPLTD) entails the proportion of the principal that is due within one accounting year in the company. It is beneficial to the company as it a significant tool in analyzing the liquidity position upon comparing the CPLTD and the available cash. Additionally, it allows the company to reduce the available long-term debts. The liabilities of discontinued operations hinder the overall profitability of Target Company. They relate to the accrued liabilities and liquidation costs as a result of the investment loss realized in Canada ("Target Corp. - AnnualReports.com", 2018). In this case, the loss and the liquidation costs affect the balances of the continued operations in the balance sheet. Although some of the classes of current liabilities create a beneficial aspect of Target Company, current liabilities usually create a constraint on the Company's cash flows. Therefore it is essential to maintain sufficient assets necessary to cover the short-term liabilities in order to maintain a favorable liquidity position.

Times-interest-earned ratio

This ratio evaluates the ability of a firm to meet its debt obligations. The following figures show the times interest earned ratio of the Target Company and Kohl's Corporation as at 30th January 2016.

Times-interest-earned ratio =Income Before Interest and Tax (EBIAT)Interets ExpenseTarget Company 'millions $.' Kohl's Corporation

'Millions $.'

Income before interest and tax

Interest expense 4, 969

1, 004 1, 183

308

TIE Ratio 4. 95 3. 84

Source: Kohl's Corporation - AnnualReports.com. (2018).

Target Corp. - AnnualReports.com. (2018).

From the data above, Target Company has a higher times interest earned ratio than Kohl's Corporation. Ideally, a higher ratio is more favorable since it shows that the company stands a lower risk to the creditors and investors in regard to solvency position. Furthermore, an ideal times interest earned ratio should be 2.5 and above. In this case, therefore, Kohl's Corporation also presents a favorable solvency position.

Given this analysis, I would recommend an investor to venture into Target Company as it has a higher times interest earned ratio translating to a lower solvency risk compared to Kohl's Corporation. Besides, Target Company reported a higher income than Kohl's Corporation in the year ended 30th January 2016 ("Target Corp. - AnnualReports.com", 2018). Ideally, a high total income is an indicator of a favorable performance metric. Moreover, every investor aims at creating value and maximizing profits. This can be realized through the return on investment presented through dividends. In most cases, a higher net income translates to a good rate of dividend therein. Therefore, it is advisable that an investor ventures into a company that realizes the highest profits therein ("Kohl's Corporation - AnnualReports.com", 2018).

The analysis of the financial information above presented a very interesting aspect. For instance, typically, the mention of liabilities presents an unfavorable effect on the financial condition of the company therein. Current liabilities are debts and thus affect the liquidity position of the company. However, this is not usually the case; some aspects of the current liabilities are beneficial to the company as well. In this case, it means that some liabilities are inevitable and have to be incurred in order to enhance the organizational efficiency. Thus, some obligations such as wages and salaries and book overdrafts propel the organization activities towards achieving the core goals and objectives of the firms.

References

Kohl's Corporation - AnnualReports.com. (2018). Retrieved from http://www.bing.com/cr?IG=7074B94E938B47EE930527A55CA84816&CID=2130C8A3533D6A4D33EBC35C52C06BB4&rd=1&h=zpU-xablWvR5GPGikv-YywhAv9BEu9rxcNJMaeQMpEg&v=1&r=http%3a%2f%2fwww.annualreports.com%2fCompany%2fkohls-corporation&p=DevEx.LB.1,5537.1

Target Corp. - AnnualReports.com. (2018). Retrieved from http://www.bing.com/cr?IG=51E9E5C5661F44F08D02EFFD900AE7FC&CID=054855B71BE26514095F5E481A1F64EF&rd=1&h=xEmaRClmU-mL2ND8mXx74lx71-TdCeX9x29ktbeGgpQ&v=1&r=http%3a%2f%2fannualreports.com%2fCompany%2ftarget-corp&p=DevEx.LB.1,5102.1