Target Corp. (TGT) | Aggregate Accruals

Earnings can be decomposed into cash and accrual components. The accrual component (aggregate accruals) has been found to have less persistence than the cash component, and therefore (1) earnings with higher accrual component are less persistent than earnings with smaller accrual component, all else equal; and (2) the cash component of earnings should receive a higher weighting evaluating company performance.

Balance-Sheet-Based Accruals Ratio

Target Corp., balance sheet computation of aggregate accruals

USD $ in millions

	Feb 2, 2013	Jan 28, 2012	Jan 29, 2011	Jan 30, 2010	Jan 31, 2009	Feb 2, 2008
Operating Assets
Total assets	48,163	46,630	43,705	44,533	44,106	44,560
Less: Cash and cash equivalents	654	600	583	583	562	599
Less: Short-term investments	130	194	1,129	1,617	302	1,851
Operating assets	47,379	45,836	41,993	42,333	43,242	42,110
Operating Liabilities
Total liabilities	31,605	30,809	28,218	29,186	30,394	29,253
Less: Notes payable and long-term debt, amounts due within one year	2,994	3,786	119	1,696	1,262	1,964
Less: Notes payable and long-term debt, excluding amounts due within one year	14,654	13,697	15,607	15,118	17,490	15,126
Operating liabilities	13,957	13,326	12,492	12,372	11,642	12,163

Net operating assets¹	33,422	32,510	29,501	29,961	31,600	29,947
Balance-sheet-based aggregate accruals²	912	3,009	(460)	(1,639)	1,653
Balance-Sheet-Based Accruals Ratio, Comparison to Industry
Target Corp.³	2.77%	9.70%	-1.55%	-5.32%	5.37%
Industry, Consumer Services	–%	5.58%	3.03%	2.47%	-8.99%

2013 Calculations

¹ Net operating assets = Operating assets – Operating liabilities
= 47,379 – 13,957 = 33,422

² Balance-sheet-based aggregate accruals = Net operating assets ₂₀₁₃ – Net operating assets ₂₀₁₂
= 33,422 – 32,510 = 912

³ Balance-sheet-based accruals ratio = 100 × Balance-sheet-based aggregate accruals ÷ Avg. net operating assets
= 100 × 912 ÷ [(33,422 + 32,510) ÷ 2] = 2.77%

Ratio	Description	The company
Balance-sheet-based accruals ratio	Ratio is found by dividing balance-sheet-based aggregate accruals by average net operating assets.	Using the balance-sheet-based accruals ratio, Target Corp. improved earnings quality from 2012 to 2013.

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Cash-Flow-Statement-Based Accruals Ratio

Target Corp., cash flow statement computation of aggregate accruals

USD $ in millions

	Feb 2, 2013	Jan 28, 2012	Jan 29, 2011	Jan 30, 2010	Jan 31, 2009	Feb 2, 2008
Net earnings	2,999	2,929	2,920	2,488	2,214	2,849
Less: Cash flow provided by operations	5,325	5,434	5,271	5,881	4,430	4,125
Less: Cash flow required for investing activities	(2,855)	(4,180)	(1,744)	(1,703)	(4,373)	(6,195)
Cash-flow-statement-based aggregate accruals	529	1,675	(607)	(1,690)	2,157	4,919
Cash-Flow-Statement-Based Accruals Ratio, Comparison to Industry
Target Corp.¹	1.60%	5.40%	-2.04%	-5.49%	7.01%
Industry, Consumer Services	–%	3.78%	2.06%	-0.31%	-0.96%

2013 Calculations

¹ Cash-flow-statement-based accruals ratio = 100 × Cash-flow-statement-based aggregate accruals ÷ Avg. net operating assets
= 100 × 529 ÷ [(33,422 + 32,510) ÷ 2] = 1.60%

Ratio	Description	The company
Cash-flow-statement-based accruals ratio	Ratio is found by dividing cash-flow-statement-based aggregate accruals by average net operating assets.	Using the cash-flow-statement-based accruals ratio, Target Corp. improved earnings quality from 2012 to 2013.

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