Target Corp. (NYSE:TGT)

The period under review demonstrates significant fluctuations in economic profit. Initial observations reveal a substantial improvement followed by a marked decline and subsequent stabilization at a negative level. Net operating profit after taxes (NOPAT) and invested capital both generally increased during the earlier part of the period, but NOPAT experienced a considerable decrease in 2023. The cost of capital remained relatively stable, with a slight decrease observed in the final year.

Economic Profit Trend

Economic profit began at a negative US$156 million in 2020, indicating the company’s returns were less than its cost of capital. A significant positive shift occurred in 2021, with economic profit reaching US$190 million, and further increasing dramatically to US$3,050 million in 2022. However, 2023 saw a return to negative economic profit, totaling US$798 million. This negative trend continued into 2024 and 2025, with economic profits of US$298 million and US$701 million respectively.

NOPAT Performance

Net operating profit after taxes increased from US$3,896 million in 2020 to US$5,024 million in 2021, and peaked at US$7,872 million in 2022. A substantial decrease was then observed in 2023, falling to US$3,821 million. NOPAT partially recovered in 2024 to US$4,953 million, but decreased again in 2025 to US$4,376 million. This volatility in NOPAT appears to be a primary driver of the fluctuations in economic profit.

Cost of Capital and Invested Capital

The cost of capital exhibited a slight upward trend from 14.87% in 2020 to 15.99% in 2022, before decreasing to 15.30% in 2024 and further to 14.06% in 2025. Invested capital generally increased over the period, rising from US$27,256 million in 2020 to US$36,107 million in 2025, with a slight dip observed in 2022. The increasing invested capital, coupled with the fluctuating NOPAT, significantly impacted economic profit.

The substantial increase in invested capital, particularly in the later years, did not translate into a corresponding increase in economic profit, suggesting diminishing returns or inefficiencies in capital allocation. The decline in NOPAT in 2023, despite a relatively stable cost of capital, is a key area for further investigation. The consistent negative economic profit in the final two years indicates that the company’s investments are not generating returns sufficient to cover the cost of capital.

Net Earnings

The net earnings demonstrate significant variability over the observed periods. Starting at 3,281 million USD in 2020, earnings increased markedly to 4,368 million USD in 2021 and then exhibited a strong peak at 6,946 million USD in 2022. However, the subsequent years show a pronounced decline, with net earnings dropping to 2,780 million USD in 2023. Thereafter, earnings partially recovered to 4,138 million USD in 2024 and slightly decreased to 4,091 million USD in 2025. This trend suggests a period of robust profit growth culminating in 2022, followed by a sharp contraction and partial stabilization in the latest years.

Net Operating Profit After Taxes (NOPAT)

NOPAT follows a pattern somewhat aligned with net earnings but with some variation in magnitude. Beginning at 3,896 million USD in 2020, NOPAT increased steadily to 5,024 million USD in 2021 and then experienced a substantial rise to 7,872 million USD in 2022. This was followed by a notable decrease to 3,821 million USD in 2023. The value subsequently increased to 4,953 million USD in 2024, then declined again to 4,376 million USD in 2025. The pattern indicates that operational profitability reached its highest point in 2022 and then declined sharply in 2023, showing a moderate recovery but not reaching previous peak levels in the following years.

Summary of Trends

Both net earnings and NOPAT reveal a strong growth phase culminating in 2022, indicative of favorable business conditions or operational efficiencies. The significant declines in both metrics in 2023 point to potential challenges or adverse conditions impacting profitability in that period. The partial rebound in 2024 followed by stabilization or slight decline in 2025 indicates the firm is managing to recover from the downturn but has yet to regain peak profitability levels seen in 2022. Overall, the data reflect volatility in profitability with a cyclical peak and trough pattern over the six-year span.

Provision for Income Taxes

The provision for income taxes exhibited an overall upward trend from February 1, 2020, through January 29, 2022, increasing from $921 million to $1961 million. This represents a significant rise over the two-year span. Subsequently, there was a marked decline to $638 million as of January 28, 2023, after which the provision increased again, reaching approximately $1170 million by February 1, 2025. This fluctuation suggests variability in taxable income or changes in tax planning strategies over the years measured.

Cash Operating Taxes

Cash operating taxes showed considerable volatility throughout the period. Starting at $862 million in February 2020, the amount rose sharply to $1585 million by January 30, 2021, and remained relatively high at $1546 million in January 29, 2022. However, in the following year, there was a steep decline to $178 million in January 28, 2023. After this trough, cash operating taxes rebounded to $998 million in February 3, 2024, and further increased to $1474 million by February 1, 2025. These wide swings indicate fluctuations in actual tax outflows, possibly influenced by changes in taxable income, timing differences, or tax payments.

Comparative Insights

Both provision for income taxes and cash operating taxes showed similar patterns of rising sharply in the early years, reaching peaks around 2021-2022, followed by sharp declines in 2023, and then partial recoveries towards 2025. Notably, the cash operating taxes displayed greater volatility compared to provisions, suggesting possible timing mismatches or adjustments between accounting provisions and actual cash tax payments. The divergence in the magnitude of changes, particularly the sharp drop in cash operating taxes in 2023 compared to provisions, may reflect tax refunds, credits, or other operational factors affecting cash flows distinct from accounting accruals.

Total Reported Debt & Leases

The total reported debt and leases show a consistent upward trend across the periods, increasing from $13,974 million in early 2020 to $19,875 million by early 2025. This indicates a growing reliance on debt and lease obligations over the five-year span, with the most notable increases occurring between 2021 and 2023. The growth rate appears to moderate slightly towards the final years but remains at a high absolute level.

Shareholders’ Investment

Shareholders’ investment exhibits more fluctuation compared to debt levels. It initially rises from $11,833 million in 2020 to a peak of $14,440 million in 2021, followed by a decline through 2023 down to $11,232 million. After this trough, it rebounds significantly in 2024 and 2025, reaching $14,666 million. This pattern suggests periods of both contraction and expansion in shareholder equity, possibly reflecting profit retention, dividend policy changes, or equity financing activities during these years.

Invested Capital

Invested capital shows a general upward trajectory over the observed time frame. Beginning at $27,256 million in 2020, it increases steadily with a slight dip only in 2022, remaining around $30,000 million before accelerating growth to $36,107 million by 2025. The growth in invested capital aligns with the increasing debt levels and mostly recovering shareholders’ investment, indicating an overall expansion in the company’s capital base.

Overall Analysis

The financial data depicts a company increasing its capital base primarily through rising debt while shareholders’ equity shows variability. The growing total invested capital alongside increasing debt suggests that the company may be financing growth or operations with a heavier reliance on debt instruments. The variable equity levels imply possible fluctuations in earnings retention or capital structure adjustments. This pattern of rising debt and invested capital coupled with equity variability may have implications for financial leverage and risk profile over the reported years.

The economic spread ratio exhibited significant fluctuations over the observed period. Initially negative, it demonstrated substantial improvement before declining again in subsequent years. A review of the figures reveals a complex performance pattern requiring further investigation.

Economic Spread Ratio Trend

The economic spread ratio began at -0.57% in February 2020, indicating that the company’s return on invested capital was less than its cost of capital. A marked improvement occurred in January 2021, with the ratio rising to 0.62%. This positive trend continued dramatically through January 2022, reaching a peak of 10.11%, suggesting a strong ability to generate returns exceeding the cost of capital. However, the ratio then experienced a considerable decline, falling to -2.64% in January 2023 and further to -0.87% in February 2024. The most recent observation, February 2025, shows a continued negative trend with a ratio of -1.94%.

The economic spread ratio’s volatility suggests sensitivity to underlying economic conditions or company-specific factors. The substantial increase in 2022 warrants further scrutiny to identify the drivers of this performance. The subsequent declines in 2023, 2024, and 2025 indicate a weakening in the company’s ability to generate economic profit relative to its invested capital.

Relationship to Economic Profit

The economic spread ratio’s movement closely mirrors that of economic profit. Negative economic profit values in February 2020, January 2023, February 2024, and February 2025 correspond with negative economic spread ratios. Conversely, the positive economic profit of US$190 million in January 2021 and US$3,050 million in January 2022 align with positive economic spread ratios. This correlation highlights the direct link between the ratio and the absolute economic profit generated.

Invested capital generally increased over the period, moving from US$27,256 million in February 2020 to US$36,107 million in February 2025. However, the increasing invested capital did not consistently translate into improved economic spread, particularly in the later years of the observation period. This suggests that the efficiency with which capital was deployed may have decreased.

Recent Performance

The economic spread ratio has been consistently negative for the last three observed periods (January 2023, February 2024, and February 2025). This sustained negative performance is a potential cause for concern and suggests a need for strategic adjustments to improve profitability and capital allocation.

The economic profit margin exhibited significant fluctuations over the observed period. Initially negative, it transitioned to positive territory before declining again in subsequent years. A review of the figures reveals a complex performance pattern requiring further investigation.

Economic Profit Margin Trend

The economic profit margin began at -0.20% in February 2020, indicating that the company’s economic profit was negative relative to its net sales. A substantial improvement occurred in January 2021, with the margin rising to 0.20%. This positive margin was further amplified in January 2022, reaching a peak of 2.88%. However, the margin experienced a sharp reversal in January 2023, falling to -0.73%, and continued to decline, reaching -0.28% in February 2024 and -0.66% in February 2025.

The period between 2020 and 2022 demonstrates a clear progression from economic loss to substantial economic profit, as reflected in the economic profit margin. The subsequent years, however, show a return to negative economic profit, although not to the extent observed in 2020. The magnitude of the decline from the 2022 peak is noteworthy.

Relationship to Net Sales

Net sales generally increased from February 2020 to January 2023, moving from US$78,112 million to US$109,120 million. While net sales decreased slightly in February 2024 and February 2025, the economic profit margin’s decline appears to be driven by factors beyond revenue fluctuations, as evidenced by the significant drop in margin despite continued high sales in 2023. This suggests changes in the cost of capital or operational efficiency impacted economic profit more substantially than sales volume.

The volatility in the economic profit margin suggests potential instability in the company’s ability to generate returns exceeding its cost of capital. The recent trend indicates a weakening of economic profitability, despite relatively stable net sales. Further analysis is needed to determine the underlying causes of these fluctuations and to assess the sustainability of future performance.