Target Corp. (NYSE:TGT)

The period under review demonstrates fluctuating economic profit performance. Net operating profit after taxes (NOPAT) initially increased significantly, followed by a substantial decline and subsequent partial recovery. Invested capital generally trended upward, while the cost of capital exhibited relative stability with a recent decrease. These movements collectively influenced the observed economic profit trajectory.

NOPAT Trend

NOPAT experienced a considerable increase from 3,896 US$ millions in 2020 to 5,024 US$ millions in 2021. This growth accelerated further in 2022, reaching 7,872 US$ millions. However, a significant decrease was recorded in 2023, with NOPAT falling to 3,821 US$ millions. A partial recovery occurred in 2024, with NOPAT rising to 4,953 US$ millions, but this level decreased again in 2025 to 4,376 US$ millions.

Cost of Capital

The cost of capital remained relatively stable between 2020 and 2024, fluctuating between 13.00% and 13.94%. A noticeable decrease occurred in 2025, with the cost of capital falling to 12.32%. This reduction in the cost of capital may influence future economic profit calculations.

Invested Capital

Invested capital showed a consistent upward trend throughout the period. It increased from 27,256 US$ millions in 2020 to 30,495 US$ millions in 2021 and 30,151 US$ millions in 2022. Further increases were observed in 2023 and 2024, reaching 30,226 US$ millions and 34,307 US$ millions respectively. This trend continued into 2025, with invested capital reaching 36,107 US$ millions.

Economic Profit

Economic profit mirrored the NOPAT trend. It increased from 352 US$ millions in 2020 to 809 US$ millions in 2021, peaking at 3,669 US$ millions in 2022. A substantial decline followed in 2023, resulting in an economic loss of -212 US$ millions. Economic profit recovered partially in 2024 to 367 US$ millions, but decreased again in 2025 to -73 US$ millions. The fluctuations in economic profit highlight the sensitivity of profitability to changes in NOPAT, cost of capital, and invested capital.

The interplay between NOPAT, cost of capital, and invested capital significantly impacted economic profit. While invested capital consistently increased, the volatility in NOPAT, coupled with a recent decrease in the cost of capital, resulted in fluctuating economic profit figures, including periods of economic loss.

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, the ratio demonstrated a strong upward trend, peaking in 2022 before declining substantially in subsequent years.

Economic Spread Ratio Trend

The economic spread ratio began at 1.29% in 2020 and increased considerably to 2.65% in 2021. A substantial increase was then observed, reaching 12.17% in 2022. This positive trajectory reversed in 2023, with the ratio falling to -0.70%. The decline continued into 2024, stabilizing at 1.07%, but further decreased to -0.20% in 2025.

The economic spread ratio’s movement appears closely linked to the fluctuations in economic profit. The peak in the ratio in 2022 corresponds with the highest reported economic profit of US$3,669 million. Conversely, the negative ratio in 2023 and 2025 aligns with reported economic losses of US$212 million and US$73 million, respectively.

Invested Capital

Invested capital showed a generally increasing trend throughout the period. From US$27,256 million in 2020, it rose to US$30,495 million in 2021 and US$30,151 million in 2022. A slight increase to US$30,226 million was noted in 2023, followed by more substantial growth to US$34,307 million in 2024 and US$36,107 million in 2025. This consistent growth in invested capital did not translate into a corresponding sustained improvement in the economic spread ratio.

The divergence between the increasing invested capital and the fluctuating, and ultimately declining, economic spread ratio suggests a diminishing return on invested capital. While the company continued to invest, its ability to generate economic profit relative to that investment decreased, particularly in the later years of the observed period.

Economic Profit

Economic profit demonstrated considerable volatility. It increased from US$352 million in 2020 to US$809 million in 2021, then experienced a significant surge to US$3,669 million in 2022. However, a substantial loss of US$212 million was recorded in 2023, followed by a modest profit of US$367 million in 2024, and a loss of US$73 million in 2025. This erratic performance directly impacted the economic spread ratio.

The economic profit margin exhibited significant fluctuation over the observed period. Initially positive, it experienced substantial growth followed by a period of negative performance before a partial recovery, and then a return to negative territory.

Economic Profit Margin Trend

In the period ending February 1, 2020, the economic profit margin stood at 0.45%. This margin increased considerably to 0.86% by January 30, 2021, indicating improved profitability relative to capital employed. A substantial increase was then observed, reaching 3.46% by January 29, 2022, representing a peak in economic profit generation. However, the trend reversed sharply in the following year, with the margin declining to -0.19% by January 28, 2023, signifying economic loss. A modest recovery occurred by February 3, 2024, with the margin reaching 0.34%, but this was short-lived, as it fell to -0.07% by February 1, 2025.

The economic profit margin’s movement closely mirrors the trend in economic profit. The substantial increase in economic profit from 2020 to 2022 directly contributed to the rise in the economic profit margin. Conversely, the negative economic profit in 2023 resulted in a negative margin, and the decline in economic profit in 2025 led to a further decrease in the margin.

Relationship to Net Sales

Net sales generally increased from 2020 to 2023, peaking at US$109,120 million. While net sales experienced a slight decrease in 2024 and 2025, the economic profit margin’s performance was not consistently correlated with net sales revenue. The largest margin increase occurred between 2021 and 2022, despite a relatively moderate increase in net sales. The significant decline in margin in 2023 occurred alongside a continued increase in net sales, suggesting factors beyond revenue volume significantly impacted profitability.

The volatility in the economic profit margin suggests potential underlying issues related to cost of capital, operational efficiency, or investment decisions. Further investigation into the components of economic profit – net operating profit after tax and the cost of capital – would be necessary to pinpoint the drivers of these fluctuations.