Stockholders' Equity and Revenue Recognition - Free Essay Sample

Introduction

Target Corporation trades at the New York Securities Exchanges as TGT and was founded in 1902 by George Dayton and John Geisse (Target Corporation, 2020; Bull's Eye View, 2020). The company has grown to be among the world's biggest retailers with about 368,000 employees and an estimated $78.1B in sales per year (Forbes, 2020). This paper looks into the financial structure of Target Corp. with particular references to the company’s stockholder’s equity and income measurement as well as revenue recognition.

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Stockholders’ Equity

Initial Finance

Information regarding Target’s initial finances is elusive, but the research conducted shows that the company declared its initial public offering in the year 1967 (Target Corporation, 2020). Initially, the company was a family-owned business with the founding families holding the majority of the firm's shares. At present, CNN Business reports that institutional investors have about 83% of the available shares of Target Corporation (CNN Business, 2020). The report further states that of the 83%, almost 37% are mutual fund holders, and individual stakeholders hold the rest.

Company’s Balance Sheet vs. Industry Average

Target Corporation’s biggest rival in the retail industry is Wal-Mart, which accounts for almost 20 times the former (Forbes, 2020). On the other hand, Target Corp. continues to strive to thrive in the industry and has currently been able to shed much of its debts accrued over time due to expansion. The company’s debt-to-equity ratio has drastically improved. At the moment, the company’s balance sheet compares dismally to the industry’s averages.

Company’s Dividend Policy

The company promises to add value to its shareholders by continuously improving its bottom line and dividend allocations. The company has recorded a steady 30% increase in its new digital marketing platform in the recent past. However, given that the overall business growth has been slagged from the other business segments, the company has not effectively paid its shareholders. Despite all the business challenges encountered, the company management, in its annual filing, reported that the firm still manages to get a 9% average yearly growth rate.

From the company’s record of increasing dividend payouts, it is evident that Target Corporation is trying to win more investors to finance its growth and development strategies. As of 2016, the company projected that the company is seeking 7 billion dollars over the coming three years and will reinvest almost 15% of the same from operating profits to improve its digital presence (Target Corporation, 2020). From the dividend trends observed, the company has continually increased dividend payouts to attract more investors.

Income Measurement/Revenue Recognition

Every company has its model of revenue and income recognition policy. However, the Financial Accounting Standards Board and the Internal Accounting Standards Board provided the guidelines that these companies should follow while recognizing and reporting their revenues and income. The following is an analysis of Target Corporation’s income measurement and revenue recognition strategy that involves its revenue analysis and how it treats unearned revenue in its financial reports.

FASB, IAS-18, & Company Revenue

The new regulation significantly impacts Target Corporation as it reduces the amount of revenue the company reported as income in the past. The sale of goods IAS-18 guideline outlines strict guidelines for goods shipped. These items are only recognized as earned revenue once recipients receive them and the time allocated for returning the goods has elapsed. There will be some delays between placing digital orders and the time such sales are recognized as revenue.

Analysis of Company Revenue

As witnessed in the recent past, Target Corporation has not grown its sales revenue in a dynamic global business environment. However, this statement does not mean that the company is not performing as it reported $77.13 billion in sales revenue for the year ending 2019 (Target Corporation, 2020). The company management says that from recent investments and outlined global business strategy, the firm will realize increased profits in the years to come.

Company’s Unearned Revenue Accounts

The company’s central portion of unearned revenue comes from gift cards that are periodically redeemed by clients. A percentage of these gift cards are never redeemed, and the company reports these items as breakage (Target Corporation, 2020). The company reduces these prepayments by debiting and increasing the revenue account balance with a credit entry. The company recognizes unearned income as a liability to the company until the customers redeem the same.

Conclusion

The industry environment operated by Target Corporation is highly intense with the competition. Considering the overall business growth has been slugged from the other business segments, the company has not effectively paid its shareholders. Lower-cost grocery stores dominate local scenes, and these small-scale retailers are diverting a lot of revenue from Target Corporations. In the long run, TGT will be forced to lower its products' costs, a move that will most likely reduce its sales revenue. The company will need to consider a comprehensive business strategy to maintain sales as they are, and inadvertently earn more profits to reward shareholders accordingly.

References

Bull's Eye View. (2020). History timeline: Target Corporation. Target https://corporate.target.com/about/purpose-history/Target-through-the-years

Target Corporation. (2020). 2019 Form 10-K. Sec. https://www.sec.gov/ix?doc=/Archives/edgar/data/27419/000002741920000008/tgt-20200201.htm

Wall Street Journal. (2020). Target Corp. Annual balance sheet.WSJ. https://www.wsj.com/market-data/quotes/TGT/financials/annual/balance-sheet

CNN Business. (2020). TGT - Target Corp Shareholders – CNN Money. https://money.cnn.com/quote/shareholders/shareholders.html?symb=TGT&subView=institutional

Forbes. (2020). Target (TGT). Forbes. https://www.forbes.com/companies/target/#1f9741355274