Supervisor of Target Corporation Essay
MEMOTo: Supervisor of Target CorporationFrom: Financial Analyst of Target CorporationDate: 17th May 2009Subject: Financial Information needs of interested investorsIn order to outline the information required by the interested providers of finance it is important to consider their information needs. Such information needs will stem from the type of risks they are pertinent to as investors and the mediums through which they will attain a return. This will be considered in the forthcoming sections.Information needs of Company 1Company 1 is interested to invest in the equity of the organization. As stock investors they will incur a high risk in the company, because equity investors are the last persons paid if the organization falls into bankruptcy.
Therefore they will be particularly keen to examine the financial stability of the company. Thus they will look attentively at the Balance Sheet of Target Corporation. Under the balance sheet section accounting ratios that examine the financial stability of the firm will be computed and evaluated. These encompass the gearing ratio, the interest cover ratio and the price-earnings ratio. These accounting ratios look at the debt finance in relation to equity, the capability of the company to meet debt commitments like interest through operating profits and the potential of the financial performance of the company in the eyes of the stock market. Therefore these investors will highlight matters like debt, operating profits and market price of shares in the envisaged meeting.The main return of stock investors, apart the capital gain arising from the disposal of stock in the capital market, is the return attained in the form of dividends.
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Dividends are paid according to the discretion of the board of directors and are given if the firm holds sufficient profits to provide such dividends. Therefore the profitability of the company is another key aspect for these investors. Thus they will meticulously consider the income statement by adopting a horizontal analysis on key elements like gross profit, operating profit and net income. This will be accompanied by a ratio analysis, encompassing ratios like gross profit margin, net income margin, return on capital employed and earnings per share. In this respect, the supervisor should consider carefully the profit potential of the firm by looking at the aforesaid factors because they will be central features raised in the forthcoming meeting with their representatives.Information needs of Company 2The investors of company 2 are basically providers of debt finance. They are less susceptible to risks in the event of bankruptcy when compared to equity investors, since they are paid before the equity investors and if they have a security on the firm’s assets they got lower financial risks. However, these investors will still be keen in the financial stability of the organization and will therefore look meticulously at the Balance Sheet applying similar ratios to the ones identified for company 1.
The return of debt investors is in the form of interest, which ought to be paid irrespective of the profits made. Therefore less emphasis will be placed on the profitability aspect of the organization as that placed by company 1. Indeed it is more likely that a horizontal analysis is applied just to see the trend in profitability elements to evaluate the going concern of the organization.Reference:Blandon.co.uk (n. d.
). Topic Two – Tutorial One (on line). Available from: http://www.blandon.co.uk/finance/topic2/t2tut1.htm (Accessed 17th May 2009).