Declining EQI and a Closer Look
Target Corp.
Target Corp., Operating Cash Flow, Revenue, Operating Earnings, and EQI, Years
Ending February 2001 - February 2007
(millions of dollars)
2001 2002 2003 2004 2005 2006 2007
Obtained from statement of cash flows:
Adjusted operating cash flow
a
$2,134 $2,012 $1,590 $3,160 $3,808 $4,451 $4,862
(Increase) in accounts receivable -- (1,193) (2,194) (744) (209) (244) (226)
Obtained from income statement:
Revenue 36,851 39,826 43,917 46,781 46,839 52,620 59,490
Obtained from income statement:
Adjusted operating earnings
a
$1,264 $1,368 $1,654 $1,841 $1,885 $2,408 $2,787
EQI: 2.36% 1.62% -.15% 2.82% 4.11% 3.88% 3.49%
a
No significant adjustments were noted.
b
Increase in company’s credit card receivables was biggest factor explaining year-to-year changes
in operating cash flow.
Note that EQI was 2.36% in the year ended February 3, 2001, which was the year
before it introduced its own credit card. During the year in which its card was
introduced, the year ended February 2, 2002, accounts receivable increased $1,193
million, creating a drag on operating cash flow. As a result, as earnings increased
to $1,368 million that year from $1,264 million in 2001, operating cash flow
declined to $2,012 million from $2,134 million in 2001. EQI declined to 1.62% in
2002 from 2.36% in 2001.
During the year ended February 1, 2003, accounts receivable increased another
$2,194 million. That year, operating cash flow declined even more and EQI
became negative, dropping to -.15%. Clearly the trend was not a promising one.
The increase in credit card receivables slowed to $744 million in the year ended
January 31, 2004. As a result, that year the company generated significantly more
operating cash flow, $3,160 million, than it had in any recent reporting period.
EQI also improved to 2.82%, higher than it was in the year ended February 3,
2001, before the company introduced its own credit card. In subsequent years, the
significant increases in receivables noted earlier did not continue and EQI
stabilized – to-date, problems have been averted.