Archived Target's 2011 10K has some scary numbers for next year...

[talan123]

Required principal payments on notes and debentures over the next five years, excluding capital lease obligations, are as follows:

Total required principal payments on notes and debentures.
2011 - $106 Million
2012 - $2.251 Billion
2013 - $3.812 Billion
2014 - $1 Million
2015 - $27 Million

That's basically an extra six billion dollars in new payments. Apparently in 2007 they took out a loan with a rate of around 15%. It matures next year.

 

[Darikona]

Well then, I guess it's good that third quarter was so amazing for them.

 

[commiecorvus]

Wow, I've heard of balloon payments but that's freaken ridiculous.
They must have some sort of plan for this.
I wonder if some of that has to do with the Canada acquisition?

 

[TargetIng]

There's a reason that people use ratios to analyze financial statements, presenting straight numbers like that without any context has very little meaning. The fact that they have $17 billion in current assets tells me that they won't have much trouble making those payments.

 

[eleuthreophile]

I was told that this is why our goal conversion rate has gone up so much in the past few week.

 

[greatteam]

There's a reason that people use ratios to analyze financial statements, presenting straight numbers like that without any context has very little meaning. The fact that they have $17 billion in current assets tells me that they won't have much trouble making those payments.

Without looking at the financial statements yet, I can tell you that most of those current assets are tied up in inventory and credit accounts. We don't actually "have" that money.

 

[TargetIng]

Without looking at the financial statements yet, I can tell you that most of those current assets are tied up in inventory and credit accounts. We don't actually "have" that money.

What's your point?

By definition current assets are those which can be turned into cash within one year or an operating cycle. Those liabilities are not current. They are not due within the next year, so covering them with CURRENT assets would be no problem.

 

[talan123]

There's a reason that people use ratios to analyze financial statements, presenting straight numbers like that without any context has very little meaning. The fact that they have $17 billion in current assets tells me that they won't have much trouble making those payments.

I use the real numbers because the financial world has a tendency to fall in love with those ratios and they generally have nothing to do with reality which is generally behavior driven. If you have a complex ratio where one part of the business that is crucial is collapsing, those formulas could still show good performance even though you are becoming broke. Target also depends on a very open public credit market that is showing signs of increasing stress, even worse than in 2008. That could turn it into a whole different nightmare with those markets being cut off.

The assets are valued at fair value (thank god) but even those are difficult to get a handle on. Who is going to buy very specific assets that are rarely good outside of narrow contingencies? If an airlines goes out of business, they airplanes are marked about 25% of market value because who else is going to buy them other than other airlines?


That said, they do have some derivatives that could handle the swap of interest rates but I couldn't get that from the 10K. I would love an hour to talk with the accounts that come up with stuff.

 

[TargetIng]

I use the real numbers because the financial world has a tendency to fall in love with those ratios and they generally have nothing to do with reality which is generally behavior driven. If you have a complex ratio where one part of the business that is crucial is collapsing, those formulas could still show good performance even though you are becoming broke. Target also depends on a very open public credit market that is showing signs of increasing stress, even worse than in 2008. That could turn it into a whole different nightmare with those markets being cut off.

The assets are valued at fair value (thank god) but even those are difficult to get a handle on. Who is going to buy very specific assets that are rarely good outside of narrow contingencies? If an airlines goes out of business, they airplanes are marked about 25% of market value because who else is going to buy them other than other airlines?


That said, they do have some derivatives that could handle the swap of interest rates but I couldn't get that from the 10K. I would love an hour to talk with the accounts that come up with stuff.

How do ratios have little to do with reality?

An example of a ratio would be the current ratio which is (current assets/current liabilities), which demonstrates a company's ability to pay their bills in the short term. Ratios are used to give context to numbers. Are the numbers that you quoted for Target's debt big? It can't be determined just from those numbers. A company the size of Walmart could cough up $4 billion in its sleep, but to a small company those would be huge numbers. You can not get a sense for the true picture by looking at liabilities without simultaneously looking at assets and revenues.

 

[talan123]

Ratios are dangerous because they give a false sense of security.

Current assets are only as good as the cash people are willing to pay for them. The price of them is best guess in the best of circumstances and vastly inflated in the worst (Think about AIG, they had a great credit ratings only because they valued their books exceedingly high which blinded investors, not that AIG has ANYTHING to do with Target but in this example). If each of those numbers in the ratio are suspect then what good is the ratio?

Plus there is the liquidity of the assets. If a company has to start to sell more and more of itself, then it begins to effect the market by driving the prices down of said product. It's a vicious circle, they call it circling the drain. Getting less and less for your assets as you have to sell more and more.

I am all for context but it appears that this a brand new $2.2 billion dollar payment that was previously not on the sheet.

 

[TargetIng]

Ratios are dangerous because they give a false sense of security.

Current assets are only as good as the cash people are willing to pay for them. The price of them is best guess in the best of circumstances and vastly inflated in the worst (Think about AIG, they had a great credit ratings only because they valued their books exceedingly high which blinded investors, not that AIG has ANYTHING to do with Target but in this example). If each of those numbers in the ratio are suspect then what good is the ratio?

Plus there is the liquidity of the assets. If a company has to start to sell more and more of itself, then it begins to effect the market by driving the prices down of said product. It's a vicious circle, they call it circling the drain. Getting less and less for your assets as you have to sell more and more.

I am all for context but it appears that this a brand new $2.2 billion dollar payment that was previously not on the sheet.

I definitely see your point. It just seems more like you are worried about the Generally Accepted Accounting Principles that you are about the theory behind using ratios for analysis. A lot of people that feel that way are more comfortable using the cash flow statement for analysis than the income statement.

 

[talan123]

I am more comfortable using the cash flow as an indicator. Income, for me, is just too easy to manipulate.

I was just reading the entire 10K as practice and came across those numbers purely by accident. I probably shouldn't have put the title as scary but concerning.