Target Corporation (TGT)

Target Corporation's liquidity ratios indicate its ability to meet short-term obligations and its overall liquidity position.

The current ratio has been declining over the past five years, from 0.89 in 2020 to 0.91 in 2024. This ratio suggests that Target may have challenges in covering its current liabilities with current assets alone. A general rule of thumb is that a current ratio above 1 indicates a company can cover its short-term liabilities, but Target's current ratio is consistently below 1.

The quick ratio, also known as the acid-test ratio, shows a similar trend to the current ratio. It has fluctuated over the years, reaching its lowest at 0.11 in 2023 and highest at 0.42 in 2021. This ratio provides a more stringent assessment of liquidity, as it excludes inventory from current assets. Target's quick ratio below 1 in all years indicates a potential inability to quickly cover its short-term obligations without relying on inventory sales.

The cash ratio has mirrored the quick ratio in most years, also indicating that Target has a relatively low level of cash to cover its current liabilities. The consistent cash ratio of 0.20 from 2020 to 2024 suggests that Target's liquidity position has not improved significantly in terms of its cash holdings.

In summary, Target Corporation's liquidity ratios paint a picture of declining liquidity over the past five years, with the company facing potential challenges in meeting its short-term obligations. Investors and creditors may view these ratios as a cause for concern, indicating the need for Target to potentially improve its liquidity management strategies.

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See also:

Target Corporation Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle is a way to measure how long it takes for a company to convert its investments in inventory and other resources into cash flows from sales. A negative cash conversion cycle indicates that Target Corporation is efficient in managing its working capital and operating cycle.

Looking at the historical trend, Target Corporation has consistently improved its cash conversion cycle over the past five years. The company has significantly reduced its cash conversion cycle from -4.61 days in 2020 to -0.76 days in 2024. This demonstrates that Target has been able to optimize its inventory management, accounts receivable collection, and accounts payable payment processes more efficiently over the years.

A negative cash conversion cycle suggests that Target Corporation is able to collect cash from customers before paying its suppliers, resulting in a shorter cash cycle and potentially reducing the need for external financing. This efficiency in managing working capital can positively impact the company's cash flow and overall financial performance.

Overall, the improving trend in the cash conversion cycle indicates effective working capital management by Target Corporation, contributing to its financial stability and operational efficiency.