Week 4 Discussion 2 Response
FOR THIS ASSIGNMENT YOU WILL HAVE TO RESPOND TO THE RESPONSE BELOW. THE RESPONSE HAS TO BE 100 WORDS.
Here are my ratios for Target for the past two years:
Debt to equity ratio – 2.65
Times interest earned ratio – 4.93
Debt to equity ratio – 2.62
Times interest earned ratio – 4.55
The debt to equity ratio is considered to be a leverage ratio and essentially tells you how much debt a company uses to run their business (Gallo, 2017). Although some ratios you want to be as high as possible, the debt to equity ratio needs to be in a reasonable range and if it is too high, this could mean that the company may be financially unstable and they are using too much debt to run their operations. Target’s ratio is somewhere in the middle range and although it is not unreasonably high, it is getting to the point where it should really be considered into the overall investing decision.
The times interest earned ratio is another debt ratio and tells you how much of a company’s income is used toward interest and debt expenses. When this ratio is low, or close to 1, this means that they are using a large proportion of their income towards these expenses and will also cause the company to become financially unstable (Carlson, 2018). Target has a relatively higher times interest earned ratio which shows that they can maintain their debt and interest expenses based off their level of income provided through their revenue. Based off of these two ratios, I would consider investing into Target because of their ability to control their debt and the interest and expenses that come along with it.