Target's Cash Equivalents: Investment Policy Explained

Target's cash and cash equivalents include highly liquid investments with an original maturity of three months or less from the time of purchase. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions, which typically settle within five days or less. Target has access to these funds without any significant restrictions, taxes, or penalties.

Cash and cash equivalents

As of January 28, 2023, and January 29, 2022, Target had cash and cash equivalents of $1,712 million and $2,200 million, respectively. These amounts include short-term investments of $1,110 million and $3,008 million, respectively. Target has access to these funds without any significant restrictions, taxes, or penalties.

The company's cash and cash equivalents provide liquidity for its operations, capital expenditures, and debt service. Target's cash and cash equivalents are primarily invested in money market funds, which are highly liquid and carry minimal risk. The company's cash management strategy aims to maintain sufficient liquidity to meet its obligations while maximizing returns on its cash balances.

Target's cash and cash equivalents are an important component of its overall financial strategy and help ensure the company has the resources necessary to support its operations and pursue growth opportunities.

Management of Cash and Cash Equivalents

Target's management is responsible for the consistency, integrity, and presentation of the information in the Annual Report, including cash and cash equivalents. The company maintains comprehensive systems of internal control designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with established procedures.

The Board of Directors' Audit & Risk Committee oversees the company's systems of internal control, accounting practices, financial reporting, and audits to assess the quality, integrity, and objectivity of its financial reporting.

Use of Cash and Cash Equivalents

Target uses its cash and cash equivalents for various purposes, including:

• Funding its operations and capital expenditures
• Repurchasing shares under its share repurchase program
• Paying dividends to shareholders
• Investing in strategic initiatives and growth opportunities
• Servicing its debt and managing its capital structure

Target's cash and cash equivalents are an important aspect of its financial health and liquidity. The company manages its cash and cash equivalents to ensure it has the resources necessary to support its operations, invest in growth, and meet its financial obligations.

Short-term investments

As of January 28, 2023, Target had short-term investments worth $1,110 million, which were included in its cash and cash equivalents. This was a decrease from the previous year's short-term investments of $3,008 million. The company's short-term investments provide it with flexibility and liquidity to meet its short-term capital needs and obligations.

Fair Value Measurements

Target's short-term investments are classified as Level 1 fair value measurements, which are based on unadjusted quoted prices in active markets. This classification indicates that the short-term investments are valued using readily available market information and do not require significant management judgment in determining their fair value.

Risk Management

Target's short-term investments, like other financial instruments, are subject to certain risks, including interest rate risk and credit risk. The company manages these risks through its investment policy, which focuses on preserving principal and maintaining liquidity. By investing in highly-rated, short-term instruments, Target aims to minimize the potential impact of interest rate fluctuations and credit defaults on its investment portfolio.

Impact on Financial Statements

Target's short-term investments are reflected in its Consolidated Statements of Financial Position (balance sheet) as part of cash and cash equivalents. They are also considered in the company's Consolidated Statements of Cash Flows, particularly in the investing and financing activities sections. The changes in short-term investments can provide insights into the company's liquidity management and short-term investment strategies.

Disclosure and Reporting

Target provides disclosures about its short-term investments in its financial statements and notes. These disclosures include the classification, fair value measurements, and any significant risks or concentrations associated with these investments. This information helps users of the financial statements understand the nature, valuation, and potential risks related to the company's short-term investments.

Accounts and other receivables

Vendor income receivable is a key component of accounts and other receivables. At January 28, 2023, the vendor income receivable totalled $526 million. This amount is computed by forecasting vendor income collections and estimating the amount earned. The majority of year-end vendor income receivables are typically collected within the following fiscal quarter.

Target also establishes a receivable for vendor income that is earned but not yet received. This is based on the agreements in place and is computed by estimating when Target has completed its performance and when the amount is earned.

Other current assets

Accounts and Other Receivables

This category includes amounts due from third-party financial institutions for credit and debit card transactions, which typically settle within five days or less. It also covers accounts receivable from merchandise sales to franchisees, guests, and team members, as well as other miscellaneous receivables.

Vendor Income Receivable

Vendor income refers to the consideration received from vendors for various programs such as volume rebates, markdown allowances, promotions, and advertising activities. Vendor income is recorded as a reduction of cost of sales. A receivable is established for vendor income that has been earned but not yet received, based on forecasting and historical trends. The majority of these receivables are collected within the following fiscal quarter.

Other noncurrent assets

Goodwill and intangible assets: Goodwill is an intangible asset that arises when one company acquires another. It represents the value of assets that are not separately identifiable. Goodwill is important in business as it can enhance a company's reputation, customer base, and brand recognition. As of January 28, 2023, and January 29, 2022, goodwill was valued at $631 million.

Company-owned life insurance investments: These are insurance policies that a company purchases on its employees' lives, with the company itself being the beneficiary. The investments are meant to provide financial protection for the company in case of unexpected events involving key employees.

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