Introduction
Target spent $3.7 billion on capital expenditure (capex) in its fiscal year ended January 2026 and recorded $3.1 billion of depreciation and amortization. Its net property and equipment rose by $727 million, to $33.7 billion. Its debt rose by only $516 million, even though it issued $2.0 billion of new notes. Neither change can be read directly from a single statement. Each is the result of a roll-forward: an opening balance, the flows that changed it during the year, and a closing balance.
Roll-forwards are how the balance sheet at one date becomes the balance sheet at the next. Cash rolls forward through the cash flow statement, retained earnings through net income and dividends, and two of the largest long-term balances for many companies, property and debt, through capex, depreciation, borrowing and repayment. When a model's balance sheet stops balancing, a broken roll-forward is often the cause, which is why they sit at the center of the balance check.
The PP&E Roll-Forward
Net property, plant and equipment (PP&E) moves for a small number of reasons:
- Roll-forward
A reconciliation of a balance sheet account from its opening to its closing balance, showing each flow that changed it during the period, such as additions, depreciation and disposals for PP&E, or borrowings and repayments for debt.
Capex comes from the investing section of the cash flow statement, explained in cash flow from investing activities. Depreciation is best taken from the operating section of the cash flow statement, because the income statement line often leaves out depreciation charged to cost of sales: Target's shows $2.6 billion, against $3.1 billion on the cash flow statement. "Other" collects the items that change PP&E without cash in the year: assets acquired under finance leases, equipment received but not yet paid for, assets acquired with a business, and currency translation for foreign subsidiaries.
Target's fiscal 2025 annual report allows a near-complete roll-forward from three places, the balance sheet, the cash flow statement and its supplemental disclosures:
| Line item | FY2025 |
|---|---|
| Beginning property and equipment, net | 33,022 |
| Expenditures for property and equipment | 3,727 |
| Assets obtained under new finance leases | 104 |
| Depreciation and amortization | (3,134) |
| Impairments, disposals, unpaid capex and other, net | 30 |
| Ending property and equipment, net | 33,749 |
Source: Target fiscal 2025 Form 10-K. Finance lease assets are included in property and equipment. The last line is derived as the balance that reconciles the reported figures.
Two readings stand out. Capex exceeded depreciation by about $600 million, so Target was growing its asset base modestly rather than just replacing it, a comparison analysts use as a first indicator of reinvestment. And the derived residual is small, $30 million, meaning almost every movement in the balance is explained by disclosed flows. A large residual would be a reason to read the notes for an acquisition, a large impairment or a change in unpaid capex.
Gross Cost, Accumulated Depreciation and Disposals
The net figure hides a second layer. Target's gross property and equipment rose from $59.3 billion to $62.1 billion, an increase of $2.8 billion, while accumulated depreciation rose by only $2.1 billion despite $3.1 billion of depreciation in the year. The gap is retirements: when old, largely depreciated assets are disposed of, their cost leaves the gross balance and their accumulated depreciation leaves the contra account at the same time. Gross PP&E therefore grows by less than capex, and accumulated depreciation by less than depreciation expense.
- Accumulated depreciation
The total depreciation charged on a company's property and equipment since each asset was acquired, less amounts removed when assets are sold or retired. It is deducted from gross PP&E, the original cost, to give net PP&E on the balance sheet.
The gross and accumulated figures also give a rough read on the age of the asset base, which the net figure alone cannot. Excluding land and construction in progress, which are not depreciated, Target's depreciable assets cost about $53.8 billion. Dividing that by roughly $3.1 billion of annual depreciation implies an average useful life of about 17 years, and dividing accumulated depreciation of $28.4 billion by the same charge implies the assets are, on average, about nine years old, a little over halfway through their lives. A rising average age over several years suggests a company is under-investing; a falling one suggests renewal or expansion. The measures are approximate, since depreciation includes finance lease amortization and lives differ widely between buildings and computers, but they are useful for comparing companies and years.
How the same depreciation charge moves through all three statements is traced in depreciation on the three statements. For US companies the roll-forward usually has to be assembled this way, because US generally accepted accounting principles (GAAP) require, under Accounting Standards Codification (ASC) 360, disclosure of balances by major class, accumulated depreciation and depreciation expense, but not a full reconciliation of the carrying amount from one year to the next. The analyst's version, built from the balance sheet, the cash flow statement and the supplemental disclosures, is therefore an estimate, with a residual for whatever the disclosures do not explain.
The Debt Roll-Forward
Debt follows the same pattern, with borrowings in place of capex and repayments in place of depreciation:
The cash flows come from the financing section; the non-cash changes come from the debt note. Target's notes and debentures roll forward cleanly:
| Line item | FY2025 |
|---|---|
| Beginning notes and debentures | 13,904 |
| New notes issued, principal | 2,000 |
| Notes matured | (1,500) |
| Discounts, issuance costs and amortization, net | (6) |
| Ending notes and debentures | 14,398 |
Source: Target fiscal 2025 Form 10-K. New notes: 1,000 at 5.00% due 2035, 500 at 4.35% due 2028 and 500 at 5.25% due 2036. Total debt also includes finance lease liabilities (2,161 to 2,113) and swap valuation adjustments ((125) to (55)), for totals of 15,940 and 16,456.
The cash flow statement shows $1,984 million of additions to long-term debt, slightly less than the $2.0 billion of principal, because proceeds are net of discounts and issuance costs. Its $1,643 million of reductions combines the $1.5 billion maturity with principal payments on finance leases. The rest of the $516 million increase in total debt is non-cash, mainly new finance lease liabilities and a $70 million change in the fair value adjustment on debt hedged with interest rate swaps. How the debt balance is presented, including current maturities and the difference between face value and carrying amount, is covered in debt on the balance sheet.
Non-Cash Changes in Debt
For most investment-grade companies the non-cash items are small, but in leveraged companies and acquisitions they can be large. The main ones are:
- Debt assumed in acquisitions: the target's debt joins the balance sheet without any financing cash flow.
- Payment-in-kind interest: interest added to principal instead of paid in cash.
- Amortization of discounts and issuance costs: the carrying amount accretes toward face value each year.
- Currency translation: foreign-currency borrowings change in dollar terms as exchange rates move.
- Conversions and exchanges: convertible debt converted into shares, or debt exchanged for new instruments.
- New finance lease liabilities: reported as non-cash financing activities in the supplemental disclosures.
The last item, like debt assumed in a deal, appears in the supplemental disclosures at the bottom of the cash flow statement, which are the first place to look when a debt roll-forward does not tie from the financing section alone.
Using Roll-Forwards in Models and Diligence
In a projection model, both roll-forwards are built forward from the last historical balance. PP&E grows with forecast capex and shrinks with forecast depreciation, so the two assumptions must be consistent: capex persistently below depreciation shrinks the asset base, which rarely fits a forecast of rising revenue. Debt rolls forward through scheduled maturities, new issuance and any cash sweep, and interest is calculated on the resulting balances. The modeling side of the debt schedule, including revolvers and cash sweeps, is covered in the blog's guide to the debt schedule and cash sweep.
In due diligence, the roll-forwards answer practical questions. Is the company reinvesting enough to sustain its assets, or harvesting them by spending less than depreciation? Are acquisitions, rather than capex, driving the growth in PP&E? Is debt rising faster than the financing section suggests because of leases or payment-in-kind interest? A roll-forward that ties is evidence that the balance sheet, income statement and cash flow statement tell one consistent story; one that does not tie is the place where the story deserves a closer look.
