Sears Holdings Corporation s one of the largest mall-based retailers in the Unit
ID: 2332681 • Letter: S
Question
Sears Holdings Corporation s one of the largest mall-based retailers in the United States. The follo wing year-end data were taken from a recent Sears balance sheet (in millions) December 31 Year 2 Year 1 Current assets $5,863 $8,959 Curent Labil ties 6,076 8,185 a. Compute the working capital and the current ratio as of December 31, Year 1 and Year 2. (Round your answers to two decimal places.) Year 2 Year 1 Working capital $ Current Ratio Ratio b. what does a current ratio less than 1 and a workng capital decline indicate?Explanation / Answer
Answer to Part a:
Year 1:
Working Capital = Current Assets – Current Liabilities
Working Capital = $8,959 - $8,185
Working Capital = $774
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $8,959 / $8,185
Current Ratio = 1.09
Year 2:
Working Capital = Current Assets – Current Liabilities
Working Capital = $5,863 - $6,076
Working Capital = -$213
Current Ratio = Current Assets – Current Liabilities
Current Ratio = $5,863 / $6,076
Current Ratio = 0.96
Answer to Part b:
A Current ratio of less than 1 and declining working capital indicate serious financial problems faced by Company.
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