1. The following data (in thousands) are taken from recent financial statements
ID: 2335407 • Letter: 1
Question
1. The following data (in thousands) are taken from recent financial statements for Sears: As of 12/31/2017 Current Assets: $ 3,812,000 $ 4,996,00 Current Liabilities: $ 4,915,000 4,681,000 As of 12/31/2016 a) Compute the working capital as of Dec. 31, 2017 and Dec. 31, 2016. Round to 2 decimal places. Please check your numbers carefully! b) Compute the current ratio as of Dec. 31, 2017 and Dec. 31, 2016. Round to 2 decimal places. Please check your numbers carefully! c) What conclusions concerning Sears' ability to meet its financial obligations can you draw from part (a)?Explanation / Answer
(a)
12/31/2016
Current assets = $4,996,000
Current liabilities = $4,681,000
Working capital = Current assets - Current liabilities
= 4,996,000 - 4,681,000
= $315,000
12/31/2017
Current assets = $3,812,000
Current liabilities = $4,915,000
Working capital = Current assets - Current liabilities
= 3,812,000 - 4,915,000
= -$1,103,000
(b)
12/31/2016
Current ratio = Current assets/Current liabilities
= 4,996,000/4,681,000
= 1.07
12/31/2017
Current ratio = Current assets/Current liabilities
= 3,812,000/4,915,000
= 0.77
(c)
As at 12/31/2016, working capital was $315,000 and as at 12/31/2017 working capital was -$1,103,000. Over the period of 1 year, working capital has decreased drastically and it has become negative. Positive working capital implies that firm has liquidity to meet its its short term obligations and negative working capital means that the firm is not in a position to pay off its short term obligations.
Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubts. Thanks.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.