Nordstrom Inc. operates department stores in numerous states. Selected financial
ID: 2349523 • Letter: N
Question
Nordstrom Inc. operates department stores in numerous states. Selected financial statement data for the year ending January 29, 2012, are as follows.NORDSTROM, INC.
Balance Sheet (partial)
(in millions)
End-of-Year
Beginning-of-Year
Cash and cash equivalents $ 495 $ 343
Receivables (net) 657 715
Merchandise inventory 1,060 948
Prepaid expenses 64 52
Other current assets 641
596
Total current assets $2,917
$2,654
Total current liabilities $1,896
$1,460
For the year, net sales were $8,169, and cost of goods sold was $4,604 (in millions).
Incorrect.
Compute the four liquidity ratios at the end of the year. (Round ratios to 2 decimal place, e.g. 10.57:1 and turnovers to 1 decimal place, e.g. 10.5.)
Current ratio :1
Acid-test ratio :1
Receivables turnover times
Inventory turnover times
Explanation / Answer
Liquidity ratios: Currrent ratio: Current ratio is the relation between the current assets and current liabiities. It can be calculated as follows; Current ratio = = Current ratio = 1.53 : 1 Acid test ratio: Acid test ratio is the relation between the quick assets and current liabilities. It can be calculated as follows; Prepaid expenses and merchandise inventory should be excluded from the current assets to get the quick assets. So quick assets = 2,909 - (1,060 + 64) Quick assets = $1,785 Acid test ratio = = Acid test ratio = 0.94 :1 Receivables turnover ratio: Receivables turnover ratio can be calculated as follows; Receivables turnover ratio = Average trade debtors = = Average trade debtors = $687. Net credit sales = $8,162 Receivables turnover ratio = Receivables turnover ratio = 11.88 times. Inventory turnover ratio: Inventory turnover ratio can be calculated as follows; Inventory turnover ratio = Average inventory = = Average inventory = $997 Cost of goods sold = $4,574 Inventory turnover ratio = Inventory turnover ratio = 4.58 times Comparison: Current ratio of the Nordstrom Company (1.53 : 1) is less than J.C Penny company and greater than industry (1.06:1). Acid test ratio of the Nordstrom company (0.94 :1) is greater than J.C Penny company (0.87:1) and greater than Industry (0.29:1). Receivable turnovar ratio of the Nordstrom company (11.88 times) is worse than J.C Penny company (57.0 times) and worse than Industry (28.2 times). Inventory turnover ratio of the Nordstrom company (4.58 times) is better than J.C Penny company (3.5 times) and worse than Industry (7.0 times).
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