Nordstorm Inc. operates department stores in numerous states. Selected financial

Question

Nordstorm Inc. operates department stores in numerous states. Selected financial statement data for the year ending January 29 2012 are as follows.

(in millions) end-of-year beginning-of-year
Cash & cash equivalents $466 $343
Receivables (net) 658 672
Merchandise inventory 1050 937
Prepaid expenses 58 49
Other current assets 612 585
Total current assets 2844 2586
Total current liabilities 1849 1422

For the year, net sales were $8171, and cost of goods sold was $4612 (in millions).
Compute the four liquidity ratios at the end of the year. (Round ratios to 2 decimal places, eg 10.57:1 and turnovers to 1 decimal place, eg 10.5.)

Current ratio _______ :1
Acid-test ratio _______ :1
Receivables turnover _____ times
Inventory turnover ______ times

Using the data in the chapter, compare Nordstrom's liquidity with (1) that of Jc Penny & (2) the industry averages for department stores (Round ratios to 2 decimal place, eg 10.57:1 and turnovers to 1 decimal place, eg 10.5)

Ratio Nordstrom JC Penney Industry
Current ____ :1 2.02:1 1.06:1
Acid-test ____:1 0.87:1 0.29:1
Receivables turnover ____ :1 57.0:1 28.2:1
Inventory turnover _____:1 3.5:1 7.0:1

Nordstrom is ________ JC Penney for the current & acid test ratios and the receivables turnover. Nordstrom is _____ than JC Penney for inventory turnover.

Nordstrom is ______ than the industry average for the current and acid test ratio, but ___ the industry average receivables turnover and the inventory turnover ratios.

Explanation / Answer

current ratio = current assets/current liabilities
= 2844 million/1849 million = 1.54
Answer: 1.54:1

acid-test ratio = cash&equivalents + short-term investments + current receivables/current liabilities
= 466 million + 658 million/1849 million
= 0.61
Answer: 0.61:1

Receivables turnover = net sales/average accounts receivable
= 8171 million/665 million
= 12.3
Answer: 12.3 times

Inventory turnover = cogs/average inventory
= 4612 million/993.5 million
= 4.6
Answer: 4.6 times

Ratio Nordstrom JC Penney Industry
Current 1.54:1 2.02:1 1.06:1
Acid-test 0.61:1 0.87:1 0.29:1
Receivables turnover12.3 times 57.0:1 28.2:1
Inventory turnover 4.6 times 3.5:1 7.0:1


Nordstrom is WORSE THAN JC Penney for the current & acid test ratios and the receivables turnover. Nordstrom is BETTER THAN JC Penney for inventory turnover.

Nordstrom is BETTER THAN than the industry average for the current and acid test ratio, but WORSE THAN the industry average receivables turnover and the inventory turnover ratios.

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