Nordstrom, Inc. operates department stores in numerous states. Selected financia

Question

Nordstrom, Inc. operates department stores in numerous states. Selected financial statement data for the year ending January 29, 2005, are as follows.

NORDSTROM, INC.


Balance Sheet (partial)


(in millions)


End-of-Year


Beginning-of-Year
Cash and cash equivalents $ 361 $ 340
Receivables (less allowance of 19 and 20) 646 667
Merchandise inventory 917 902
Prepaid expenses 53 46
Other current assets

595


570

Total current assets

$2,572


$2,525

Total current liabilities

$1,341


$1,123


For the year, net sales were $7,131, and cost of goods sold was $4,559 (in millions).


Compute the four liquidity ratios at the end of the year. (Round answers to 1 decimal place, e.g. 10.5.)

Current ratio :1
Acid-test ratio :1
Receivables turnover times
Inventory turnover times



Using the data in the following table, compare Nordstrom's liquidity with (1) that of J.C. Penney Company, and (2) the industry averages for department stores. (Round answers to 1 decimal place, e.g. 10.5.)

Ratio


Nordstrom


J. C. Penney


Industry
Current :1 5.7 :1 1.3 :1
Acid-test :1 1.2 :1 0.3 :1
Receivables turnover times 69.0 times 10.8 times
Inventory turnover times 3.6 times 6.7 times

Nordstrom is J.C. Penney for the current and acid-test ratios and the receivables turnover. Nordstrom is than J.C. Penney for inventory turnover.

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




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Explanation / Answer

Liquidity Ratios at the end of the year. 1. Current Ratio = Current Assets/Current Liabilities                           = $2,572/$1,341                           = 1.91 2. Acid-test Ratio= Liquid Assets/Current Liabilities                            = (2,572-917)/1,341                            = 1,655/1,341                             = 1.23 3. Receivables turnover times = Sales on account/Average account receivable balance                                              = $7,131/($646+667/2)                                              = $7,131/656.5                                               = 10.86 4. Inventory Turnover = Cost of goods sold/Average Inventory balance                                      =$4,559/(917+902/2)                                      = $4,559/909.5                                      = 5 times                                      =$4,559/(917+902/2)                                      = $4,559/909.5                                      = 5 times

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