Suppose Nordstrom, Inc., which operates department stores in numerous states, ha

Question

Suppose Nordstrom, Inc., which operates department stores in numerous states, has the following selected financial statement data for a recent year. NORDSTORM, INC. Balance Sheet (partial) (in millions) End-of-Year Beginning-of-Year Cash and cash equivalents $ 1,073 $ 97 Accounts receivable (net) 2,747 2,622 Inventory 1,212 1,215 Prepaid expenses 119 126 Other current assets 321 284 Total current assets $5,472 $4,344 Total current liabilities $2,719 $2,161 For the year, net sales were $11,148 and cost of goods sold was $7,193 (in millions). (a) Compute the four liquidity ratios at the end of the year. (Round answers to 1 decimal place, e.g. 1.6 .) Current ratio :1 Acid-test ratio :1 Accounts receivable turnover times Inventory turnover times

Suppose Nordstrom, Inc., which operates department stores in numerous states, has the following selected financial statement data for a recent year NORDSTORM, INC. Balance Sheet (partial) Beginning-of- Year in millions End-of-Year Cash and cash equivalents Accounts receivable (net) Inventory Prepaid expenses Other current assets Total current assets Total current liabilities $1,073 2,747 1,212 119 321 $5,472 $2,719 $ 97 2,622 1,215 126 284 $4,344 $2,161 For the year, net sales were $11,148 and cost of goods sold was $7,193 (in millions) Compute the four liquidity ratios at the end of the year. (Round answers to 1 decimal place, e.g. 1.6.) Current ratio Acid-test ratio Accounts receivable turnover Inventory turnover times times

Explanation / Answer

at end of year We are given Total current assets 5472 Total Current Liabilities 2719 1) Current ratio can be calculated as = Current assets / current liabilities it measures ability to use companies current assets to covers its current liabilities = 5472/2719 = 2:1 2) Acid test ratio = ( cash and cash equivalent + accounts receivables) / current liabilities it measures the ability to use companies near cash to cover its current liabilities only cash and cash equivalent, marketable securities and accounts receivables are considered for this purpose = (1073+2747)/2719 = 1.4:1 3) Accounts receivables turnover =Net credit sales / AVerage acccounts receivables it measures number of times a company collects its average receivables. It measures companies efficiency in collecting its receivables Average receivables = ( opening + closing receivables) / 2 = (2622+ 2747) / 2 = 2684.5 Accounts receivables turnover = 11148 / 2684.5 = 4.1 times 4) Inventory turnover ratio =Cost of goods sold / average inventory It specifies times a companies inventory is sold and replaced during a period on an average Average Inventory = ( opening + closing inventory) / 2 = (1215+1212)/2 = 1213.5 Inventory turnover ratio = 7193 / 1213.5 = 5.9 Times

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