OCTOLL SCREENPRINTER VERSI ON BACK NEX Suppose Nordstrom, Inc., which operates d

Question

OCTOLL SCREENPRINTER VERSI ON BACK NEX 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) Beginning-of- Year End-of-Year Cash and cash equivalents Accounts receivable (net) Inventory Prepaid expenses Other current assets Total current assets Total current liabilities $ 1,471 3,765 1,661 163 440 $7,500 $3,726 $133 3,593 1,665 172 389 $5,952 $2,962 For the year, net sales were $15,277 and cost of goods sold was $9,857 (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

Solution:

Compute the four liquidity ratios at the end of the year.

Current ratio = Current Assets / Current Liabilities = 7500/3726 = 2.01

Acid-test ratio = (Cash and Cash Equivalents + A/R) / Current Liabilities = (1471 + 3765)/3726=1.40

Receivables turnover times = Net Sales / (Average A/R) = 15277/3679 = 4.15

Inventory turnover times = Cost of Goods Sold / Average Inventory = 9857/1663 = 5.92 times

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