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Liquidity Ratio Calculations

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 : $ 474 // $ 387
Receivables (net) : 678 // 670
Merchandise inventory : 1,050 // 944
Prepaid expenses : 75 // 66
Other current assets : 621 // 589
Total current assets : $2,898 // $2,656
Total current liabilities : $1,884 // $1,461

For the year, net sales were $8,133, and cost of goods sold was $4,578 (in millions).

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

Current ratio
Acid-test ratio
Receivables turnover
Inventory turnover

Using the data in the chapter, compare Nordstrom's liquidity with (1) that of J.C. Penney Company, and (2) the industry averages for department stores.

Current ratio
Nordstorm :1
J.C. Penny 2.02:1
Industry 1.06:1

Acid-test ratio
Nordstorm :1
J.C. Penny 0.87:1
Industry 0.29:1

Receivables turnover
Nordstorm :1
J.C. Penny 57.0:1
Industry 28.2:1

Inventory turnover
Nordstorm :1
J.C. Penny 3.5:1
Industry 7.0:1

Solution Preview

Nordstorm

1) Current ratio = Current Assets/Current Liabilities
= 2898/1884
= 1.54 times
Its liquidity is more than industry but less than JC Penny. It should increase the ...

Solution Summary

Solution analyses ratios such as current, quick and other ratios.

$2.19