Question

Nordstrom, Inc. operates department stores in numerous states. Suppose selected financial statement data (in millions of dollars) for a recent year follow. End of Year Beginning of Year Cash and cash equivalents $     65 $    395 Receivables (net) 1,900 1,940 Merchandise inventory 968 838 Other current assets 475 315 Total current assets $3,408 $3,488 Total current liabilities $1,600 $1,600

Did Nordstrom’s liquidity improve or worsen during the year?

Compute working capital and the current ratio at the beginning of the year and at the end of the year. (Round current ratio to 2 decimal places, e.g. 15.25.) Beginning of Year End of Year Working capital $ enter a dollar amount $ enter a dollar amount Current ratio enter current ratio rounded to 2 decimal places :1 enter current ratio rounded to 2 decimal places :1

Answer 1

Working capital = total current assets - total current liabilities

current ratio = total current assets/total current liabilities

(1)

at the beginning of the year,

working capital = $3488 - $1600

= $1888

current ratio = $3488/$1600

= 2.18 times

(2)

at the end of the year,

working capital = $3408 - $1600

= $1808

current ratio = $3408/$1600

= 2.13 times

(3)

Nordstrom’s liquidity worsened during the year, because of the decrease in working capital and current ratio.