Question

Nordstrom, Inc. operates department stores in numerous states. Selected hypothetical financial statement data (in millions) for 2022 are presented below. End of Year Beginning of Year Cash and cash equivalents $790 $67 Accounts receivable (net) 2,000 1,850 Inventory 890 900 Other current assets 290 333 Total current assets $3,970 $3,150 Total current liabilities $2,050 $1,600 For the year, net credit sales were $8,258 million, cost of goods sold was $5,328 million, and net cash provided by operating activities was $1,251 million. Compute the current ratio, accounts receivable turnover, average collection period, inventory turnover and days in inventory at the end of the current year. (Round current ratio to 2 decimal places, e.g. 1.83 and all other answers to 1 decimal place, eg. 1.8. Use 365 days for calculation.) Current ratio 1.93 Accounts receivable turnover times Average collection period days Inventory turnover times Days in inventory days

Answer 1

Current ratio	1.94 :1
Accounts receivable turnover	4.3 times
Average collection period	84.9 days
Inventory turnover	6 times
Days in inventory	61.3 days

SOLUTION:

Current ratio = Current assets / current liabilities

= $3970 millions/$2050 millions

= 1.94

Accounts receivable turnover = Net credit sales /Average accounts receivables

where,

Average accounts receivables = (opening accounts receivable + closing accounts receivable) / 2

= ($1850 millions + $2000 millions) / 2

= $3850 millions / 2

= $1925 millions

therefore,

Accounts receivable turnover = $8258 millions / $1925 millions

= 4.3

Average collection period = 365 days / Accounts receivable turnover

= 365 days / 4.3

= 84.9 days

Inventory turnover = Cost of goods sold / average inventory

where,

Average inventory = (opening inventory + closing inventory) / 2

= ($900 + $890) / 2

= $895

therefore,

Inventory turnover =

Inventory turnover ratio = $5328 / $895

= 6

Days in inventory = (Average inventory / Cost of goods sold ) * 365

= ($895 / $5328) *365

= 61.3 days