Problem

Liquidity of KrogerThe Kroger Company is one of the world’s largest supermarket chains. Th...

Liquidity of Kroger

The Kroger Company is one of the world’s largest supermarket chains. These selected items were adapted from a recent Kroger balance sheet. (Dollar amounts are in millions.)

Cash (including deposit-in-transit)

$1,193

Receivables

1,051

Merchandise inventories

5,146

Other current assets

569

Property, plant and equipment (net of depreciation)

14,875

Retained earnings

9,787

Total current liabilities

11,057

Instructions

a. Using the information above, compute the amounts of Kroger ’s total current assets and total quick assets.


b. Compute the company’s ( 1 ) current ratio, ( 2 ) quick ratio, and ( 3 ) working capital. (Round ratios to two decimal points.)


c. From these computations, are you able to conclude whether Kroger is a good credit risk for short-term creditors or on the brink of bankruptcy? Explain.


d. Is there anything unusual about the operating cycle of supermarkets that would make you think that they normally would have lower current ratios than, say, large department stores?


e. What other types of information could you utilize in performing a more complete analysis of Kroger ’s liquidity?

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