Problem

Cheese, Inc., is one of the world’s largest cheese store chains. Shown below are selected...

Cheese, Inc., is one of the world’s largest cheese store chains. Shown below are selected items adapted from a recent Cheese, Inc., balance sheet. (Dollar amounts are in the millions.)

Cash  

  $ 72.4

Receivables 

  150.4

Merchandise inventories 

  1.400.0

Prepaid expenses 

     91.0

Fixtures and equipment

  3,150.0

Retained earnings 

  295.0

Total current liabilities   

   2,500.0

Instructions

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


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


c. From these computations, are you able to conclude whether Cheese 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 cheese stores 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 Cheese’s liquidity?

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