Case 3: Deere & Company Presented below is the SEC-mandated disclosure of contractual obligations provided by Deere & Com- pany in a recent annual report. Deere & Company reported current assets of $50,060 and total current liabilities of $21,394 at year-end. (All dollars are in millions.) Aggregate Contractual Obligations The payment schedule for the company's contractual obligations at year-end in millions of dollars is as follows: Less than 1-3 4 and 5 More than Total 1 year years years 5 years Debt Equipment operations Financial services $ 5,091 $ 434 $ 775 270 $3,612 31,692 9,962 11,477 6,578 3,675 Total 36,783 10,396 11,747 7,353 7,287 4,777 2,743 Interest on debt 609 1,069 745 2,354 Accounts payable Capital leases Purchasing obligations Operating leases 2,611 90 39 87 39 42 4 3,007 2,970 37 371 121 134 70 46 Total $47,768 $16,746 $13,119 $8,211 $9,692 Instructions a. Compute Deere & Company's working capital and current ratio (current assets + current liabilities) with and without the off-balance-sheet contractual obligations reported in the schedule. b. Briefly discuss how the information provided in the contractual obligation disclosure would be use- ful in evaluating Deere & Company for loans (1) due in one year and (2) due in five years.
Read Financial Statement Analysis Case 3: Deere & Company and answer questions a) & b).
a) Calculation of Working Capital (Without Contractual Obligations):
Working Capital= Current Assets-Current Liabilities
where, Current Assets=$50,060 and Current Liabilities=$21,394
Therefore, Working Capital= $(50,060-21,394) million
= $ 28,666 million
Current Ratio (Without Contractual Obligations)=Current Assets/Current Liabilities
Therefore, Current Ratio=50,060/21,394
=2.34 Times
Calculations of Working Capital (With Contractual Obligations):
Working Capital= Current Assets-Current Liabilities
where, Current Assets= $50,060 and Current Liabilities =Current Liabilities-Contractual Obligations of Less than a year
Current Liabilities= $21,394-$16,746
= $4,648 million
Therefore Working Capital = $(50,060-4,648) million
= $45,412 million
Current Ratio(With Contractual Obligations)=Current Assets/Current Liabilities
=50,060/4,648
=10.77 Times
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