Kendra Massey is trying to decide how to invest a recent windfall inheritance. Because she considers herself a fashionista, her first thought was to look at two of her favorite stores, Nordstrom and Macy’s. Kendra visited each company’s website and calculated the following ratios based on the financial statements she found there. She also found some industry averages to use as a comparison. Macy’s Nordstrom Industry Average 2015 2014 2015 2014 2015 2014 Current ratio 1.34 1.69 1.04 1.87 1.90 1.70 Acid-test ratio 0.29 0.53 0.27 1.12 0.50 0.60 Accounts receivable turnover 55.2 times 65.2 times 11.3 times 5.9 times 40.8 times 56.4 times Average collection period 6.6 days 5.6 days 32.3 days 61.9 days 8.9 days 6.5 days Inventory turnover 3.02 times 3.07 times 4.99 times 5.15 times 3.20 times 4.10 times Average days to sell inventory 120.9 days 118.9 days 73.1 days 70.9 days 114.1 days 88.8 days Which of the two companies has the stronger liquidity position? How do the companies’ positions compare to the industry averages?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Kendra Massey is trying to decide how to invest a recent windfall inheritance. Because she considers herself a fashionista, her first thought was to look at two of her favorite stores, Nordstrom and Macy’s. Kendra visited each company’s website and calculated the following ratios based on the financial statements she found there. She also found some industry averages to use as a comparison.

	Macy’s	Nordstrom	Industry Average
	2015	2014	2015	2014	2015	2014
Current ratio	1.34	1.69	1.04	1.87	1.90	1.70
Acid-test ratio	0.29	0.53	0.27	1.12	0.50	0.60
Accounts receivable turnover	55.2 times	65.2 times	11.3 times	5.9 times	40.8 times	56.4 times
Average collection period	6.6 days	5.6 days	32.3 days	61.9 days	8.9 days	6.5 days
Inventory turnover	3.02 times	3.07 times	4.99 times	5.15 times	3.20 times	4.10 times
Average days to sell inventory	120.9 days	118.9 days	73.1 days	70.9 days	114.1 days	88.8 days