Chapter 10, Problem 10.4ADM

Cabela’s and Dicks Sporting Goods: Short-term liquidity analysis

Cabela’s Incorporated is a leading specialty retailer of outdoor sports merchandise. Dick’s Sporting Goods, Inc. is a leading full-line retailer of sporting equipment and apparel. The current assets and current liabilities of both companies are provided as follows from recent financial statements (in millions):

	Cabela’s	Dick’s
Current assets:
Cash	$ 478	$ 345
Accounts receivable	62	35
Credit card loans	4,422	—
Inventories	760	1,096
Other current assets	216	120
Total current assets	$5,938	$1,596
Current liabilities:
Accounts payable	$ 336	$ 508
Gift cards	340	—
Other current liabilities	1,445	493
Total current liabilities	$2,121	$1,001

Cabela’s has a branded credit card that is the basis for its financial services business. “Credit card loans” in Cabela’s current assets represent the amounts due from Cabela’s CLUB® Visa credit card customers. The credit card loans represent 1,817,012 active accounts with an average balance of $2,167. The credit card holders have a median FICO score of 795, which denotes highly creditworthy customers. Cabela’s other current liabilities include, among other items, short-term funding to support credit card purchases from its CLUB members.

A. What do the “gift cards” listed under Cabela’s current liabilities represent?

B. Should the “credit card loans” be considered part of quick assets for Cabela’s computation of the quick ratio? Explain.

C. Compute the current ratio for Cabela’s and Dick’s Sporting Goods. (Round to one decimal place.)

D. Compute the quick ratio for Cabela’s and Dick’s Sporting Goods. (Round to one decimal place.)

E. Compare the two companies using the computations in (C) and (D).