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Analyze Sears Holding Corporation Soars Holdings Corporation (SHLD) is one of the largest mall-based retailers in the United States. The following year-end data were taken from a recent Sears balance sheet (in millions): December 31 Year 2 Year 1 Current assets $6,045 $5,863 Current liabilities 5,438 5,595 a. Compute the working capital and the current ratio as of December 31, Year 1 and Year 2. Round to two decimal places. b. What conclusions concerning the company’s ability to meet its short-term obligations can you draw from part (a)?
Corporate Financial Accounting
Solutions
Corporate Financial Accounting
Analyze Sears Holding Corporation
Soars Holdings Corporation (SHLD) is one of the largest mall-based retailers in the United States. The following year-end data were taken from a recent Sears balance sheet (in millions):
| December 31 | ||
| Year 2 | Year 1 | |
| Current assets | $6,045 | $5,863 |
| Current liabilities | 5,438 | 5,595 |
a. Compute the working capital and the current ratio as of December 31, Year 1 and Year 2. Round to two decimal places.
b. 
What conclusions concerning the company’s ability to meet its short-term obligations can you draw from part (a)?
a.
Ratio analysis
It is the financial analysis tool for measuring the profitability, liquidity, capability and overall performance of a company.
Following are the two measures of liquidity:
- 1. Current ratio: Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. The following formula is used to calculate current ratio.
- 2. Working capital: Total current assets minus total current liabilities are the working capital of a company.
To Compute: The working capital and current ratio as of December 31 for Year 2 and Year 1.
Explanation of Solution
| Details | Year 2 ($) | Year 1 ($) |
| Current assets | 6,045 | 5,863 |
| Less: Current liabilities | 5,438 | 5,595 |
| Working capital | $607 | $268 |
Table (1)
Calculate the current ratio for Year 2 and Year 1.
b.
To Explain: The ability of a company to meet its short-term obligations.
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