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Analyze Sears Holding Corporation Sears 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): 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)?

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 4, Problem 5MAD
Textbook Problem
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Analyze Sears Holding Corporation

Sears 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):

Chapter 4, Problem 5MAD, Analyze Sears Holding Corporation Sears Holdings Corporation (SHLD) is one of the largest mall-based

  1. a. Compute the working capital and the current ratio as of December 31, Year 1 and Year 2. Round to two decimal places.
  2. b. What conclusions concerning the company’s ability to meet its short-term obligations can you draw from part (a)?

a.

To determine

Compute the working capital and current ratio as of December 31, Year 2 and Year 1.

Explanation of Solution

Working capital: Working capital refers to the excess amount of current assets over its current liabilities of a business. It measures the excess funds that are required for the companies to carry out their day to day operations, excluding any new funds that have been invested during the year. Working capital is calculated by using the formula:

Working capital=Current assetsCurrent liabilities

Compute the working capital for Corporation SHLD:

ParticularsYear 2Year 1
Current assets$6,045$5,863
Less: Current liabilities($5,438)($5,595)
Working capital$607$268

Table (1)

Thus, the working capital of Corporation SHLD for Year 2 and Year 1 is $607 and $268 respectively.

Current ratio: Current ratio is one of the liquidity ratios, which measures the capacity of the company to meet its short-term obligations using its current assets

To determine

Explain the ability of a company to meet its short-term obligations.

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Financial And Managerial Accounting
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