1. Comment on your findings from the ratio analysis you performed in assignment #3 under Liquidity and Efficiency, Solvency, and Profitability. Be specific!
The Current ratio is widely used in order to evaluate the liquidity of a company. It compares the current assets including the inventories with short-term liabilities. Nordstrom Inc.’s current ratio declined from 2.056 in 2007 to 2.009 in 2008, but it is still on the generally recommended level of equal or above 2.0! One reason for the decline is the fact that the inventories decreased. The ratio declined only by a very little and Nordstrom would still be able to survive, even if sales would drop tremendously for a certain amount of time. The company would have enough cash, cash equivalents or inventories that can be transformed into cash within one year in order to cover all their short term liabilities. So having a current ratio of 2.009 is an indicator that Nordstrom Inc. will survive the current economic crises.
The Accounts receivable turnover ratio can also be applied to predict possible liquidity problems of the company. This ratio basically reflects the paying behavior of Nordstrom customers and is also a tool for financial analysts to measure how efficient the company collects the money from their sales. Since we are in an economic crisis, the unemployment in this country is reaching a very high rate and people do not have a lot of cash anymore. Therefore, the ratio decreased from 4.94 (2007) to 4.26 (2008), and one can say that people do not pay on time. Nordstrom Inc. has to increase their accounts payables as well in order to prevent a shortage of liquid assets. Or giving their debtors a discount or any other incentive to pay on time would be another method to improve the company’s liquidity again.
In general, one can say that Nordstrom Inc. is doing ok in terms of liquidity and activity. But taking the current economic crises into consideration, the management...