Question

The financial statements for Giardi Corporation, a retailer, follow. Giardi Corporation Consolidated Income Statements (Millions of dollars, except per share data)

December 31 2019 2018 2017

Revenues $19,233 $17,927 $16,115

Costs and expenses:

Cost of retail sales, buying, and occupancy $14,164 $13,129 $11,751

Selling, publicity, and administration 3,175 2,978 2,801

Depreciation 498 459 410

Interest expense, net 446 437 398

Taxes other than income taxes 343 313 283

Total costs and expenses $18,626 $17,316 $15,643

Earnings before income taxes $607 $611 $472

Provision for income taxes 232 228 171

Net earnings $375 $383 $301

Giardi Corporation Consolidated Balance Sheets (Millions of dollars)

December 31, 2019 2018

ASSETS

Current assets:

Cash and cash equivalents $321 $117

Accounts receivable 1,536 1,514

Merchandise inventories 2,497 2,618

Other 157 165

Total current assets $4,511 $4,414

Property and equipment:

Land $1,120 $998

Buildings and improvements 4,753 4,342

Fixtures and equipment 2,162 2,197

Construction-in-progress 248 223

Accumulated depreciation (2,336) (2,197)

Net property and equipment $5,947 $5,563

Other 320 360

Total assets $10,778 $10,337

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Notes payable $200 $23

Accounts payable 1,654 1,596

Accrued liabilities 903 849

Income taxes payable 145 125

Current portion of long-term debt 173 371

Total current liabilities $3,075 $2,964

Long-term debt 4,279 4,330

Deferred income taxes and other 536 450

Loan to ESOP (217) (267)

Total liabilities $7,673 $7,477

Stockholders' equity:

Preferred stock $368 $374

Common stock 72 71

Additional paid-in capital - common 73 58

Retained earnings 2,592 2,357

Total stockholders' equity $3,105 $2,860

Total liabilities and stockholders' equity $10,778 $10,337

Required: 1. Compute the four short-term liquidity ratios for 2018 and 2019 assuming operating cash flows are $281 million and $480 million, respectively. Round your answers to two decimal places.

2019 2018

Current ratio

Quick ratio

Cash ratio

Operating cash flow ratio

2. Conceptual Connection: Indicate which ratio appears to be most appropriate for a retail organization?

Answer 1

Current Ratio Current Assets Current Liabilities Quick ratio Current Assets (-) Inventory (-) Prepaid Expenses Current Liabilities Cash Ratio Cash & Cash Equivalents Current Liabilities Operating Cash Flow Ratio Cash Flow from operations Current Liabilities Lets put the above formulaes into both year figures 2019 2018 1 Current Ratio Current Assets 4511 4414 Current Liabilities 3075 2964 Current Assets 4511/3075 4414/2964 Current Liabilities 1.47 1.49 2 Quick Ratio Current Assets 4511 4414 (-) Inventory 2497 2618 (-) Prepaid Expenses Not given Not given Qucik Assets 2014 1796 Current Liabilities 3075 2964 Quick Assets 2014/3075 1796/2964 Current Liabilities 0.65 0.61 3 Cash Ratio Cash & Cash Equivalents 321 117 Current Liabilities 3075 2964 Cash & Cash Equivalents 321/3075 117/2964 Current Liabilities 0.10 0.04 4 Operating Cash Flow Ratio Operating Cash Flow (Given in Question) 480 281 Current Liabilities 3075 2964 Operating Cash Flow 480/3075 281/2964 Current Liabilities 0.16 0.095 Part 2 of Question All the above ratios have there own relevance for any size of business. But for a Retail business whose customer base is smaller and its business is based on its locality. So we can assume that due to its smaller size and small customer base the retail business is mostlt dependent upon its liquidity Since the credit is lesser and mostly business is carried out with cash & cash equivalents. So in my opinion for a retail business cash ratio or operating cash flow ratio are more appropiate than others