Chezo, Inc., is a large cheese store chain. Shown are selected items adapted from a recent Chezo,
Inc., balance sheet. (Dollar amounts are in the millions.)
Cash .................................... $ 72.4
Receivables ............................. 150.4
Merchandise inventories .............. 1,400.0
Prepaid expenses ..................... 98.0
Fixtures and equipment ............. 3,150.0
Retained earnings ..................... 295.0
Total current liabilities .............. 2,500.0
Instructions
a. Using this information, compute the amounts of Chezo's total current assets and total quick assets.
b. Compute the company's (1) current ratio, (2) quick ratio, and (3) working capital. (Round to two decimal places.)
c. From these computations, are you able to conclude whether Chezo is a good credit risk for short-term creditors or on the brink of bankruptcy? Explain.
d. Is there anything unusual about the operating cycle of cheese stores that would make you think that they normally would have lower current ratios than, say, large department stores?
e. What other types of information could you utilize in performing a more complete analysis of Chezo's liquidity?