Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 03 Aug 2017 My Price 13.00

Gamestop Corporation

I submitted this answer to my professor:

1.

  

Year 1

Year 2
 

Total current assets

$1,997

$2,155

Less:

Total current liabilities

$1,634

$1,748
 

Working Capital

$363

$407

 

 

2.

  

Year 1

Year 2
 

Total current assets

$1,997

$2,155

Divide:

Total current liabilities

$1,634

$1,748
 

Current Ratio

1.2

1.2

 

 

3.

  

Year 1

Year 2
 

Cash

$655

$711

Add:

Accounts receivable

$109

$94
 

Total quick assets

$764

$805

Divide:

Total current liabilities

$1,634

$1,748
 

Quick Ratio

0.5

0.5

 

 

4. The Current ratio for both the years is 1.2 and the Quick ratio for both the years is 0.5

 

Both the Current ratio and the Quick ratio are below the normal standards of 2:1 and 1:1 respectively.

 

5. From the information provided, we can infer that Gamestop Corporation has low liquidity (as shown by the low Current ratio and Quick ratio). This may be due to less current assets or high amount of Current Liabilities. Since, Gamestop Corporation has over 6,000 retail stores worldwide and sells new and used video games, it may be possible that it may be purchasing inventory on long-term credit period and may be deferring some of its expenses / other liabilities.

 

6. Liquidity refers to an enterprise’s ability to pay short-term obligations; or a firm's capability to sell assets quickly to raise cash. It is important to assess the industry in which such ratios are calculated as different industries have different trends, needs, etc. Hence, the liquidity ratios vary across industries. For instance, industries having high turnover ratio such as clothing industry can have a low liquidity ratio, but industries having low turnover ratio should maintain high liquidity ratios.



And this is the response I received from my professor:
"Great calculations and analysis. There are times when a financial statement will not breakdown quick assets on the balance sheet..remember all assets are found on the balance sheet from week 1. So to calculate this what do you think you can do with the information you may get on a balance sheet? Also, why do creditors want to see a high quick rato?"
Can you please provide me with an answer?
Thank you!

Answers

Maurice Tutor
(5)
Status NEW Posted 03 Aug 2017 09:08 PM My Price 13.00

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