Question: For many years, Borders Group and Barnes
For many years, Borders Group and Barnes and Noble were the dominant booksellers in the United States. They experienced rapid growth, and in the process they forced many small, independent bookstores out of business. Recently, Borders filed for bankruptcy. It was the victim of its inability to change with the times. It did not develop a viable business plan for dealing with digital books and online sales. Below is financial information (in millions) for the two companies, taken from the annual reports of each company one year before Borders filed for bankruptcy.
Instructions
(a) Compute the current ratio for each company.
(b) Compute the debt to assets ratio and times interest earned for each company. (Hint: A tax benefit means that rather than pay taxes, the company was due a refund because of its losses. For ratio purposes, a tax benefit is treated the opposite of tax expense.)
(c) Discuss the relative liquidity and solvency of each company. Did the bankruptcy of Borders seem likely?
Transcribed Image Text:
Borders $ 978.7 Barnes and Noble Current assets Total assets Current liabilities $1,719.5 3,705.7 1,724.4 2,802.3 1,415.6 918.1 Total liabilities 1,257.3 (109.4) Net income/(loss) Interest expense Tax expense/(income tax benefit) 36.7 24.1 28.2 (31.3) 8.4
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