4. Considering the role that financial reporting plays in society, why do you think it is important for accounting information to be accurate?

Current ratio

This ratio measures the amount of liquid assets that can be converted in to cash to meet the current assets as they fall due. This is a liquidity ratio. From our analysis Nordstrom has a better ratio than Macy.

Days in Inventory (365/Inventory Turnover Ratio)

This is an asset ratio and it measures the company’s ability to meet its products demand, the higher the ratio the better, from our analysis Nordstrom has the higher ratio.

Debt to total assets ratio

Debt to asset ratio is a liquidity ratio and it measures the ability of the company to meet it short term debts and long-term debts. The higher the ratio the better. Form our analysis Nordstrom has the higher ratio

Times interest earned

It measures the ability of the company to repay its long term debts and meet its interest expense. This is a debt ratio. The higher the ratio the better. From our analysis Nordstrom has a better ratio.

Profit margin ratio

This is a profit ratio and it measures the ability of the business to pay its expenses and make profits. The higher the ratio the better. From our analysis Nordstrom has a better ratio than Macy

Gross profit rate

This is a profit ratio, it measures the ability of the company to generate profits from its assets. The higher the ratio the better. From our analysis Nordstrom has a better ratio.

Price-Earnings ratio (use basic Earnings per Share)

This is an equity ratio and it is used to advise the investors on whether or not to buy the shares of a company the higher the ratio the better. From our analysis Nordstrom has a better ratio

Return on assets ratio

Measures the ability of the assets to generate incomes from operations fo the business. This is profitability ratio and the higher the ratio the better. From our analysis the Nordstrom has a better ratio.

Asset turnover ratio

This is a profitability ratio and it measures the amount of a cent earned for every dollar of an asset. The higher the ratio the better. From our analysis Nordstrom has the best ratio

Return on equity

It measures the profitability of a company and the higher the ratio the better. For this case Nordstrom has the higher ratio

If you were asked to provide a 5 year loan to one of these companies, which would you choose and why? Use two ratios to support your answer.

I would give the loan to Nordstrom because from our analysis it is likely to repay the loan and has a higher chance as a going concern. Considering especially the current ratio and the debt to assets ratio.

Considering the role that financial reporting plays in society, why do you think it is important for accounting information to be accurate?

Accounting information is used by various parties both internally and externally. External users include creditors, investor, government, shareholders etc. and therefore the accounting information if not accurate may mislead such parties and lead them in to big economic losses. The company may have therefore to incur huge costs of damages payments if it is sued by such parties.