Minicase Sears, Roebuck \& Co.}
Sears is one of the world's largest retailers. It is also a huge provider of credit through its Sears credit card. Revenue generated from credit operations was \(\$ 3.9\) billion in 1995 . The rate of interest Sears earns on outstanding receivables varies from \(10 \%\) to \(21 \%\) in the United States to up to \(28 \%\) in Canada. Managing these receivables is critical to the performance of the corporation. One aspect of receivables management is that in some instances, to acquire cash when needed, the company will sell its receivables. At December 31, 1995, Sears had sold \(\$ 4.55\) billion of its receivables.
The following information (in millions) was available in Sears' 1995 financial statements:

\section*{Instructions}

(a) Discuss whether the sale of receivables by Sears represents a significant portion of its receivables. Why might Sears have sold these receivables? As an investor, what concerns might you have about these sales?

(b) Calculate and discuss the receivables turnover ratio and average collection period for Sears for 1995 and 1994.

(c) Do you think Sears provided credit as a revenue-generating activity or as a convenience for its customers?

(d) Compute the ratio of bad debts expense to merchandise sales for 1995 and 1994. Did this ratio improve or worsen? What considerations should Sears make in deciding whether it wants to have liberal or conservative credit-granting policies?

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1995 1994 1993 Accounts receivable (gross) $20,949 $19,033 $15,906 Allowance for doubtful accounts 843 832 810 Merchandise sales 31,035 29,451 27,420 Credit revenues 3,890 3,574 3,020 Bad debts expense 826 698 821