Analyze and compare Cabelas and Dicks Sporting Goods

Cabelas Incorporated (CAB) is a leading specialty retailer of outdoor sports merchandise. Dicks Sporting Goods, Inc. (DKS) is a leading full-line retailer of sporting equipment and apparel. The current assets and current liabilities of both companies are provided as follows from recent financial statements (in millions):

	Cabelas	Dick's
Current assets:
Cash	$ 313	$ 165
Accounts receivable	76	75
Credit card loans	5,580
Inventories	860	1,639
Other current assets	208	117
Total current assets	$7,037	$1,996
Current liabilities:
Accounts payable	$348	$756
Gift cards	388
Other current liabilities	1,954	641
Total current liabilities	$2,690	$1,397

Cabelas has a branded credit card that is the basis for its financial services business. Credit card loans in Cabelas current assets represent the amounts due from Cabelas CLUB Visa credit card customers. The credit card loans represent 2,064,517 active accounts with an average balance of $2,480. The credit card holders have a median FICO score of 793, which denotes highly creditworthy customers. Cabelas other current liabilities include, among other items, short-term funding to support credit card purchases from its CLUB members.

A. What do the gift cards listed under Cabelas current liabilities represent?

• The gift cards represent unearned revenue (a liability). The gift cards have been pre-purchased and represent a form of cash to the holder.
• The gift cards represent revenue (an income). The gift cards have been pre-purchased and represent a form of cash to the holder. They are non refundable so the revenue is realized.
• The gift cards represent deferred revenue (an asset). The gift cards have been pre-purchased and represent a form of cash to the holder.

B. Should the credit card loans be considered part of quick assets for Cabelas computation of the quick ratio?

• The credit card loans to the credit card customers do appear to represent mostly short-term receivables based on the credit card data provided. These represent current balances. It should be included in calculation of quick ratio.
• The credit card business is a different business than the merchandising business, so including the credit card loans will impact the ratios and their comparison with companies without a credit card business. It should be not included in calculation of quick ratio.
• The credit card loans to the credit card customers do appear to represent mostly short-term receivables based on the credit card data provided. But they do not represent current balances. It should not be included in calculation of quick ratio.

C. Compare the two companies using the computations in (c) and (d).

• Cabelas appears to have a stronger liquidity position than does Dicks Sporting Goods.
• Dicks Sporting Goods appears to have a stronger liquidity position than does Cabela.
• Cebela has a higher current ratio , but Dicks sporting Goods has a better quick ratio. it is difficult to say much about the liquidity position.