Quick Ratio: HBC’s extensive merchandise inventory has a tendency to skew the current ratio in a way that benefits the company. Although Merchandise inventory is a current asset, it is not a good measure of short-term solvency. In other words, merchandise inventory does not properly represent how easily current assets can be paid, it is not liquid enough to pay current liabilities immediately. Un

Return on Common Shareholder’s Equity: This ratio unveiled another limitation of the information provided by the annual reports. The return on common shareholder’s equity for HBC was computed to be 5.5%. However, Canadian Tire’s annual report did not disclose the information required for computation of the ratio. As a result, there is no basis of comparison for the two companies regarding return on common shareholder’s equity.

Times Interest Earned: HBC’s times interest earned is strong and represents a solid amount of operating income compared to interest expense. The company’s high interest earned figure of 4.9 times looks good to creditors. As mentioned earlier, this will help HBC to borrow money from creditors to pay for future growth and hopefully generate more earnings. In Canadian Tire’s case, its times interest earned figure of 5.7 times is even more pleasing to creditors than HBC’s. This figure helps to display Canadian Tire’s solvency positively to creditors. Based on this figure, Canadian Tire’s ability to borrow money is greater than HBC’s.

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