Access the financial statements for Loblaw Companies Limited for the year ended December 31, 2011, and Empire Company Limited for the year ended May 7, 2011, through SEDAR (www.sedar.com) and then answer the following questions.
(a) Calculate the debt-to-total-asset ratio and the times interest earned ratio for these two companies. Comment on the quality of these two ratios for both companies.
(b) What financial ratios do both companies use in the annual reports to monitor and present their debt financial condition? Do both companies use the same ratios? Are the ratios calculated in the same way?
(c) Review the type of debt that each company has issued and provide a brief description of the nature of debt issued. What credit rating does each company have? (This can be found in the Management Discussion and Analysis section.) If the credit rating has changed, comment on why this has happened. Compare the debt ratings of the two companies and comment on whether this is what would be expected given the analysis done in part (a).
(d) Review each company's Capital Management Disclosure note. For each company, explain its objectives in managing the capital, what is included in capital and the total of managed capital, the key ratios that are monitored, and any covenants that are imposed on the company.