Gap Inc. and Le Château Inc. are specialty clothing merchandisers. Here are recent financial data for the companies:

Instructions
(a) Note that Gap Inc.'s financial information is reported in millions of U.S. dollars and Le Château's is reported in thousands of Canadian dollars. Explain why calculating and comparing ratios, for each of the companies, will make it possible to compare Gap Inc. and Le Château, given this difference in financial reporting.
(b) Calculate the debt to total assets and interest coverage ratios for Gap and Le Château.
(c) Discuss the solvency of each company compared with the other.
(d) The notes to the financial statements for Gap and Le Château indicate that the companies have significant operating lease commitments. Discuss the implications of these operating leases for each company's solvency.
(e) During January 2012, Le Château borrowed $10 million from a company owned by one of the company's directors. The loan is a four-year unsecured loan that bears a 7.5% interest rate. It is repayable in monthly instalments starting February 2013. What was the impact of this loan on Le Château's solvency ratios for 2012?
(f) In January 2012, the banks' prime lending rate was 3%. In your opinion, why might Le Château have borrowed the $10 million described in part (e) at 7.5% from a company owned by one of the directors?

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Le Château (in thousands of Canadian dollars) Balance sheet data Total assets Total liabilities Gap Inc. (in millions of U.S. dollars January 28, 2012 $7,422 4,667 28, 2012 $233,794 90,689 Year ended Year ended Income statement data Interest expense Income tax expense (recovery) Profit (loss) January 28, 2012 74 536 833 January 28, 2012 1,974 (596) (2,386)