14-38.Compute and Interpret Liquidity, Solvency and Coverage Ratios Canadian Tire is a retail company that sells a wide range of automotive, hardware, sports and leisure, and home products. The company's head office is in Toronto, Ontario, and is listed on the Toronto Stock Exchange. Balance sheets, income statements, and statements of cash flow follow for Canadian Tire.

CANADIAN TIRE CORPORATION LIMITED Consolidated Balance Sheets C$ in millions Dec.29,2018 Dec.30, 2017 ASSETS Cash and cash equivalents ........................................... . $ 470.4 $ 437.0 Short-term investments ...............................•..•.. . . • ..•.. .. 183.7 132.5 Trade and other receivables ........................... . ............. . . 933.3 681.1 Loans receivable ....................................... . .... . ...... . 5,511.3 5,613.2 Merchandise inventories ... . .. . ....................... . .. . .. . . . .. . ... . 1,997.5 1,769.8 Income taxes recoverable ............................................ . 15.3 48.3 Prepaid expenses and deposits .. .. .. ...... . .. .. .. .. ...... . .... . .. . ... . 138.8 113.1 Assets classified as held for sale ...................................... . 5.5 1.1 Total current assets ......... .. ....................................... . 9,255.8 8,796.1 Continued, CS in millions Long-term receivables and other assets ... . . .... . . .... . . ... . • .. . ..... .. .. .
Long-term investments Goodwill and intangible assets ............. .. .•.. .. • . . •. .•... . • . . . . . .. .. .
Investment property . . .. .. . ...... . .. .. ... .. . . .. .. ... . . . . .. .. .. . . . ... . . .
Property and equipment . . .. ......... . .... .. .•.. ..•. .•..•... .• . . • . . ..• ..
Deferred income taxes .... . .... . .. . .. . .. . .... . . .... . . ... . . .. . ......... .
Total assets .. . .. . ........... . .. .. ........ • .. .. . .. . .. . .. .. . .. . .... . . .
LIABILITIES Deposits ... . .. . .............. . ......... • . ... . .. . .. • .. .. . .. . .... . ..
Trade and other payables . . .. .. .. .. .. . ..... • ... .• .. • .. • .. .. • . .• . ... •..
Provisions . .. .. .. .. . .. .. .. .. .. . ...... . .. . .... . . . . ... . . ... . . ... .. .. .
Short-term borrowings .................... . .... . .. . . . . . ... . . .. .. .. . . .
Loans payable .. .. ... . ...... . .. .. .. . ..... . .... . .. . . .. . . .. . .. .. ... . . .
Income taxes payable ........ . .. .. .. .. .... ... .. . . . . .. ... .. ... . . ... . . .
Current portion of long-term debt .. .. .. . ..... • ... . • ..•..•.. . . • . . •.. ..• ..
Total current liabilities ...... . .. .. .. . ......... . .. . . . .. . .. . .. . . . .. . . . .. . . .
Long-term provisions . . .. . . .. .... . ..... . . ... .... . . . . . ...... . . . . ... .. .. .
Long-term debt . .. .. .. . .. .. .. .. .. . ...... .. . • . . .. •.. • .. • . . .. • .. • . . .. • . .
Long-term deposits ... .. .. .. ............. .. ............... . . . .. . .. .. .. .
Deferred income taxes .... . ... .. .. .. ........ • . . .. • . . .. . • . . .. . . . ... .. .. .
Other long-term liabilities ...... .. .. .. .. . ..... • .. ..•. . • .. • . . ..• . . • .. .. • ..
Total liabilities .. .. .. .. . .. .. .. .. .. .. ........ . .. .. . .. . ..... .. . ..... .. .. .
EQUITY Share capital. .. .. .. .. . .. .. .. .. .. .. ..... .. . • .. .. . .. . ..•.... . .. . .. .. . ..
Contributed surplus . ...... . .. .. .. .. .. . ... . ... . .. . .. . .. . . . .. .. . . .... . . .
Accumulated other comprehensive income (loss) . .. . .. . .. . .... • .. . .. . ...... •
Retained earnings . . ................. . ..... . ... . ..... .. .. . . • .. • .... •. .
Equity attributable to shareholders of Canadian Tire Corporation .. . .. .. . . .. .. . . .
Non-controlling interests . . .. . .. .. .. .. .. . .. .. . . .. . ..... ... .... ...... .. . . .
Total equity .. .. .. .. ...... . .. .. .. .. .. . ..... • . . .. • .. • . . . . ... • . . . .. .. . ..
Total liabilities and equity ................. . .. • .. . . • ..•..•... .• .. • .. ..• ..
CANADIAN TIRE CORPORATION LIMITED Consolidated Statements of Income For the years ended (CS In millions)
Revenue .................................•.. . . • .. • . . • .. . .•.. • . . ..• . .
Cost of producing revenue .. . .. .. .. ... . . ..... . .. .. . . . . . . . . • .. .... . . .. . ..
Gross margin ........................... . . . ... . . . . . . ..... . . . . ... .. .. .
Other (income) expense ........ . .. .. .. . ..... • .. .. • .. • .. • .. .. •. . • . ... • . .
Selling, general and administrative expenses ..... . . .. . . .. . .. .... . .. . . . .. . . .
Net finance costs . .. .......... . .. .. .. . ...... .. .. . .. . .. . .. .. . .. . .... . . .
Change in fair value of redeemable financial instrument . ... . . . • . . .. . . . . .. .. . . .
Income before income taxes . .. .. .. .. ... . ............ • .. • .... . .. • .... • ..
Income taxes ..... . ............. .. .. . ..... . .. .. . . . . . . ... .. .. . ... .. . . .
Net income . . .. .. .. ... . .. . .. .. .. .. ...... . . .. . . . . . . . ... . . .. . .. . ... . .. .
Net income attributable to:
Shareholders of Canadian Tire Corporation .. .... • .... • .. • .. • .... • .. • ....• . .
Non-controlling interests ........ . .. .. .. . ..... . .. .. .. . .. . ... .. .. . ... .. . . .
Dec. 29, 2018 Dec. 30, 2017 742.6 717.8 152.7 165.0 2,272.0 1,292.9 364.7 344.7 4,283.2 4,193.3 215.8 11 7.2 $17,286.8 $15 ,627.0 $ 964.5 $ 973.9 2,425.0 2,230.8 171.8 158.9 378.1 144.6 654.6 667.1 110.6 72.1 553.6 282.3 5,258.2 4,529.7 49.8 45.7 4,000.3 3 ,122.1 1,506.7 1,412.9 184.5 102.3 872.3 848.2 11 ,871 .8 10 ,060.9 591 .5 615.7 2.9 2.9 51 .1 (37.5)
3,720.7 4,161.7 4,366.2 4,742.8 1,048.8 823.3 5,415.0 5 ,566.1 $1 7,286.8 $15,627.0 Dec.29, 2018 Dec. 30, 2017 $14,058.7 $1 3,276.7 9,347.4 8 ,796.5 4,711.3 4,480.2 (26.0) 0.2 3,467.6 3 ,254.9 151.5 11 2.6 50.0 1,068.2 1, 11 2.5 285.2 293.7 $ 783.0 $ 818.8 $ 692.1 $ 735.0 90.9 83.8 $ 783.0 $ 818.8 CANADIAN TIRE CORPORATION LIMITED Consolidated Statements of Cash Flows For the years ended (CS in millions)
Cash (used for) generated from:
Operating activities Net income ...... . ... . .......... . .. .. ..... . .... . .. ... • . . • .. .. .. . • . ...
Adjustments for:
Depreciation of property and equipment and investment property ... . ..• . . • . ...
Income tax expense ....................... . .. . ........ . ..... . .... .. .
Net finance costs ......... .. .. . ..... .. . . .. . .. . .. . ... . . . ... .. .. . . .. . .
Amortization of intangible assets .... . .. . .. . . . .. .. ................... .. .
(Gain) loss on disposal of property and equipment and investment property ... . . .
Change in fair value of redeemable financial instrument .. ... . . .. .. .. .. .. . .. .
Interest paid .. . ..... . . ..... .. . ....... .. . .. .. . ...... . .. . ... . . . .. ... .
Interest received . ... . ............. .. .......... . .. .... .. . .... . . . . . .. .
Income taxes paid ... . ...... . ...... .. .......... . .. . . ... . ... .. .. . . .. . .
Other ......... . ... . ......... .. .. .. ...... . .. .. .. ... . . . . .... . . . . . .. .
Total except as noted below ......... .. .......... . .. . .. •. . •. ... • . . •.. ..
Change in operating working capital and other . ...... . . ............ . .. . .. . .
Change in loans receivable .......... ... ......... . .. .. . .. . . .. .. .. . .. .. .
Cash generated from operating activities . ... .. . . . .... . .. ...•. . •. . .. • .. •.. ..
Investing activities Additions to property and equipment and investment property ... . .. . .. . ...... .
Additions to intangible assets .. . . . ..... . .. . . . .............•.. .. • . . • ....
Total additions .. . .. ... ............ ... ......... . .. . .. .. . . . ... .. . . .. . .
Acquisition of short-term investments ................. . .......... ...... . .
Proceeds from maturity and disposition of short-term investments . .. ..• . . • . ...
Acquisition of long-term investments . . . .. .. .. .. .. .. .. . . ....... . ........ .
Proceeds on disposition of property and equipment and investment property .... . .
Business combinations, net of cash acquired . . . ..... . . ...... . .... . .. . ... . .
Other .. .. . .... . ....................... . . . . .... . .. . ...... .. ...... . .
Cash (used for) investing activities ... . .. ... .. . ...... . .. .. . • .. • . ... • .. . .. ..
Financing activities Dividends paid .....................................•.. • .... • .. • .. ..
Distributions paid to non-controlling interests . . ...... . .. .. . .. . . .. .. .. . . . .. .
Total dividends and distributions paid ..... .. . ...... .... .. . . . . . • .. . . . . . . . .
Net issuance (repayment) of short-term borrowings ........ . • ..•.... • . . •... .
Issuance of loans payable ............................ • .. • .. .. • .. . ... .
Repayment of loans payable .... . ........... . .. . ...... . . . • .... . ..... ..
Issuance of long-term debt ....... . .. ... ......... . .. .. . • . . • .. .. •. . • .. ..
Repayment of long-term debt and finance lease liabilities ... . . . . . .. .. . ..... . .
Payment of transaction costs related to long-term debt . .. .. . . . . • .. .. .. . . . ...
Repurchase of share capital ........................... • .. • .. .. • . . • ... .
Proceeds on disposal of partial interest in CT REIT ... . .. .. ...... • .. .. . ... ..
Net proceeds from issue of trust units to non-controlling interests .. .. .. •. . • .. ..
Payments on financial instruments . . . .... .. .. .. .. . ...... . .. . .. .. . . . . .. . .
Change in deposits . .. .......... . .. .. .......... . .. .. . . . . • .. .. .. . . . ...
Cash generated (used for) from financing activities .. .. . .. . .. . ........... . ... .
Cash generated (used) in the period .... .. .......... . .. .. .. . .. .. .. .. . ... . .
Cash and cash equivalents, net of bank indebtedness, beginning of period .. . • .. ..
Cash and cash equivalents, net of bank indebtedness, end of period ........ . ... .
Required Dec.29, 2018 Dec.30,2017 $ 783.0 $ 818.8 301.4 335.0 285.2 293.7 151.5 112.6 126.6 133.7 (23.4) 0.4 50.0 (148.5) (125.9)
10.1 8.7 (204.4) (294.3)
12.0 13.5 1,343.5 1,296.2 (44.6) 107.0 (491.5) (430.4)
807.4 972.8 (416.8) (471 .0)
(129.5) (161 .6)
(546.3) (632.6)
(203.8) (421.9)
208.3 452.6 (44.0) (35.0)
28.9 13.6 (762.9) (19.3)
11.2 2.7 (1 ,308.6) (639.9)
(222.3) (169.7)
(36.1) (61.1)
(258.4) (230.8)
(71 .3) (54.8)
225.9 140.9 (238.5) (173.9)
1,434.0 741.0 (287.5) (671 .2)
(5.5) (4.2)
(582.4) (659.3)
191.8 62.3 (16.4) (8.9)
80.6 201.5 534.6 (719.7)
33.4 (386.8)
437.0 823.8 $ 470.4 $ 437.0

a. Compute Canadian Tire's current ratio and quick ratio for 2018 and 2017. Comment on any observed trends.

b. Compute the total liabilities-to-equity ratio and total debt-to-equity ratio for 2018 and 2017. Comment on any trends observed.

c. Compute the times interest earned ratio, cash from operations to total debt ratio, and free operating cash flow to total debt ratio. Comment on any trends observed.

d. Summarize findings in a conclusion about the company's credit risk. Are there any concerns about the company's ability to meet its debt obligations?