On the "Ratio Template" you will be calculating Liquidity, Solvency, and Profitability ratios for each company, stating what makes a ratio more successful and comparing the results between the two companies to determine which company has stronger results. Please ensure that you indicate the units for each ratio calculation.

Ratio Template

You are the loans manager at a local bank. Two companies have approached you about securing a 6-month loan. Based on your calculations, please comment on the following:

Assess and comment on Arrow and Root's LIQUIDITY ratios.

Assess and comment on Arrow and Root's SOLVENCY ratios.

Assess and comment on Arrow and Root's PROFITABILITY ratios.

Which company would you prefer to give the loan to between Root and Arrow? Explain why.

1 1 ARROW LTD. 2 INCOME STATEMENT 3 3 FOR THE YEAR ENDED DECEMBER 31, 2020 CANADIAN DOLLARS (millions of dollars) 4 5 $1,330 6 Revenue 7 Sales Revenue * 8 Rent Revenue 9 Interest Revenue 10 Other Revenues 11 Total revenues 390 51 $1,771 12 341 317 148 154 50 26 124 25 11 5 13 Operating expenses 14 Cost of Goods sold 15 Wages expense 16 Salary expense 17 Benefit expense 18 Research and development expense 19 Repairs and maintenance expense 20 Sales and distribution costs expense 21 Depreciation expense equipment 22 Depreciation expense - vehicles 23 Depreciation expense furniture 24 Depreciation expense - office building 25 Insurance expense 26 Property taxes expense 27 Food and beverage expense 28 Supplies expense 29 Interest expense 30 Information technology expense 31 Advertising expense 32 Total operating expenses 33 Profit before income tax 34 Income Tax expense 35 Profit 8 8 51 57 67 30 17 130 1,569 202 175 27 36 37 * Denotes all of these sales were made on credit 40 ARROW LTD. 41 STATEMENT OF FINANCIAL POSITION 42 AS AT DECEMBER 31, 2020 CANADIAN DOLLARS (millions of dollars) 43 44 45 ASSETS 46 $1,939 683 250 106 47 Current assets 48 Cash 49 Short-term investments 50 Accounts receivable 51 Inventory 52 Spare parts and supplies inventory 53 Prepaid Maintenance 54 Prepaid expenses 55 Total current assets 56 57 Investments 103 216 50 $3,347 135 60 52 61 $ 3,185 572 2,613 63 58 59 Property plant and equipment Land Office Building 62 Less: Accumulated depreciation Equipment Less: Accumulated depreciation 65 Vehicles Less: Accumulated depreciation Furniture 68 Less: Accumulated depreciation 69 Total property, plant and equipment 2,486 365 64 2.121 673 66 111 562 67 207 59 148 5,496 70 60 71 Intangible assets 72 Trademark 73 Patent 74 Total intangible assets 75 Total Assets 29 89 9,067 76 77 Liabilities and Shareholders' Equity 78 79 Current Liabilities 80 Accounts payable 81 Accrued liabilities 525 126 82 Deferred Revenue 429 367 83 Current portion of bank loan and mortgage payable Income Tax payable 85 Total Current Liabilities 84 493 1.940 86 470 87 Non-current liabilities 88 Bank loan payable 89 Mortgage Payable 90 Bond payable 91 Total Non-current liabilities 287 1,136 1,893 92 93 Total Liabilities 3.833 94 458 544 4,232 5.234 95 Shareholders' Equity 96 Preferred Shares ** 97 Common Shares *** 98 Retained Earning 99 Total Shareholders' Equity 100 101 Total liabilities and shareholders' equity 102 103 ** There were no preferred dividends declared this year. 104 *** The Weighted Average number of common shares outstanding are: The Market price per common share is : 9,067 20,000,000 105 45 1 ROOT LTD. 2 INCOME STATEMENT 3 FOR THE YEAR ENDED DECEMBER 31, 2020 4 CANADIAN DOLLARS (millions of dollars) 5 6 Revenue 7 Sales Revenue * $ 1,383 8 Rent Revenue 455 117 9 Interest Revenue 10 Other Revenues 11 Total revenues 44 $ 1.999 12 353 337 114 195 41 81 171 12 2 6 13 Operating expenses 14 Cost of Goods sold 15 Wages expense 16 Salary expense 17 Benefit expense 18 Research and development expense 19 Repairs and maintenance expense 20 Sales and distribution costs expense 21 Depreciation expense - equipment 22 Depreciation expense - vehicles 23 Depreciation expense furniture 24 Depreciation expense - office building 25 Insurance expense 26 Property taxes expense 27 Food and beverage expense 28 Supplies expense 29 Interest expense 30 Information technology expense 31 Advertising expense 32 Total operating expenses 33 Profit before income tax 34 Income Tax expense 35 Profit 13 11 67 127 38 23 13 118 1.722 277 69 208 36 37 * Denotes all of these sales were made on credit 39 40 ROOT LTD. STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2020 CANADIAN DOLLARS (millions of dollars) 41 42 43 44 ASSETS 45 47 s 46 Current assets Cash 48 Short-term investments 49 Accounts receivable 50 Inventory 51 Spare parts and supplies inventory 52 Prepaid Maintenance 53 Prepaid expenses 54 Total current assets 1.717 857 346 122 66 323 23 $ 3.454 55 56 Investments 176 57 142 60 s 4.440 61 577 3.863 1.583 451 1.132 64 822 65 178 644 58 Property plant, and equipment 59 Land Office Building Less: Accumulated depreciation 62 Equipment 63 Less: Accumulated depreciation Vehicles Less: Accumulated depreciation Furniture 67 Less: Accumulated depreciation 68 Total property, plant and equipment 69 70 Intangible assets 71 Trademark 7 72 Patent 73 Total intangible assets 66 144 37 107 5,888 62 26 88 74 75 Total Assets 9.606 76 77 Liabilities and Shareholders' Equity 78 79 Current Liabilities 80 Accounts payable 81 Accrued liabilities 1.006 269 82 Deferred Revenue 482 471 535 2.763 83 Current portion of bank loan and mortgage payable 84 Income Tax payable 85 Total Current Liabilities 86 87 Non-current liabilities B8 Bank loan payable 89 Mortgage Payable Bond payable 91 Total Non-current liabilities 92 Total Liabilities 417 328 90 2.249 2.994 5.757 93 305 94 Shareholders' Equity 95 Preferred Shares ** 96 Common Shares *** 97 Retained Earning 98 Total Shareholders' Equity 936 2.608 3.849 99 100 Total liabilities and shareholders' cquity 9.606 101 102 ** There were no preferred dividends declared this year. 103 *** The Weighted Average mumber of common shares outstanding are 25,000.000 104 The Market price per common share is : 20 A 8 C D E G H Which Arrow Root Is higher or lower better? company is better? 12 1 2 Liquidity 3 4 Working Capital: 5 Current Assets - Current liabilities $ 1,407 $ 691 Higher Not comparable 6 7 Current Ratio: 8 Current Assets 1.7 1.3 Higher Arrow 9 Current Liabilities 10 11 Quick Ratio: 12 Cash + Short-term Investments + Accts Receivable 13 Current Liabilities 1.5 1.10 higher Arrow arrow 14 15 Receivable Turnover: Credit Sales 17 Accounts Receivable 16 I 18 19 Average Collection Period: 20 365 21 Receivable Turnover Page 1 22 3.221 2.89 113.40 126.30 lower Arrow 23 Inventory Turnover: 24 Cost of Goods Sold 25 Inventory 26 27 Days in Inventory: 28 365 29 Inventory Turnover 30 31 Solvency 32 33 Debt to Total Assets: 34 Total Liabilities 42.30% 59.90% lower Arrow 35 Total Assets 36 37 Times Interest Earned 7.70 13.00 higher Root 38 Protit+Interest Expense+Income Tax Expense 39 Interest Expense 40 41 Debt to Total Equity 42 Total Liabilities | 73.2015) 73.20% 149.60% lower lower Arrow 43 Total Equity 2.00% 15.00% 19.08 Higher 44 45 Profitability 46 47 Profit Margin: 48 Profit 49 Sales 50 51 Return On Assets (ROA) 52 Profit 53 Total Assets Root 0.30% 2.20% higher Root Root 54 depends Arrow Page 2 55 Asset Turnover: 56 Sales 57 Total Assets 58 59 Earnings Per Share: 60 Profit - Preferred Dividends 61 Weighted Average Number of Shares 62 63 Price Earnings: 64 Market Price per share 65 EPS $ 1.35 $ 8.32 higher Root 33.30 2.40 higher Arrow 66 67 Return on Common Shareholder's Equity 68 Profit - Preferred Dividends 69 Common Shareholder's Equity