Presented below are liquidity and solvency ratios for XYZ Industries and ABC Enterprises for the most recent year, along with industry averages.

Ratio XYZ ABC Industry Average

Days in receivables (Days to collect) 39.7 45.1 35.1

Current ratio 1.2 0.9 1.1

Debt to total assets ratio 37% 35% 37%

Inventory turnover 34.0 34.2 35.1

Receivables turnover 9.2 8.1 10.4

Times Interest earned 5.0 4.6 4.5

Required:

a) Which ratios are solvency ratios? (2 marks)

b) For each ratio indicate which company is better and why? (6 marks)

c) Based on your analysis, which company would you as a lender favour? Explain why