The following ratios are available for agricultural chemical competitors Potash Corporation of Saskatchewan(PotashCorp) and Agrium from a recent year PotashCorp Agrium Liquidity Current Ratio 1.1:1 2.1:1 Acid-test 0.8:1 1.2:1 Receivables turnover 10.7 times 8.3 times Inventory turnover 6.8 times 4.1 times Oeprating cycle 88 days 133 days Solvency Debt to total assets 36.6% 26.9% Interest coverage 18.3 times 63.1 times Profitability Gross profit margin 49.20% 28.00% Profit margin 35.40% 9.80% Asset turnover 0.6 times 1.2 times Return on assets 19.40% 11.60% Return on equity 42.40% 25.90% a) Which company is more liquid? Explain your answer. b) Which company is more solvent? Explain your answer. c) Which company is more profitable? Explain your answer.

Ratios are a reliable way to compare a company’s profitability, liquidity, solvency, etc. It is…

Answered: a) Which company is more liquid?…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following ratios are available for agricultural chemical competitors Potash Corporation of Saskatchewan(PotashCorp) and Agrium from a recent year

	PotashCorp	Agrium
Liquidity
Current Ratio	1.1:1	2.1:1
Acid-test	0.8:1	1.2:1
Receivables turnover	10.7 times	8.3 times
Inventory turnover	6.8 times	4.1 times
Oeprating cycle	88 days	133 days

Solvency
Debt to total assets	36.6%	26.9%
Interest coverage	18.3 times	63.1 times

Profitability
Gross profit margin	49.20%	28.00%
Profit margin	35.40%	9.80%
Asset turnover	0.6 times	1.2 times
Return on assets	19.40%	11.60%
Return on equity	42.40%	25.90%

a) Which company is more liquid? Explain your answer.
b) Which company is more solvent? Explain your answer.
c) Which company is more profitable? Explain your answer.

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