Loblaw Companies Limited reported the following selected information (in millions):
___________________________2011 2010
Total assets.........................$17,428.............$16,841
Total liabilities.......................11,421...............11,238
Interest expense........................327..................353
Income tax expense.....................288..................319
Profit.....................................769..................675
Instructions
(a) Calculate Loblaw's debt to total assets and interest coverage ratios for each year.
(b) Based on the ratios calculated in part (a), what conclusions can you make about Loblaw's solvency?
Taking It Further
Loblaw had total operating lease commitments of $1,179 million in 2011 and $1,101 million in 2010. Explain the impact that an operating lease has on a company's solvency ratios. Does this information change any of your conclusions in part (b)?