Refer to the financial statements of Canadian Tire Corporation (Appendix A) and RONA Inc. (on Connect), and

Question:

Refer to the financial statements of Canadian Tire Corporation (Appendix A) and RONA Inc. (on Connect), and to the Industry Ratio Report (Appendix B on Connect).

Required:

1. Compute the quality of earnings ratio for both companies for the current year. How might the difference in their sales growth rates explain the difference in the ratio? Sales growth rate = (Current year’s sales – Prior year’s sales) 4 Prior year’s sales.

2. Compare the quality of earnings ratio for both companies to the industry average. Are these companies producing more or less cash from operating activities relative to net earnings than the average company in the industry?

3. Compute the capital expenditures ratio for both companies for the current year. Compare their abilities to finance purchases of property, plant, and equipment; acquisition of intangible assets; and acquisition of other businesses with cash provided by operating activities.

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