Selected financial ratios for Canadian National Railway (CN) and Canadian Pacific Railway (CP) are presented here for a recent year.

Instructions
(a) Comment on the relative liquidity of the two companies.
(b) Comment on the relative solvency of the two companies.
(c) Comment on the relative profitability of the two companies.
(d) A commonly cited ratio in the railway industry is the operating ratio. This ratio measures the percentage that total operating expenses is of total revenue. CN's operating ratio is 63.5%, compared with CP's of 81.3% for the same year as the ratios provided above.
1. Do you believe that a lower or higher operating ratio is preferable? Explain.
2. Given your answer in item (1) above, which company has the better operating ratio?
3. Does the operating ratio provide additional information to assist your assessment of profitability in part (c)?

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CP Current ratio Acid-test ratio Receivables turnover Inventory turnover 1.0:1 10.2 times 21.1 0.7:1 0.6:1 10.3 times 22.6 Debt to total assets Interest coverage Free cash flow 59.0% 8.4 times $1,247 million 67.1% 4.3 times $(532) illion Gross profit margin Profit margin Asset turnover Return on assets Return on equity 46.4% 272% 0.4 times 96% 22.4% 43.7% 11.0% 0.4 times 4.1% 12.0%