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.

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CN CP Liquidity Current ratio 0.55:1 0.64:1 Acid-test ratio 0.40:1 0.52:1 Receivables turnover 14.0 times 10.3 times Solvency Debt to total assets 55.7% 68.0% Interest coverage Free cash flow Profitability Profit margin 11.6 times 7.5 times $2,778 million $87 million 42.1% 36.7% Asset turnover 0.3 times 0.3 times Return on assets 14.7% 12.2% Return on equity 34.8% 43.5%