CANADIAN TIRE- Part 1 of 11

Use two decimal points.
Do not add percentage (%), or times (X) with the number.

Calculate Quick Ratio for 2020.

Question

CANADIAN TIRE- Part 1 of 11

Use two decimal points.
Do not add percentage (%), or times (X) with the number.

Calculate Quick Ratio for 2020.

BlackTom AI · Accepted Answer

Problem restatement: You are asked to calculate the Quick Ratio for 2020 for CANADIAN TIRE, with the instruction to use two decimal points and to not include a percent sign or the letter X. Answer provided (in the prompt) is 0.26, but no answer choices are given.

Step 1: Identify what the Quick Ratio is and its formula. The Quick Ratio (also called the Acid-test Ratio) measures a company’s ability to meet its short-term obligations with its most liquid assets. It is calculated as: Quick Ratio = (Current Assets − Inventory) / Current Liabilities. This excludes inventory from current assets since inventory is less liquid.

Step 2: Determine what data are needed. To compute this ratio for 2020, you need:
- Current Assets (from the balance sheet for 2020)
- Inventory (to subtract from current assets, also from the balance sheet for 2020)
- Current Liabilities (from the balance sheet for 2020)

Step 3: Understand the missing information. The prompt provides no numeric values or a balance sheet, so you cannot independently verify or reproduce the calculation. Without these figures, both the numerator (Current Assets − Inventory) and the denominator (Current Liabilities) are unknown.

Step 4: How you would compute it if you had the data. Suppose you have:
- Current Assets = A
- Inventory = I
- Current Liabilities = L
Then Quick Ratio = (A − I) / L. You would compute the subtraction first, then divide by L, and finally round to two decimals.

Step 5: Interpreting the given answer of 0.26. If the expected Quick Ratio is 0.26, that implies (A − I) / L ≈ 0.26. In other words, liquid assets (excluding inventory) cover about 26% of current liabilities. A ratio this low would suggest limited near-term liquidity, assuming the ratio reflects typical industry norms for the period. However, without the actual numbers, this is a general interpretation and not a verification.

Step 6: Common sources of error to avoid. Be careful not to include inventory when calculating the Quick Ratio, since the rapid-test assets exclude inventory. Also ensure rounding to exactly two decimal places as required by the instruction. Finally, confirm you are using the 2020 figures (not 2019 or 2021) from the correct financial statements.

Step 7: Summary of what to do next if you had access to the data. Retrieve the 2020 balance sheet, compute (Current Assets − Inventory), divide by Current Liabilities, and round to two decimals to compare with 0.26. If your result differs, re-check which line items were included, ensure you used current liabilities (not total liabilities), and verify the year of the figures.

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CANADIAN TIRE- Part 1 of 11 Use two decimal points. Do not add percentage (%), or times (X) with the number. Calculate Quick Ratio for 2020.

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