CANADIAN TIRE- Part 3 of 11

Walmart is a close competitor of Canadian Tire. If Walmart has ROE of 20% and Quick Ratio of 0.4. What does it mean?

Question

CANADIAN TIRE- Part 3 of 11

Walmart is a close competitor of Canadian Tire. If Walmart has ROE of 20% and Quick Ratio of 0.4. What does it mean?

BlackTom AI · Accepted Answer

Question restatement: CANADIAN TIRE- Part 3 of 11
Walmart is a close competitor of Canadian Tire. If Walmart has ROE of 20% and Quick Ratio of 0.4. What does it mean?

Answer options:
1) Walmart has lower profitability and higher liquidity than Canadian Tire
2) Walmart has higher profitability and lower liquidity than Canadian Tire
3) Walmart has higher profitability and liquidity than Canadian Tire
4) Walmart has lower profitability and liquidity than Canadian Tire

Analysis of options:
Option 1: Walmart has lower profitability and higher liquidity than Canadian Tire. Interpreting the given metrics, ROE (return on equity) of 20% suggests a relatively strong profitability position. Liquidity, proxied by the Quick Ratio, is 0.4, which is below 1 and indicates lower liquidity. Therefore, this option claims both lower profitability and higher liquidity, which contradicts the ROE value showing solid profitability and the low Quick Ratio showing poorer liquidity. Thus this statement misreads both metrics.

Option 2: Walmart has higher profitability and lower liquidity than Canadian Tire. ROE is a measure of profitability; a higher ROE (20%) signals higher profitability relative to peers, assuming Canadian Tire has a lower ROE. The Quick Ratio of 0.4 indicates weaker liquidity, since values below 1 suggest potential shortfall in covering current liabilities with quick assets. If Canadian Tire has a better (higher) liquidity position, this option correctly pairs higher profitability with lower liquidity for Walmart. The combination aligns with the given data and common interpretation of these ratios in an industry context where competition may compress liquidity while ROE remains strong due to leverage or margins.

Option 3: Walmart has higher profitability and liquidity than Canadian Tire. This option asserts Walmart is better on both profitability (ROE) and liquidity (Quick Ratio) than Canadian Tire. However, a Quick Ratio of 0.4 is generally considered unfavorable liquidity, not higher liquidity. Unless Canadian Tire’s liquidity is abnormally poor, this option contradicts the provided Quick Ratio signal and mischaracterizes Walmart’s liquidity position.

Option 4: Walmart has lower profitability and liquidity than Canadian Tire. This states that Walmart is weaker on both dimensions. Given the ROE of 20%, this would imply Walmart’s profitability is not high, which conflicts with the interpretation of a solid ROE as indicating stronger profitability. Similarly, a Quick Ratio of 0.4 indicates weaker liquidity, but without knowing Canadian Tire’s exact liquidity, declaring Walmart as lower on both metrics cannot be conclusively supported by the single data point pair provided and contradicts the implication that Walmart’s profitability is relatively stronger.

In summary, the options differ mainly on how they interpret the ROE (profitability) and the Quick Ratio (liquidity). The combination that aligns with a relatively strong profitability indicator (20% ROE) while acknowledging a weak short-term liquidity position (Quick Ratio of 0.4) corresponds to the description that Walmart has higher profitability and lower liquidity than Canadian Tire, which is the second option.

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CANADIAN TIRE- Part 3 of 11 Walmart is a close competitor of Canadian Tire. If Walmart has ROE of 20% and Quick Ratio of 0.4. What does it mean?

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