Exhibit 7.5 describes the key financial ratios Standard & Poor’s analysts use to assess credit risk and assign credit ratings to industrial companies. The same financial ratios for three firms follow. Firm 1Firm 2Firm 3EBIT interest coverage2.712.816.7EBITDA interest coverage3.718.724.6FFO/Total debt (%)19.880.2135.1Free operating cash flow/Total debt (%)8.240.687.9Total debt/EBITDA4.01.00.3Return on capital (%)9.929.232.7Total debt/Capital (%)54.830.28.1 Required:What credit rating would be assigned to Firm 1?What credit rating would be assigned to Firm 2?Does Firm 3 have more or less credit risk than Firm 2?EXHIBIT7.5 EXHIBIT 7.5 Standard & Poor's Key Financial Ratios and Ratings of CorporateDebtThree-Year MediansAAAAAABBBBBBCCCEBIT interest coverage23.813.66.94.22.30.90.4EBITDA interest coverage25.317.19.45.93.11.60.9FFO/Total debt (%)167.877.5 43.234.620.010.12.9Free operating cash flow/Total debt (%)104.141.125.416.97.92.6(0.9)Total debt/EBITDA0.21.11.72.43.85.67.4Return on capital (%)35.126.916.813.410.36.72.3Total debt/Capital (%)6.234.839.845.657.274.2101.2

The key financial ratios used by Standard & Poor's to assess credit risk and assign credit…

EXHIBIT 7.5 Standard & Poor's Key Financial Ratios and Ratings of Corporate Debt Three-Year Medians AAA AA A BBB BB B CCC EBIT interest coverage 23.8 13.6 6.9 4.2 2.3 0.9 0.4 EBITDA interest coverage 25.3 17.1 9.4 5.9 3.1 1.6 0.9 FFO/Total debt (%) 167.8 77.5 43.2 34.6 20.0 10.1 2.9 Free operating cash flow/Total debt (%) 104.1 41.1 25.4 16.9 7.9 2.6 (0.9) Total debt/EBITDA 0.2 1.1 1.7 2.4 3.8 5.6 7.4 Return on capital (%) 35.1 26.9 16.8 13.4 10.3 6.7 2.3 Total debt/Capital (%) 6.2 34.8 39.8 45.6 57.2 74.2 101.2

EXHIBIT 7.5 Standard & Poor's Key Financial Ratios and Ratings of Corporate Debt Three-Year Medians AAA AA A BBB BB B CCC EBIT interest coverage 23.8 13.6 6.9 4.2 2.3 0.9 0.4 EBITDA interest coverage 25.3 17.1 9.4 5.9 3.1 1.6 0.9 FFO/Total debt (%) 167.8 77.5 43.2 34.6 20.0 10.1 2.9 Free operating cash flow/Total debt (%) 104.1 41.1 25.4 16.9 7.9 2.6 (0.9) Total debt/EBITDA 0.2 1.1 1.7 2.4 3.8 5.6 7.4 Return on capital (%) 35.1 26.9 16.8 13.4 10.3 6.7 2.3 Total debt/Capital (%) 6.2 34.8 39.8 45.6 57.2 74.2 101.2

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter8: Liabilities And Stockholders' Equity

Section: Chapter Questions

Problem 8.11MBA

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am. 123.
Qb 08.
Use the financial ratios of company A and company B to answer the questions below. Company A Company B Yr t+1 Year t Yr t+1 Year t Current ratio 0.55 0.59 0.56 0.55 Accounts receivable turnover 6.22 6.25 5.06 4.87 Debt to total assets 40.5% 40% 67.8% 65.9% Times interest earned 8.80 30.6 5.97 6.33 Free cash flows (in millions) ($3,819) $3,173 $168 $550 Return on stockholders’equity 7.7% 7.7% 26.6% 23.3% Return on assets 4.3% 4.3% 8.9% 7.9% Profit margin…
Oo.86. Subject :- Account
d. what is its current ratio
21. Kinsella Corporation's statement of financial position showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the total long-term debt to total equity ratio? a.0.375 b.0.125 c.0.75 d.0.25
Question 10 Input Area: Debt-equity ratio Cost of equity Cost of debt Tax rate Output Area: Weight of debt Weight of equity WACC 0.35 11% 6% 21%
3. A 0.50 (50%) debt-equity ratio would suggest that a firm has: a. 50% of its assets financed with debt b. 33-1/3% of it assets financed with debt c. an Equity Multiplier of 1.667 d. 66-23% of its assets financed with debt
EXPLAIN THE RESULTS OF TOTAL LIABILITIES IN VERTICAL ANALYSIS
STEP 3: Solve Calculating the four benchmark financial ratios found in Table 15.3, we get the following: Ratio with Ratio Existing Common Stock with Debt Financing Ratio Formula Ratio Financing Debt ratio Total Liabilities 35.2% 26.4% 51.5% Total Assets Interest-bearing Interest-Bearing Debt 20.1 15.1 40.2 debt ratio Total Assets Times interest Net Operating Income or EBIT 27.08 31.25 11.72 earned Interest Expense Depreciation Amortization 6.84 8.20 3.08 EBITDA Earnings Before coverage ratio Interest and Taxes Expense Expense Principal Payments Interest Expense + (- 1 Tax Rate STEP 4: Analyze Whether the entire $10 million is raised by issuing equity or by borrowing has a dramatic effect on the firm's capital structure. For example, the debt ratio will either drop from 35.2 percent to 26.4 percent if equity is used or increase to 51.5 percent if debt is used. The interest-bearing debt ratio will change in a similar manner, dropping from 20.1 percent to 15.1 percent if equity financing…
What is the debt ratio for a firm with an equity multiplier of 3.5? ____ 44.09 percent ____ 58.51 percent ____ 66.25 percent ____ 71.43 percent
Assignment 1: Financial Statement Analysis and Interpretation of the Results • Select two different corporations (from the same industry) publicly traded in the US Stock Exchange Markets. (NYSE, NASDAQ) o Make sure the companies you select are traded in same currency (USD, Euro, GBP) o Please get the approval for the names of the firm before you start your work. • The analysis of same company by different students will not be graded • Download the necessary financial statements for the companies for 2021 and 2020 o For data collection you can use: finance.yahoo.com or finance.google.com Part 1: Apply the financial analysis for the last two years using ratios covered in Chapter 3. Use excel formulas for calculation of the ratios on a separate sheet (manual calculations will not be graded!) You are not responsible for Part 5 (V. Market Value) ratios Some companies may not have all the data due to their variations in industries. If you face missing data just skip that ratio (mention as…

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	Firm 1	Firm 2	Firm 3
EBIT interest coverage	2.7	12.8	16.7
EBITDA interest coverage	3.7	18.7	24.6
FFO/Total debt (%)	19.8	80.2	135.1
Free operating cash flow/Total debt (%)	8.2	40.6	87.9
Total debt/EBITDA	4.0	1.0	0.3
Return on capital (%)	9.9	29.2	32.7
Total debt/Capital (%)	54.8	30.2	8.1