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

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 13PC: Calculating and Interpreting Risk Ratios. Refer to the financial statement data for Hasbro in...

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Qb 08.
Solvency and Profitability Trend Analysis Addai Company has provided the following comparative information: 20Y8 20Υ7 20Υ6 20Y5 20Υ4 Net income $273,406 S367,976 $631,176 $884,000 $800,000 Interest expense 616,047 572,003 528,165 495,000 440,000 Income tax expense 31,749 53,560 106,720 160,000 200,000 Total assets (ending balance) 4,417,178 4,124,350 3,732,443 3,338,500 2,750,000 Total stockholders' equity (ending balance) 3,706,557 3,433,152 3,065,176 2,434,000 1,550,000 Average total assets 4,270,764 3,928,396 3,535,472 3,044,250 2,475,000 Average total stockholders' equity 3,569,855 3,249,164 2,749,588 1,992,000 1,150,000 You have been asked to evaluate the historical performance of the company over the last five years. Selected industry ratios have remained relatively steady at the following levels for the last five years: 20Y4-20Y8 Return on total assets 28% Return on stockholders' equity 18% Times interest earned 2.7 Ratio of liabilities to stockholders equity 0.4 Required: 1.…
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d. what is its current ratio
QS 10-17 (Algo) Debt-to-equity ratio LO A2 Total liabilities Total equity Atlanta Company "$510, 000 570, e00 Spokane Company $ 484,500 1,529,000 Compute the debt-to-equity ratio for each of the above companies. Debt to equity ratio Choose Numerator: Choose Denominator: =Debt-to-equity ratio Atlanta Company Spokane Company
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
What is the debt ratio? What is the equity-debt ratio? (Equity/Total Debt) What is the debt to equity ratio?
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
Subject-account
8. Financial Ratios. Consider this simplified balance sheet for Geomorph Trading: (LO4-3) Current assets $100 Current liabilities $ 60 Long-term assets 500 Long-term debt 280 Other liabilities 70 Equity 190 $600 $800 a. What is the company's debt-equity ratio? b. What is the ratio of total long-term debt to total long-term capital? c. What is its net working capital?
Qd 236.

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bartleby, a Learneo, Inc. business

	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