You want to compare Rite Aid's leverage to other firms in the Retail Pharmaceutical industry. To assist you, the table below reports the industry averages for several common debt ratios. Calculate each of the ratios in the table for Rite Aid for the years ending February 28, 2004 and March 1, 2003. Ratio Definition Industry Average Rite Aid FY2004 Rite Aid FY2003 Common-size debt Total liabilities / Total assets 51.91% 99.85% 101.51% Common-size interest expense Interest expense / Net sales 0.65% 1.89% 2.09% Debt to equity Total liabilities / Total shareholders' equity 1.59 6732.96 -55.43 Long-term debt to equity Long-term debt / Total shareholder's equity 0.58 420.08 -34.39 Proportion of long-term debt due in one year Long-term debt due in one year / Total long-term debt 13.00% 0.616% 2.69% Times-interest-earned (interest coverage) (Pre-tax income + interest expense) / Interest expense 9.98x 1.11 0.53 How does Rite Aid compare to the industry? What conclusion would you reach as a credit analyst?
You want to compare Rite Aid's leverage to other firms in the Retail Pharmaceutical industry. To assist you, the table below reports the industry averages for several common debt ratios. Calculate each of the ratios in the table for Rite Aid for the years ending February 28, 2004 and March 1, 2003. Ratio Definition Industry Average Rite Aid FY2004 Rite Aid FY2003 Common-size debt Total liabilities / Total assets 51.91% 99.85% 101.51% Common-size interest expense Interest expense / Net sales 0.65% 1.89% 2.09% Debt to equity Total liabilities / Total shareholders' equity 1.59 6732.96 -55.43 Long-term debt to equity Long-term debt / Total shareholder's equity 0.58 420.08 -34.39 Proportion of long-term debt due in one year Long-term debt due in one year / Total long-term debt 13.00% 0.616% 2.69% Times-interest-earned (interest coverage) (Pre-tax income + interest expense) / Interest expense 9.98x 1.11 0.53 How does Rite Aid compare to the industry? What conclusion would you reach as a credit analyst?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
| You want to compare Rite Aid's leverage to other firms in the Retail Pharmaceutical industry. To assist you, the table below reports the industry | |||||
| averages for several common debt ratios. Calculate each of the ratios in the table for Rite Aid for the years ending February 28, 2004 and March 1, 2003. | |||||
| Ratio | Definition | Industry Average | Rite Aid FY2004 | Rite Aid FY2003 | |
| Common-size debt | Total liabilities / Total assets | 51.91% | 99.85% | 101.51% | |
| Common-size interest expense |
Interest expense / Net sales | 0.65% | 1.89% | 2.09% | |
| Debt to equity | Total liabilities / Total shareholders' equity |
1.59 | 6732.96 | -55.43 | |
| Long-term debt to equity |
Long-term debt / Total shareholder's equity |
0.58 | 420.08 | -34.39 | |
| Proportion of long-term debt due in one year | Long-term debt due in one year / Total long-term debt |
13.00% | 0.616% | 2.69% | |
| Times-interest- earned (interest coverage) |
(Pre-tax income + interest expense) / Interest expense |
9.98x | 1.11 | 0.53 | |
| How does Rite Aid compare to the industry? | |||||
| What conclusion would you reach as a credit analyst? | |||||
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