Determining Credit Rating

Determining Credit Rating The chart below shows financial ratios for three companies. Use the data, along with Exhibit 7.6 to determine

Determining Credit Rating

The chart below shows financial ratios for three companies. Use the data, along with Exhibit 7.6 to determine a bond rating for each of the three companies below.

 

EBITA/ Avg. Assets Operating Margin EBITA Margin EBITA/

Interest Expense

(FFO + Int Exp)/Int Exp Debt/ EBITDA Debt/ Book Cap. FFO/Debt Retained Cash Flow/ Net Debt CAPEX/ Depreciation Revenue Volatility
Company 1 12.80% 16.30% 18.82% 15.0 13.4 1.6 38.12% 44.72% 37.64% 1.3 10.1
Company 2 9.20% 11.40% 13.00% 2.8 5.1 3.3 48.60% 21.73% 21.92% 1.2 16.0
Company 3 13.87% 18.62% 20.76% 22.2 20.5 1.3 39.87% 60.82% 32.79% 1.3 6.3

 

Company Rating
Company 1 Answer  A

 

Company 2 Answer Ba

 

Company 3 Answer  Aa

 

Feedback

Company 1 has ratios that are similar to those for companies with a rating of “A.”

Company 2 has ratios that are similar to those for companies with a rating of “Ba.”

Company 3 has ratios that are similar to those for companies with a rating of “Aa.”

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