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Exhibit 7.5 describes the key financial ratios Standard & Poor's analysts use to assess credit risk and assign credit ratings to industrial companies. Those same financial ratios for a single company over time follow. The company was assigned a AAA credit rating three years earlier. 20X1 20X2 Q1 Q2 Q3 Q4 Q1 Q2 EBIT interest coverage 23.8 22.1 21.6 20.8 20.6 12.4 EBITDA interest coverage 25.3 26.4 25.6 23.2 22.9 16.5 FFO/Total debt (%) 167.8 150.8 130.7 128.4 80.2 76.2 Free operating cash flow/Total debt (%) 104.1 107.3 103.7 98.6 61.5 45.3 Total debt/EBITDA 0.2 0.2 0.2 0.6 0.8 1.0 Return on capital (%) Total debt/Capital (%) 35.1 6.2 34.3 30.6 28.1 25.9 24.7 6.8 7.5 15.4 27.2 35.6 Required: 1. Did the company's credit risk increase or decrease over these six quarters? 2. What credit rating should be assigned to the company as of Q2 in 20X2? 3. Which is the quarter from the table above that Standard & Poor's would first consider downgrading this company's credit rating? Exhibit 7.5 describes the key financial ratios Standard & Poor's analysts use to assess credit risk and assign credit ratings to industrial companies. Those same financial ratios for a single company over time follow. The company was assigned a AAA credit rating three years earlier. 20X1 20X2 Q1 Q2 Q3 Q4 Q1 Q2 EBIT interest coverage 23.8 22.1 21.6 20.8 20.6 12.4 EBITDA interest coverage 25.3 26.4 25.6 23.2 22.9 16.5 FFO/Total debt (%) 167.8 150.8 130.7 128.4 80.2 76.2 Free operating cash flow/Total debt (%) 104.1 107.3 103.7 98.6 61.5 45.3 Total debt/EBITDA 0.2 0.2 0.2 0.6 0.8 1.0 Return on capital (%) Total debt/Capital (%) 35.1 6.2 34.3 30.6 28.1 25.9 24.7 6.8 7.5 15.4 27.2 35.6 Required: 1. Did the company's credit risk increase or decrease over these six quarters? 2. What credit rating should be assigned to the company as of Q2 in 20X2? 3. Which is the quarter from the table above that Standard & Poor's would first consider downgrading this company's credit rating?

Exhibit 7.5 describes the key financial ratios Standard & Poor's analysts use to assess credit risk and assign credit ratings to industrial companies. Those same financial ratios for a single company over time follow. The company was assigned a AAA credit rating three years earlier. 20X1 20X2 Q1 Q2 Q3 Q4 Q1 Q2 EBIT interest coverage 23.8 22.1 21.6 20.8 20.6 12.4 EBITDA interest coverage 25.3 26.4 25.6 23.2 22.9 16.5 FFO/Total debt (%) 167.8 150.8 130.7 128.4 80.2 76.2 Free operating cash flow/Total debt (%) 104.1 107.3 103.7 98.6 61.5 45.3 Total debt/EBITDA 0.2 0.2 0.2 0.6 0.8 1.0 Return on capital (%) Total debt/Capital (%) 35.1 6.2 34.3 30.6 28.1 25.9 24.7 6.8 7.5 15.4 27.2 35.6 Required: 1. Did the company's credit risk increase or decrease over these six quarters? 2. What credit rating should be assigned to the company as of Q2 in 20X2? 3. Which is the quarter from the table above that Standard & Poor's would first consider downgrading this company's credit rating? Exhibit 7.5 describes the key financial ratios Standard & Poor's analysts use to assess credit risk and assign credit ratings to industrial companies. Those same financial ratios for a single company over time follow. The company was assigned a AAA credit rating three years earlier. 20X1 20X2 Q1 Q2 Q3 Q4 Q1 Q2 EBIT interest coverage 23.8 22.1 21.6 20.8 20.6 12.4 EBITDA interest coverage 25.3 26.4 25.6 23.2 22.9 16.5 FFO/Total debt (%) 167.8 150.8 130.7 128.4 80.2 76.2 Free operating cash flow/Total debt (%) 104.1 107.3 103.7 98.6 61.5 45.3 Total debt/EBITDA 0.2 0.2 0.2 0.6 0.8 1.0 Return on capital (%) Total debt/Capital (%) 35.1 6.2 34.3 30.6 28.1 25.9 24.7 6.8 7.5 15.4 27.2 35.6 Required: 1. Did the company's credit risk increase or decrease over these six quarters? 2. What credit rating should be assigned to the company as of Q2 in 20X2? 3. Which is the quarter from the table above that Standard & Poor's would first consider downgrading this company's credit rating?

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Entrepreneurial Finance
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ISBN:9781337635653
Author:Leach
Publisher:Leach
Chapter5: Evaluating Operating And Financial Performance
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Exhibit 7.5 describes the key financial ratios Standard & Poor's analysts use to assess credit risk and assign credit ratings to industrial companies. Those same financial ratios for a single company over time follow. The company was assigned a AAA credit rating three years earlier. 20X1 20X2 Q1 Q2 Q3 Q4 Q1 Q2 EBIT interest coverage 23.8 22.1 21.6 20.8 20.6 12.4 EBITDA interest coverage 25.3 26.4 25.6 23.2 22.9 16.5 FFO/Total debt (%) 167.8 150.8 130.7 128.4 80.2 76.2 Free operating cash flow/Total debt (%) 104.1 107.3 103.7 98.6 61.5 45.3 Total debt/EBITDA 0.2 0.2 0.2 0.6 0.8 1.0 Return on capital (%) Total debt/Capital (%) 35.1 6.2 34.3 30.6 28.1 25.9 24.7 6.8 7.5 15.4 27.2 35.6 Required: 1. Did the company's credit risk increase or decrease over these six quarters? 2. What credit rating should be assigned to the company as of Q2 in 20X2? 3. Which is the quarter from the table above that Standard & Poor's would first consider downgrading this company's credit rating?
Transcribed Image Text:Exhibit 7.5 describes the key financial ratios Standard & Poor's analysts use to assess credit risk and assign credit ratings to industrial companies. Those same financial ratios for a single company over time follow. The company was assigned a AAA credit rating three years earlier. 20X1 20X2 Q1 Q2 Q3 Q4 Q1 Q2 EBIT interest coverage 23.8 22.1 21.6 20.8 20.6 12.4 EBITDA interest coverage 25.3 26.4 25.6 23.2 22.9 16.5 FFO/Total debt (%) 167.8 150.8 130.7 128.4 80.2 76.2 Free operating cash flow/Total debt (%) 104.1 107.3 103.7 98.6 61.5 45.3 Total debt/EBITDA 0.2 0.2 0.2 0.6 0.8 1.0 Return on capital (%) Total debt/Capital (%) 35.1 6.2 34.3 30.6 28.1 25.9 24.7 6.8 7.5 15.4 27.2 35.6 Required: 1. Did the company's credit risk increase or decrease over these six quarters? 2. What credit rating should be assigned to the company as of Q2 in 20X2? 3. Which is the quarter from the table above that Standard & Poor's would first consider downgrading this company's credit rating?
Exhibit 7.5 describes the key financial ratios Standard & Poor's analysts use to assess credit risk and assign credit ratings to industrial companies. Those same financial ratios for a single company over time follow. The company was assigned a AAA credit rating three years earlier. 20X1 20X2 Q1 Q2 Q3 Q4 Q1 Q2 EBIT interest coverage 23.8 22.1 21.6 20.8 20.6 12.4 EBITDA interest coverage 25.3 26.4 25.6 23.2 22.9 16.5 FFO/Total debt (%) 167.8 150.8 130.7 128.4 80.2 76.2 Free operating cash flow/Total debt (%) 104.1 107.3 103.7 98.6 61.5 45.3 Total debt/EBITDA 0.2 0.2 0.2 0.6 0.8 1.0 Return on capital (%) Total debt/Capital (%) 35.1 6.2 34.3 30.6 28.1 25.9 24.7 6.8 7.5 15.4 27.2 35.6 Required: 1. Did the company's credit risk increase or decrease over these six quarters? 2. What credit rating should be assigned to the company as of Q2 in 20X2? 3. Which is the quarter from the table above that Standard & Poor's would first consider downgrading this company's credit rating?
Transcribed Image Text:Exhibit 7.5 describes the key financial ratios Standard & Poor's analysts use to assess credit risk and assign credit ratings to industrial companies. Those same financial ratios for a single company over time follow. The company was assigned a AAA credit rating three years earlier. 20X1 20X2 Q1 Q2 Q3 Q4 Q1 Q2 EBIT interest coverage 23.8 22.1 21.6 20.8 20.6 12.4 EBITDA interest coverage 25.3 26.4 25.6 23.2 22.9 16.5 FFO/Total debt (%) 167.8 150.8 130.7 128.4 80.2 76.2 Free operating cash flow/Total debt (%) 104.1 107.3 103.7 98.6 61.5 45.3 Total debt/EBITDA 0.2 0.2 0.2 0.6 0.8 1.0 Return on capital (%) Total debt/Capital (%) 35.1 6.2 34.3 30.6 28.1 25.9 24.7 6.8 7.5 15.4 27.2 35.6 Required: 1. Did the company's credit risk increase or decrease over these six quarters? 2. What credit rating should be assigned to the company as of Q2 in 20X2? 3. Which is the quarter from the table above that Standard & Poor's would first consider downgrading this company's credit rating?
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