Business, 03.03.2020 00:39 TheArkazary

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 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

Required:

a. What credit rating would be assigned to Firm 1?
b. What credit rating would be assigned to Firm 2?
c. Does Firm 3 have more or less credit risk than Firm 2?

Answers: 2

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The key financial ratios Standard & Poor’s analysts use to assess credit risk and assign credit...

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