8.Harold Adams is a financial analyst reviewing the financial data for Butler, Inc., for the years 2006 and 2005 and projected for 2007. Information for several selected ratios are given below: Table 1: Selected Data on Butler, Inc. | Ratios | 2007 (Projected) | 2006 | 2005 | EBIT interest Coverage Ratio | 19.5 | 17.2 | 13.7 | EBITDA interest coverage | 10.0 | 9.0 | 8.0 | Funds from Operations/TD | 48.0 | 48.0 | 55.0 | Free Operating Cash Flow/TD | NA | NA | NA | Pretax Return on Capital | 26.0 | 24.1 | 18.5 | Operating Income/Sales | 36.0 | 36.5 | 37.8 | LTD/Capitalization | 29.0 | 28.9 | 31.8 | TD/Capitalization | 45.0 | 58.0 | 60.2 |
Adams obtained Standard and Poor's information about median ratios by credit rating. These ratios are reproduced below: Table 2: Standard & Poor's Select Median Rating Criteria | Ratios | AAA | AA | A | BBB | BB | B | EBIT interest Coverage Ratio | 12.9 | 9.2 | 7.2 | 4.1 | 2.5 | 1.2 | EBITDA interest coverage | 18.7 | 14.0 | 10.0 | 6.3 | 3.9 | 2.3 | Funds from Operations/TD | 89.7 | 67.0 | 49.5 | 32.3 | 20.1 | 10.5 | Free Operating Cash Flow/TD | 40.5 | 21.6 | 17.4 | 6.3 | 1.0 | (4.0) | Pretax Return on Capital | 30.6 | 25.1 | 19.6 | 15.4 | 12.6 | 9.2 | Operating Income/Sales | 30.9 | 25.2 | 17.9 | 15.8 | 14.4 | 11.2 | LTD/Capitalization | 21.4 | 29.3 | 33.3 | 40.8 | 55.3 | 68.8 | TD/Capitalization | 31.8 | 37.0 | 39.2 | 46.4 | 58.5 | 71.4 |
Butler 's year 2007 earnings before interest, taxes, depreciation, and amortization (EBITDA) interest coverage is closest to which of the following bond ratings? A) A. B) BBB. C) AAA. D) AA. The correct answer was A) With a 2007 EBITDA of 10.0, the ratio most closely corresponds with the A-rated debt shown in Table 2. 9.Each of the following statements is an integral part part of the debt rating process EXCEPT: A) calculate the company's solvency, capitalization, and coverage ratios. B) compare the effects of earnings per share dilution of the firm under analysis to other firm's within the industry with respect to recent equity issuances. C) compare the company's solvency, capitalization, and coverage ratios to the average ratios of other firms in various rating categories. D) rate the firm's debt by considering capacity, collateral, character, and the covenants that apply to the bond issue. The correct answer was B) In a credit analysis setting, the impact of EPS dilution is not likely to be a major concern. | 
发表于 2008-4-14 14:18
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