Question

Refer to the information below from Nordstrom Inc.’s 2016 financial statements. Use the information to answer the requirements ($ millions).

1,325 Sales $15,208 Depreciation expense 584 Tax expense 400 Interest expense, gross 177 Earnings from continuing operations (Net income) 736 EBITA Cash 619 Average total assets 9,585 Total debt 2,965 Noncurrent deferred tax liabilities 436 Noncontrolling interest Equity 871 Dividends paid 1,185 Cash from operating activities 2,451 a. Compute the following seven Moody's metrics for Nordstrom. See Appendix 4A for definitions. Round answers to one decimal place (example for percentage answers: 0.2345 = 23.5%). Ratio 2016 EBITA to average assets 13.8 % X Operating margin 9.2 % X EBITA margin 9.5 96 x EBITA interest coverage 7.5 Debt to EBITDA 141.6 X Debt to book capitalization 77.3 % x Retained cash flow to net debt 36.7 % X b. Use your computations from part a, along with measures in Exhibit 4.7, to estimate the long-term debt rating for Nordstrom. Based on the above computations, the rating for Nordstrom's long-term debt would fall in the Ba - Brange X

Answer 1

Solution 1 EBITA to Average assets HIER EBITA Average total assets EBITA to average total assets 1325 9585 13.82 % 2 Operating Margin Operating Income/Sales Operating income = Net income + Tax expense fo the current year $736+ $400 = $1136 $15,208 7.47% Sales = Operating Margin = 3 EBITA margin EBITA / Sales 4 EBITA interest coverage ratio EBITA/Interest exp Interest expense EBITA interest coverage ratio $177 7.49 times

5 Debt To EBITDA Debt/EBITDA Debt = EBITDA Debt To EBITDA 2965 1325+584=1909 1.55 Times 6 Debt to book capitalisation TOTAL Debt/Total book value of assets 2965/4272 69% Z|Retained cash flow to Net de Cash Flows less Dividends paid/Net Debt 2451-1185/2965-619 54%