Question

RATIOS EBITA/Average Assets Net Income Taxes Interest Expense + Amortization ЕBITA 158,536+23,333+(-27,435)+110,749 0.0656 6.56% - (1,675,614+1,581,603)/2 EBITA Interest Expense Net Income Taxes Interest Expense Amortization ЕBITA 158,536 23,333 + (-27,435) 110,749 -8.90 -27,435 ЕBITA Margin EBITDA Margin = EBITDA / Total Revenue 158,536 23,333 + (-27,435)110,749 0.0469 4.69% 5,207,336 Debt/EBITDA 453,000 1.86 158,536+23,333+(-27,435)+110,749

CREDIT RATING:

Assign a hypothetical credit rating using the ratios above.

(note: credit ratings are: Aaa, Aa, A, Baa, Ba, B, Caa-C)

please show which credit rating it is and explain why you got that credit rating. Thank you!

Answer 1

Answer: Credit rating- It is the rating, provided by credit rating agencies on the basis of their fulfillment of financial claims and commitments. A ratings are good, B ratings are average, C ratings are below average and D rating is for default.

I will provide B rating because of the following reasons:

1. B rating says creditworthiness is questionable and some factors require constant attention.
2. If we see the EBITA/Average assets, this ratio tells how effectively assets are being used to generate profit, this margin is very less, it is in single digit only. It shows that assets are not being utilized properly.
3. If we have a look of Interest coverage ratio, this tells how effectively company is paying its interest expenses on loan obligation. it is negative, it means company is not able to pay its interest expense that is a burden and in future it will be more.
4. Company's EBITA/Revenue margin is also less and in single digit.
5. Debt/EBITA is a measure of amount of income, available to pay its debt before considering interest and taxes. This ratio is higher than 1 and shows that company has heavy debt load.