Question

Exhibit 7.6 Ratio Values for Different Credit Ratings* EBITA/ EBITA EBITA/ Oper (FFO + Int Avg AT Margin Int Exp Margin Exp)/Int Exp FFOI RCF/Net Debt Debt Debt/ Debt/ CAPEX/ Rev EBITDA Book Cap Dep Exp Vol 1.6 36.0 21.1 13.8 0.9 1.3 8.6 6.5 1.6 Aaa ........ Aa ... A............ Baa .... Ba.......... B............. Caa-C...... 35.7 21.1 13.4 7.2 10.4 16.0% 14.3% 13.6% 10.3% 8.6% 6.7% 5.6% 22.8% 21.4% 19.4% 15.1% 12.2% 9.7% 5.9% 19.0% 19.2% 16.8% 14.0% 10.9% 8.1% 5.4% 8.4 86.3% 62.7% 46.1% 31.0% 22.4% 13.6% 3.4% 81.5% 33.8% 38.8% 28.1% 22.6% 13.3% 3.4% 23.7% 41.1% 39.3% 45.8% 50.1% 67.3% 99.1% 2.5 3.4 1.2 3.8 5.3 3.1 1.4 5.1 11.0 15.4 17.4 11.7 1.7 0.8 0.9

Answer 1

EBITA means earnings before interest ,tax and amortization.

As per the given information:

Earnings from continuing operations $232,573

Interest    14,628

Tax    154,112

Amortization 13,840

EBITA $415,153

Now,

1.EBITA/ Avg assets    = $415,153 /2,481,992 = 0.16726 i.e., 16.7% [ Note : requirement is that answer has to be rounded to one decimal therefore, we should write down the answer as 16.7% only ]

   Hence, 16.7% and the Moody's rating Aaa

2. Formula for EBITA margin = EBITA / Total revenues = $415,153 / 3,963,313

   = 0.10474 i.e., 10.5% and the moody's rating is B

3. EBITA / Interest expense = $ 415,153 / 14,628 = 28.4 and moody's rating is Aa [ Note : it is a interest coverage ratio, therefore we do not express it in percentage ]

4. Debt / EBITDA = $669,000 / EBITA + depreciation = 669,000 / [415,153 + 87,100 ] [ Note: its a debt coverage ratio ]

   = 1.3 and the moody's rating is Aa

5. CAPEX / Dep. expense = 298,928 / 87,100 = 3.4 and moody's rating is Aaa