# Question: assigning a longterm debt rating using financial ratios refer to...

###### Question details

**Assigning a Long-Term Debt Rating Using Financial
Ratios**

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

Sales | $15,093 | ||||

Depreciation expense | 578 | ||||

Tax expense | 394 | ||||

Interest expense, gross | 171 | ||||

Earnings from continuing operations (Net income) | 685 | ||||

EBITA | 1,256 | ||||

Cash | 613 | ||||

Average total assets | 9,470 | ||||

Total debt | 2,908 | ||||

Noncurrent deferred tax liabilities | 391 | ||||

Noncontrolling interest | 0 | ||||

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 | Answer% | ||

Operating margin | Answer% | ||

EBITA margin | Answer% | ||

EBITA interest coverage | Answer | ||

Debt to EBITDA | Answer | ||

Debt to book capitalization | Answer% | ||

Retained cash flow to net debt | Answer% |

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 AnswerAaa - Aa rangeA - Baa rangeBa - B rangeCaa - C range