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

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