Moodys employs the following four ratings for short

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Moody's employs the following four ratings for short-term obligations: Aaa Aa A Baa Ba B Caa Ca P-I superior ability to repay. P-2 strong ability to repay. P-3 acceptable ability to repay. NP does not fall within any of the Prime rating categories.
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( Earnings from continuing operations + Interest expense, net) + Tax expense + Amortization expense .I Module 4 I Credit Risk Analysis and Interpretation 4-32 _-. provides the following reconciliation between its long-term and short-term ratings: Long-Term vs Short-Term Ratings Long Term Short Term Aaa } (!) Aa1 "tl Aa2 co •... o Aa3 Prime-1 (or P-1) .•.. c: A1 (!) E A2 .•.. If) A3 } (!) Prime-2 (or P-2) > Baa1 .E Baa2 } Prime-3 (or P-3) Baa3 Ba1 3< Ba2 (!) I: "tl :::l Ba3 co ;> •... B1 o 5 (!) B2 > "tI B3 Not Prime ~(i) co .- Caa1 -> :::l J: Caa2 () '" (!) .- Q.J: Caa3 (J) Ca C low is a list of ratios that S&P and Moody's use to evaluate credit risk and assign credit ratings. The list exhaustive, but illustrates the most important ratios used by the two agencies. The two agencies measure credit-related qualities but their particular ratios sometimes differ. i=--5'I'::Ibilityand Coverage Ratios - - 9 income to ( Sales - COGS - SGA - R&D expense + ) Depreciation included in COGS and SGA and R&D Sales - - 9 income margin Earnings trom continuing operations + Tax expense Sales .I ( Earnings from continuing operations + Interest expense, net) + Tax expense + Amortization expense .I margin Sales on capital Earnings from continuing operations + Interest expense, net + Tax expense ( Average of beginning and end of year (Long-term debt + Current maturitieS) + Commercial paper + Short-term borrowings + Equity) .I - terest coverage Earnings from continuing operations + Interest expense, net + Tax expense .I Gross interest expense, before subtracting capitalized interest and interest income ( Earnings from continuing operations + Interest expense, net + Tax expense) + Depreciation expense + Amortization expense .I A interest coverage Gross interest expense, before subtracting capitalized interest and interest income interest coverage Gross interest expense, before subtracting capitalized interest and interest income ency and Leverage Ratios ( Long-term debt + Current maturities + Commercial paper) + Short-term borrowings to EBITDA ( Earnings from continuing operations + Interest expense, net + Tax expense) + Depreciation expense + Amortization expense continued
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continued from prior page 4-33 Module4 I Credit RiskAnalysis and Interpretation S&P Moody's Debt to equity ,/ Debt to book capitalization Debt to market value of equity EBITA to average assets Cash Flow Ratios Funds from operations to debt Cash flow interest coverage Funds from operations coverage Debt service coverage Free operating cash flow to debt Retained cash flow to debt Long-term debt + Current maturities + Commercial paper + 5 hort-term borrowings Equity Long-term debt + Current maturities + Commercial paper + 5 hort-term borrowings ( Long-term debt + Current maturities + Commercial paper ) + 5hort-term borrowings + Deferred taxes + Minority interest + Equity Long-term debt + Current maturities + Commercial paper + 5 hort-term borrowings Year-end market capitalization ( Eamings
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