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).
Depreciation expense 626
Tax expense 442
Interest expense, gross 219
Earnings from continuing operations (Net income) 896
Average total assets 11,360
Total debt 3,167
Noncurrent deferred tax liabilities 554
Noncontrolling interest 0
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%).
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 Answer
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