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Question

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 $16,983

Depreciation expense 626

Tax expense 442

Interest expense, gross 219

Earnings from continuing operations (Net income) 896

EBITA 1,611

Cash 661

Average total assets 11,360

Total debt 3,167

Noncurrent deferred tax liabilities 554

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 Answer

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