Harold Adams is a financial analyst reviewing the financial data for Butler, Inc., for the years 2006 and 2005 and projected for 2007. Information for several selected ratios are given below:
|
Table 1: Selected Data on Butler, Inc. |
| Ratios |
2007 (Projected) |
2006 |
2005 |
| Earnings before interest and taxes (EBIT) interest Coverage Ratio |
19.5 |
17.2 |
13.7 |
| Earnings before interest, taxes, depreciation and amortization (EBITDA) interest coverage |
10.0 |
9.0 |
8.0 |
| Funds from Operations/Total debt (TD) |
48.0 |
48.0 |
55.0 |
| Free Operating Cash Flow/Total debt (TD) |
NA |
NA |
NA |
| Pretax Return on Capital |
26.0 |
24.1 |
18.5 |
| Operating Income/Sales |
36.0 |
36.5 |
37.8 |
| Long-term debt (LTD)/Capitalization |
29.0 |
28.9 |
31.8 |
| TD/Capitalization |
45.0 |
58.0 |
60.2 |
Adams obtained Standard and Poor's information about median ratios by credit rating. These ratios are reproduced below:
|
Table 2: Standard & Poor's Select Median Rating Criteria |
| Ratios |
AAA |
AA |
A |
BBB |
BB |
B |
| EBIT interest Coverage Ratio |
12.9 |
9.2 |
7.2 |
4.1 |
2.5 |
1.2 |
| EBITDA interest coverage |
18.7 |
14.0 |
10.0 |
6.3 |
3.9 |
2.3 |
| Funds from Operations/TD |
89.7 |
67.0 |
49.5 |
32.3 |
20.1 |
10.5 |
| Free Operating Cash Flow/TD |
40.5 |
21.6 |
17.4 |
6.3 |
1.0 |
(4.0) |
| Pretax Return on Capital |
30.6 |
25.1 |
19.6 |
15.4 |
12.6 |
9.2 |
| Operating Income/Sales |
30.9 |
25.2 |
17.9 |
15.8 |
14.4 |
11.2 |
| LTD/Capitalization |
21.4 |
29.3 |
33.3 |
40.8 |
55.3 |
68.8 |
| TD/Capitalization |
31.8 |
37.0 |
39.2 |
46.4 |
58.5 |
71.4 |
Butler 's year 2007 EBITDA interest coverage is closest to which of the following bond ratings?
A. AA.
B. BBB.
C. A.
|
