Harold Adams is a financial analyst reviewing the financial data for Butler, Inc., for the years 1999, 2000, and 2001. Information for several selected ratios are given below:
|
Table 1
Selected Data on Butler, Inc. |
| Ratios |
2001 |
2000 |
1999 |
| 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/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 |
What would most likely be the result if Butler were to provide Adams with additional 1999 data? It would:
A. provide a stronger basis for a decision concerning the firm's rating.
B. distort the financial trend for Butler, Inc.
C. provide no additional value for the analyst.
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