Exhibit 6.8 describes the key financial ratios that Standard & Poor's analysts use to assess credit risk and assign credit ratings to industrial companies.

The same financial ratios for three firms follow.

Required:
1. What credit rating would be assigned to Firm 1?
2. What credit rating would be assigned to Firm 2?
3. Does Firm 3 have more or less credit risk than Firm 2? How can you tell?

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EXHIBIT 6.8 Sambad & Poor's toy finial Poses and Rasing of Corpo ase Dont Three-Year (2001 to 2003) Medians AAA AA A BBB BB B CCC EBIT interest coverage 23.8 13.6. 6.9 4.2 2.3 0.9 0.4 EBITDA interest coverage 25.3 17.1 9.4 5.9 3.1 1.6 0.9 FFO/Total debt (%) 167.8 77.5 43.2 34.6 20.0 10.1 2.9 Free operating cash flow/Total debt (%) 104.1 41.1 25.4 16.9 7.9 2.6 (0.9) Total debt/EBITDA 0.2 1.1 1.7 2.4 3.8 5.6 7.4 Return on capital (%) 35.1 26.9 16.8 13.4 10.3. 6.7 2.3 Total debt/Capital (%) 6.2 34.8 39.8 45.6 57.2 74.2 101.2 Formulas EBIT interest coverage EBITDA interest coverage Funds from operations (FFO)/Total debt Free operating cash flow/Total debt Total debt/EBITDA Return on capital Total debt/Capital Earnings from continuing operations" before interest and taxes/Gross interest incurred before subtracting capitalized interest and interest income Adjusted earnings from continuing operations' before interest, taxes, depreciation, and amortization/Gross interest incurred before subtracting capitalized interest and interest income Net income from continuing operations, depreciation, and amortization, deferred income taxes, and other noncash items/Long-term debts + Current maturities + Commercial paper and other short-term borrowings FFO - Capital expenditures +(-) increase (decrease) in working capital (excluding changes in cash, marketable securities, and short-term debt)/Long-term debts + Current maturities, commercial paper, and other short-term borrowings Long-term debts + Current maturities, commercial paper, and other short-term borrowings/Adjusted earnings from continuing operations before interest, taxes, and depreciation and amortization EBIT/Average of beginning-of-year and end-of-year capital, including short-term debt, current maturities, long-term debt, noncurrent deferred taxes, minority interest, and equity (common and preferred stock) Long-term debt + Current maturities, commercial paper, and other short-term borrowings/Long-term debts + Current maturities, commercial paper, and other short- term borrowings + Shareholder's equity (including preferred stock) + Minority interest