Grifols, S.A. is a Spanish pharmaceutical  company focusing on the development, manufacturing, and sale of therapeutic products. At the end of 2016, Grifols was rated "BB" by Standard & Poor's and considered to have a stable business risk profile.

REQUIRED

a. What is a credit rating and why would a potential investor in bonds be interested in a company"s credit rating?

b. What factors does a credit rating agency consider in rating a company?

c. Compute funds from operations over debt and debt to EBITDA for 2015 and 2016 using the selected financial statement information.

d. Using the benchmarks from Exhibit 14.8, assess the financial risk of the company using these indicators. Assess its financial risk profile at the end of 2016. How does the financial risk in 2016 compare to that in 2015?

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December 31 Grifols. S A (€ inthousands) Operating income from cont nu ng operat ons after tax Operating profits before interest income, interest expense, and income taxes Deprec ation and amortizat on Deferred income tax expense Asset impaiment Major noncash charges (gains) Short term debt Long term debt Equ ty 2016 2015 €544,543 € 531,441 970 370 189,755 24,357 125 37221 262.497 4.597654 3,727,978 3,301,390 939,408 201,869 (40,161) (88) (1.218) 230 065 4,712.071