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					$15,093
Depreciation expense					578
Tax expense					394
Interest expense, gross					171
Earnings from continuing operations (Net income)					685
EBITA					1,256
Cash					613
Average total assets					9,470
Total debt					2,908
Noncurrent deferred tax liabilities					391
Noncontrolling interest					0
Equity					871
Dividends paid					1,185
Cash from operating activities					2,451

a. Compute the following seven Moodys 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			%
Operating margin			%
EBITA margin			%
EBITA interest coverage
Debt to EBITDA
Debt to book capitalization			%
Retained cash flow to net debt			%

b. Use your computations from part a, along with measures in Exhibit 4.7, to estimate the long-term debt rating for Nordstrom.