Assigning a Long-Term Debt Rating Using Financial Ratios

Refer to the information below from Stryker's 2018 financial statements. Use the information to answer the requirements ($ millions).

Revenue$13,601Interest expense, gross$181Depreciation expense306Dividends, including to noncontrolling interest717Amortization expense417Cash and cash equivalents3,616Operating profit (EBIT)2,537Marketable securities83Total debt9,859Average assets24,713Cash from operating activities2,610CAPEX572Funds from operations2,852

a. Compute the following 10 Moody's metrics for Stryker for 2018.

Round all answers (except Revenue) to one decimal place (example for percentage ratios: 0.2345 = 23.5%).

RatioDebt / EBITDAAnswer

EBITA to interest expenseAnswer

Revenue ($ millions)Answer

Retained Cash Flow / Net DebtAnswer

EBITA marginAnswer

Operating marginAnswer

FFO / DebtAnswer

(FFO + Interest Expense)/Interest ExpenseAnswer

EBITA to average assetsAnswer

CAPEX / Depreciation expenseAnswer

b. Use your computations from part a, along with measures in Exhibit 4.8, to estimate the longterm debt rating for Stryker.

Based on the above computations, the rating for Stryker's long-term debt would fall in theAnswer

Aaa - Aa range

A - Baa range

Ba - B range

Caa - C range

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