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Exhiblt 6.5 describes the key financial ratios Standard & Poor's analysts use to assess credit risk and assign credit ratings to Industrial companles. The same

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Exhiblt 6.5 describes the key financial ratios Standard & Poor's analysts use to assess credit risk and assign credit ratings to Industrial companles. The same financlal ratios for three firms follow. EBIT interest coverage EBITDA interest coverage FFO/Total debt (%) Free operating cash flow/Total debt (%) Total debt/EBITDA Return on capital (%) Total debt/Capital (%) Firm 1 Firm 2 Firm 3 12.8 18.7 80.2 48.6 1.8 29.2 30.2 2.7 3.7 19.8 8.2 4.8 9.9 54.8 16.7 24.6 135.1 87.9 0.3 32.7 8.1 Required 1. What credit rating would be assigned to Flrm 1? 2. What credit rating would be assigned to Firm 2? 3. Does Firm 3 have more or less credit risk than FIrm 2? 1 Credit rating for Firm1 2. Credit rating for Firm 2 3. Does Firm 3 have more or less credit risk than Firm 2

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