Question
ONLY ANSWER B. Below is selected balance sheet and income statement information from Scott & Company. (in millions) 2014 2012 Cash $ 1,483.36 $ 1,536.73
ONLY ANSWER B.
Below is selected balance sheet and income statement information from Scott & Company.
(in millions) | 2014 | 2012 |
Cash | $ 1,483.36 | $ 1,536.73 |
Accounts receivable | 735.30 | 1,097.16 |
Current assets | 2,918.33 | 3,913.56 |
Current liabilities | 6,157.95 | 3,385.39 |
Long-term debt | 3,611.63 | 17,620.81 |
Short-term debt | 4,568.83 | 1,033.96 |
Total liabilities | 26,363.17 | 23,218.42 |
Interest expense | 1,338.29 | 1,566.90 |
Capital expenditures | 211.50 | 1,545.48 |
Equity | -7,152.90 | 4,587.67 |
Cash from operations | 185.98 | 110.89 |
Earnings before interest and taxes | 1,902.84 | 1,594.84 |
a. Compute the following liquidity, solvency and coverage ratios for both years.
- Current ratio (2014, 2012)
- Liabilities-to-equity (2014, 2012)
- Times interest earned (2014, 2012)
- Cash from operations to total debt (2014, 2012)
- Free operating cash flow to total debt (2014, 2012)
Current Ratio = current assets / Current liabilities 2014 = 2,918.33 / 6,157.95 = 0.47 2012 = 3,913.56 / 3,385.39 = 1.16
Liabilities to Equity ratio = Total Liabilities / Total Equity 2014 = 26,363.17 / -7,152.90 = - 3.69 2012 = 23,218.42 / 4,587.67 = 5.06
Times interest earned = EBIT / Interest expense 2014 = 1,902.84 / 1,338.29 = 1.42 2012 = 1,594.84 / 1,566.90 = 1.02
Cash from operation to total debt = Cash from operation / Debt 2014 = 185.98 / (3,611.63 + 4,568.83) = 0.02 2012 = 110.89 /(17,620.81 + 1,033.96) = 0.01
Free operating cash flow to total deb = (Cash from operation - Capital expenditures) / Debt 2014 = (185.98 - 211.50) / (3,611.63 + 4,568.83) = - 0.003 2012 = (110.89 - 1,545.48) /(17,620.81 + 1,033.96) = - 0.077
b. What is your overall assessment of the companys credit risk? Explain. What differences do you observe between the two years? Please be brief.
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