Calculating Ratios and Estimating Credit Rating The following data are from Kell

Question

Calculating Ratios and Estimating Credit Rating
The following data are from Kellogg's 10-K report dated January 2, 2016 ($ millions).

   Earnings from continuing operations

   Capital expenditures (CAPEX)

   Total debt

   Average assets

a. Use the data above to calculate the following ratios: EBITA/Average assets, EBITA Margin, EBITA/Interest expenses, Debt/EBITDA, CAPEX/Depreciation Expense.

b. Using the ratios calculated in part a., estimate the credit rating that Moody's might assign to Kellogg. Refer to Exhibit 7.6 in the textbook for ratio definitions and credit ratings.

Round answers to one decimal place (percentage ex: 0.2345 = 23.5%)

Revenue $13,954

   Earnings from continuing operations

$752 Interest expense 266

   Capital expenditures (CAPEX)

553 Tax expense 258

   Total debt

7,257 Amortization expense 8

   Average assets

15,711 Depreciation expense 526

Explanation / Answer

Exhibit 7.6 is missing so couldn't help with rating part.

Earnings from continuing operations $752 Tax expense 258 Interest expense 266 EBIT $1,276 Amortization expense 8 EBITA $1,284 Depreciation expense 526 EBITDA $1,810 Ratio EBITA/Avg. assets = $1284/15711 8.17% EBITA margin = $1284/$13954 9.20% EBITA/Int. expense = $1284/ 266 482.71% Debt/EBITDA = 7257/1810 400.94% CAPEX/Dep. expense = 553/526 105.13%

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