Selecting Companies: Each student is to select two companies that operate in the

ID: 426585 • Letter: S

Question

Selecting Companies: Each student is to select two companies that operate in the same industry. Select public US companies only, this will ensure maximum amount of information available for your use. Credit Risk Analysis: Calculate the credit risk of the two companies in the most recent year using the tools developed in the class. Your work should include:e a. short-term liquipity ratios .long-term solvency ratios * coverage ratios .the Altman bankruptcy model (you will need to research this outside of the text) It's not necessary to calculate all of the ratios from the text, but use the ratios you feel allow you to answer part b b. Based on your calculations, does one company appear riskier than the other overall? Explain why your results from part a, would lead you to make this conclusion.*

Explanation / Answer

a) We have selected two companies – Twitter Inc (TWTR, NYSE) and Intel Corporation (INTC, NASDAQ) – from technology sector.

Twitter

Intel

Short-term liquidity ratios

Current ratio (= Current Assets / Current Liabilities)

9.12

1.69

Quick ratio (= (cash and equivalents + marketable securities + accounts receivable) / current liabilities)

8.69

1.13

Operating cash flow ratio (=cash flow from operations/current liabilities)

1.43

1.27

Long-term solvency ratios

Solvency ratios (=PAT plus Depreciation/Short plus Long term Liabilities)

0.12

0.31

debt to equity ratio (= Total Liabilities / Shareholders' Equity)

0.47

0.77

total debt to total assets

0.32

0.43

interest coverage ratio (=EBIT/Interest)

87.60

Coverage ratios

Debt-Service Coverage Ratio (DSCR) ( = Net Operating Income / Total Debt Service)

-0.19

1.03

Asset Coverage Ratio (((Assets – Intangible Assets) – (Current Liabilities – Short-term Debt)) / Total Debt)

2.90

1.34

Altman Z Score (= 1.2A + 1.4B + 3.3C + 0.6D + 1.0E)

9.81

4.46

A = working capital / total assets = ( Current Assets - Current Liabilities)/total assets

0.64

0.10

B = retained earnings / total assets

0.00

0.34

C = earnings before interest and tax / total assets

0.01

0.17

D = market value of equity / total liabilities

14.49

4.68

E = sales / total assets

0.33

0.51

b) Though both the companies fair at par at different ratios, however Intel Corporation appears to be riskier than Twitter Inc based on lower Altman Z Score, lower short term liquidity ratios and lower asset coverage ratios. Also to be noted, Twitter Inc has higher percentage of cash components as part of assets which is also evident from current ratio.