Answered Essay: Calculating Ratios and Estimating Credit Rating

Calculating Ratios and Estimating Credit Rating
The following data are from Under Armour’s 2015 10-K report ($ thousands).

Revenue $3,984,757    Earnings from continuing operations $225,907
Interest expense 14,517    Capital expenditures (CAPEX) 298,928
Tax expense 154,112    Total debt 669,000
Amortization expense 13,840    Average assets 2,481,992
Depreciation expense 98,600

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 you calculate in part a., estimate the credit rating that Moody’s might assign to Under Armour.

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%)

Moody’s
Ratio rating
EBITA/Avg. assets Answer% AnswerAaaAaABaaBaBCaaCaC
EBITA margin Answer% AnswerAaaAaABaaBaBCaaCaC

Expert Answer

 

a. EBITA/Average assets = 4,265,826 / 2,481,992 = 1.7187= 171.87%

Earnings before interest, taxes, and amortization (EBITA) = Revenue + Interest + Taxes + Amortization expense+ depreciation expense

= 3,984,757 + 14,517 + 154,112 + 13,840 +98,600 = $4,265,826

, EBITA Margin= EBITA / Total Revenue = 4,265,826 / 3,984,757 = 1.07705 = 107.05%

, EBITA/Interest expenses= 4,265,826 / 14,517 = 293.85

Debt/EBITDA = 669,000 / 4,265,826 = 0.1568 = 15.7%

CAPEX/Depreciation Expense = 298,928 / 98,600 = 3.0317 = 303.17%

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