Solved: It s probably safe to say that there s nothing more

important

It’s probably safe to say that there’s nothing more important in determining a bond’s rating
than the underlying financial condition and operating results of the company issuing the bond.
Just as financial ratios can be used in the analysis of common stocks, they can also be used in
the analysis of bonds—a process we refer to as credit analysis. In credit analysis, attention is
directed toward the basic liquidity and profitability of the firm, the extent to which the firm
employs debt, and the ability of the firm to service its debt.

The financial ratios shown above are often helpful in carrying out such analysis. The first 2
ratios measure the liquidity of the firm, the next 2 its profitability, the following 2 the debt load,
and the final 2 the ability of the firm to service its debt load. (For ratio 5, the lower the ratio, the
better. For all the others, the higher the ratio, and the better.) The table lists each of these ratios
for 6 companies.

Questions
a. Three of these companies have bonds that carry investment-grade ratings. The other 3
companies carry junk-bond ratings. Judging by the information in the table, which 3 companies
have the investment-grade bonds and which 3 have the junk bonds? Briefly explain your
selections.

b. One of these 6 companies is an AAA-rated firm and one is B-rated. Identify those companies.
Briefly explain your selections.

c. Of the remaining 4 companies, 1 carries an AA rating, 1 carries an A rating, and 2 have BB

ratings. Which companies are they?

It s probably safe to say that there s nothing more important

ANSWER
https://solvedquest.com/it-s-probably-safe-to-say-that-there-s-nothing-more-important/

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