Question

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

Revenue	$3,814,758	Earnings from continuing operations	$224,796
Interest expense	14,184	Capital expenditures (CAPEX)	298,928
Tax expense	154,112	Total debt	669,000
Amortization expense	13,840	Average assets	2,481,992
Depreciation expense	101,600

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.  

• Hint: Earnings from continuing operations is Under Armour's net income.
• Round answers to one decimal place (percentage ex: 0.2345 = 23.5%)

		Moody's
	Ratio	rating
EBITA/Avg. assets		AaaAaABaaBaBCaaCaC
EBITA margin		AaaAaABaaBaBCaaCaC
EBITA/Int. expense		AaaAaABaaBaBCaaCaC
Debt/EBITDA		AaaAaABaaBaBCaaCaC
CAPEX/Dep. expense		AaaAaABaaBaBCaaCaC

Answer 1

Earnings from continuous operations $224,796

+Tax expense $154,112

+ Interest Expense $14,184

EBIT $393,092

+Amortisation expense $13,840

EBITA $406,932

+Depreciation $101,600

EBITDA $508,532

EBITA/Avg assets = 406,932 / 2,481,992 = 16.40%

EBITA Margin = 406,932 / 3,814,758 = 10.67%

EBITA / Int expense = 406,932 / 14,184 = 2869% or 28.69 times

Debt / EBITDA = 669,000 / 508532 = 131.56%

Capex / dep exp = 298,928 / 101,600 = 293.43%

(b) Exhibit 7.6 is missing socouldnt help with rating part