B2. (Choosing financial targets) Sanderson Manufacturing Company would like to achieve a
capital structure consistent with a Baa2/BBB senior debt rating. Sanderson has identified
six comparable firms and calculated the credit statistics shown here.
a. Sanderson's return on assets is 5.3%. It has a total capitalization of $600 million. What are reasonable targets for long-term debt/cap, funds from operations/LT debt, and fixed charge coverage?
b. Are there any firms among the six who are particularly good or bad comparable? Explain.
c. Suppose Sanderson's current ratio of long-term debt to total cap is 60% but its fixed charge coverage is 3.00. What would you recommend?
These are the ratings of Moody
Moody judges obligations rated Aaa to be the highest quality, with the "smallest degree of risk".
Aa1, Aa2, Aa3
Moody judges obligations rated Aa to be high quality, with "very low credit risk", but "their susceptibility to long-term risks appears somewhat greater".
A1, A2, A3
Moody judges ...
Response helps in explaining the credit worthiness of the company