PROBLEM 11–4 Selected financial ratios from the

(i) S&P 400, (ii) the brewing industry, and (iii) Anheuser-Busch Companies (BUD), for Years 2 through 6 are reproduced below.

Required:

a. Using these financial ratios, analyze the relative credit position of:

(1) Brewing industry compared with the S&P 400.

(2) Anheuser-Busch compared with the brewing industry.

(3) Anheuser-Busch compared with the S&P 400.

b. Using these financial ratios and your analysis from (a ), describe the current position of Anheuser-Busch and discuss whether you feel there has been a change in the credit quality of Anheuser-Busch during this five-year period.

YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 S&P Brewing S&P Brewing S&P Brewing S&P Brewing S&P Brewing 400 Industry BUD 400 Industry BUD 400 Industry BUD 400 Industry BUD 400 Industry BUD Current ratio................................... 1.5 1.3 1.1 1.5 1.4 1.2 1.5 1.3 1.1 1.4 1.5 1.2 1.4 1.4 1.0 Quick ratio...................................... 0.9 0.7 0.4 0.9 0.8 0.7 0.8 0.7 0.05 0.8 1.0 0.6 0.7 0.8 0.4 Long-term debt/Total assets (%).... 24 21 25 23 18 22 25 15 18 26 15 17 27 17 19 Total debt ratio (%)* ...................... 43 37 41 42 36 39 44 31 34 48 32 33 48 34 37 Times interest earned ..................... 4.0 7.2 12.2 4.6 7.5 12.7 4.8 7.6 13.3 4.2 10.1 14.9 3.6 11.0 9.8 Cash flow/Long-term debt (%)....... 54 52 43 61 70 55 65 84 71 57 88 79 51 80 73 Cash flow/Total debt (%)*.............. 23 29 26 25 35 32 25 39 38 20 40 40 20 38 38 Total asset turnover........................ 1.2 1.2 1.2 1.2 1.4 1.4 1.2 1.5 1.6 1.2 1.3 1.5 1.1 1.3 1.4 Net profit margin (%)..................... 3.95 5.36 6.3 4.42 5.58 5.8 4.77 5.12 6.0 3.84 5.73 6.3 3.75 6.16 6.17 Return on assets (%) ..................... 4.64 6.46 7.4 5.10 7.98 8.0 5.80 7.47 8.7 4.41 7.66 8.7 3.97 7.90 8.89 *Total debt is defined as long-term debt plus current liabilities.