Grifols, S. A., is a Spanish pharmaceutical company focusing on the development, manufacturing, and sale of therapeutic products. At the end of 2013, Grifols was rated "BB" by Standard & Poor's and considered to have a stable business risk profile.

Required
a. What is a credit rating and why would a potential investor in bonds be interested in a company's credit rating?
b. What type of factors does a credit rating agency consider in rating a company?
c. Compute funds from operations over debt and debt to EBITDA for 2012 and 2013 using the selected financial statement information above.
d. Research the financial risk rating by Standard and Poor's and use it as benchmark to asses the financial risk profile of the company for both years

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December 31 Grifols, S.A. (€ in thousands) 2013 2012 Operating income from continuing operations after tax € 342,054 € 255,377 Operating profits before interest inoome, interest expense, and income taxes 736,120 660,084 Depreciation and amontization 128,469 129,126 Deferred income tax expense 14,992 97018 Asset impairment losses (gains) 271 (1,442) Major non-cash charges (gains) 14,873 (1,774) Short-term debt 248,705 189,335 Long-term debt 2,437,976 2.585,988 Equity 2,107,204 1,880,741 December 31 Grifols, S.A. (€ in thousands) 2013 2012 Operating income from continuing operations after tax € 342,054 € 255,377 Operating profits before interest inoome, interest expense, and income taxes 736,120 660,084 Depreciation and amontization 128,469 129,126 Deferred income tax expense 14,992 97018 Asset impairment losses (gains) 271 (1,442) Major non-cash charges (gains) 14,873 (1,774) Short-term debt 248,705 189,335 Long-term debt 2,437,976 2.585,988 Equity 2,107,204 1,880,741

Answer rating: 100% (QA)

A The term credit rating means the assessment and evaluation of the individuals or companys borrowing to a certain extent with respect to its financial obligation In simple words Credit rating determi... View the full answer