Make a comment about what you consider the most difficult part of the module and which one you consider the easiest.Common Categories of Corporate Debt

This is a ranking structure that is used by issuers to prioritize debt payout.

Secured

Corporate

Bonds

Senior

Secured

Bonds

Senior

Unsecured

Bonds

Junior,

Subordinated

Bonds

Convertible

Bonds

Guaranteed

and Insured

BonCoverage Analysis

Consider a company$$s ability to generate additional cash to cover principal and

interest payments when due

Called $$flow$$ ratios

$$ Because they consist of cash flow and income statement data

Include four ratios

$$ Times interest earned

$$ EBITDA coverage ratio

$$ Cash from operations to total debt

$$ Free operating cash flow to total debt

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$18$ds$.$Coverage Analysis Times Interest Earned Ratio

Reflects the operating income available to pay interest expense

Assumes only interest must be paid because the principal will be refinanced

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Times interest earned ratio $($TIE$)$ is a solvency ratio indicating the ability to pay

all interest on business debt obligations. TIE is calculated as EBIT $($earnings

before interest and taxes$)$ divided by total interest expense. The higher the

times interest earned ratio, the more likely the company can pay interest on its

debts. Times interest earned is also called interest coverage ratio $($ICR$).$ The

purpose of the TIE ratio, also known as the interest coverage ratio $($ICR$),$ is to

evaluate whether a business can pay the interest expense on its debt

obligations in the next year. In the context of times interest earned, debt

means loans, including notes payable, credit lines, and bond obligations.

$19$Debt analysis is the process of understanding and analyzing a company's debt to understand

its financial position and make informed decisions about whether to invest. At the company

level, debt analysis can help identify companies with high levels of debt and those that may

be at risk of default. By understanding a company's debt structure, investors can better

understand how much debt the company can afford to pay back and whether it has any room

to grow. At the industry level, debt structure analysis can help investors identify which

industries are most vulnerable to a credit crunch. By understanding how indebted certain

industries are, investors can better protect their portfolios from potential losses.

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