The following income statement (in millions) is adapted from the 2004 10-K filing of Time Warner:
Revenues .................... $42,089
Cost of revenues ................. 24,449
Gross profit ................... $17,640
Selling, administrative, and other expenses ........ 10,300
Amortization of goodwill and other intangible assets .... 626
Other costs and expenses ............... 549
Operating income .................. $ 6,165
Interest expense .................. 1,754
Other nonrecurring income ............. 651
Income before taxes ................. $ 5,062
Income tax expense ................ 1,698
Net income .................... $ 3,364
Included in the preceding income statement is depreciation of property, plant, and equipment of $6,132.
1. Compute the EBITDA for 2004.
2. Compute the percentage of EBITDA to total revenues for 2004. Round to one decimal place after converting to a percentage.
3. Compute the ratio of EBITDA to interest expense for 2004. Round to one decimal place.
4. Compute the ratio of long-term debt to EBITDA for 2004. The long-term debt as of December 31, 2004, was $20,703. Round to one decimal place.
5. Comment on the ability of Time Warner to meet its interest obligations.