ATC 10-3 Real-World Case: Using Accounting Numbers to Assess Creditworthiness
Advance Auto Parts, Inc. is "a leading automotive aftermarket parts provider in North America... We were founded in 1929 as Advance Stores Company... As of January 2, 2016... we operated 5,171 total stores and 122 branches primarily under the trade names 'Advance Auto Parts,' 'Autopart International,' 'Carquest' and 'Worldpac.'"
Foot Locker, Inc. "incorporated under the laws of the State of New York in 1989, is a leading global retailer of athletically inspired shoes and apparel, operating 3,383 primarily mall-based stores in the United States, Canada, Europe, Australia, and New Zealand as of January 30, 2016."
Johnson & Johnson, Inc. "and its subsidiaries have approximately 127,100 employees worldwide engaged in the research and development, manufacture and sale of a broad range of products in the health care field... The Company’s primary focus is products related to human health and well-being. Johnson & Johnson was incorporated in the State of New Jersey in 1887."
Tesla, Inc.: "We design, develop, manufacture and sell high-performance fully electric vehicles, and energy storage systems, as well as install, operate and maintain solar and energy storage products. We are the world’s only vertically integrated energy company, offering end-to-end clean energy products, including generation, storage and consumption."
Each company received a different rating from Standards & Poor’s (S&P). In descending order, the ratings for these companies were AAA, BBB-, BB+, and B-. These ratings are as of March 16, 2017. All dollar amounts are in millions
| Net Income | Cash Flow from Operations | Current Ratio | Debt-to-Assets Ratio | Times Interest Earned | Return on Assets Ratio | |
|---|---|---|---|---|---|---|
| Advance Auto Parts | ||||||
| 2015 | $473 | $690 | 1.30 | 0.70 | 12.57 | 0.058 |
| 2016 | $460 | $501 | 1.41 | 0.65 | 13.32 | 0.055 |
| Foot Locker | ||||||
| 2015 | $520 | $712 | 3.53 | 0.30 | 162.80 | 0.145 |
| 2016 | $541 | $745 | 3.72 | 0.32 | 210.25 | 0.143 |
| Johnson & Johnson | ||||||
| 2015 | $15,409 | $19,279 | 2.17 | 0.47 | 35.78 | 0.116 |
| 2016 | $16,540 | $18,767 | 2.47 | 0.50 | 28.28 | 0.117 |
| Tesla | ||||||
| 2015 | ($889) | ($524) | 0.99 | 0.87 | −6.37 | −0.110 |
| 2016 | ($773) | ($124) | 1.07 | 0.79 | −2.75 | −0.034 |
Required
Determine which credit rating was assigned to which company. Write a memorandum explaining the rationale for your decisions. The logic you present to support your conclusions is more important than correctly matching the companies with their ratings.
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