Margaret O’Flaherty, a portfolio manager for MCF Investments, is considering investing in Alpine

Margaret O'Flaherty, a portfolio manager for MCF Investments, is considering investing in Alpine Chemical 7% bonds, which mature in 10 years. She asks you to analyse the company to determine the riskiness of the bonds. Alpine Chemical Company Financial Statements Years Ended December 31, 2014 (S in millions) Assets 2013 2016 2017 2012 2015 190 $ 55 $ 2,087 945 0S 1,394 2,143 1,258 1,293 55 157 $ 249 $ $ 1,637 2,021 17 3,865 4,650 Cash 0 3,493 Accounts receivable 3,451 1,322 1,643 33 5,265 Inventories Other current assets Current assets Gross fixed assets 393 3,114 2,707 3,986 5,619 5,757 27P 171 5,097 6,181 7,187 5,038 Less: Accumulated 3,465 2,543 2,841 depreciation 2,177 3,138 3,893 Net fixed assets 2,473 2,495 2,778 2,619 2.716 3,294 6,338 S 5,609 5,485 $ 6,605 $ 7,813 $ 8,559 Total assets Liabilities and net worth Notes payable Accounts payable $ 525 673 $750 638 $0 1,300 $ 1,750 $ 1,900 743 338 978 681 172 1,560 1,044 359 359 483 2,976 3,639. 1,5421,491e 761 303 1,501 1,985 Accrued liabilities 1,040 1,997 Current liabilities Long-term debt 1,457 1,401 Deferred tax credits Total liabilities 352 3,838 347 2,951 336 345 4,863 100 354 5,484 100 363 2,804 3,790 100 100 Common stocke 504 50P 100 Capital surplus 100 04 0P 04 0P Retained earnings 2,350 2,508 2,581 2,850 2,715 2,975 2,500 2,658 Net worth 2,681 2,815. 2,950 3,075 6,338 5,609 S 5,485 6,605 7,813 8,559 Total liabilities and net worth 2014 2015 2013 2017 $15,508 $13,875 $14,750 $19,133* $19.460 13,117 6,343 3,885 2,458 318 2016 Income statement* 2012 Net sales Cost of goods sold Gross profit Operating expense Operating income Interest expense Depreciation expense* Profit before tax Income taxes Net income $14,100 10,200 11,220 9,366 10,05913,400e 5,733 3,472 2,261 376 4,691 2,685 2,006 319p 3,900 2,065 1,835 275 4,288 2,203 2,085 465 4,509 2,665 1,844 275 479 1,090 265 825 495 1,390 475 1,085 1,143 193 115 892 S 1,028 477p 478 1,209 145 1,064 S 1,198° $ 1,479. 511 1,629 150 192e 1. Using the data provided in the accompanying financial statements, calculate the following ratios for Alpine Chemical for 2017: a. EBIT/Interest expense b. Long-term debt/Total capitalization at December 31 c. Funds from operations/Total debt d. Operating income/Sales Use the following conventions: EBIT is earnings before interest and taxes; Total capitalization is interest-bearing long-term debt plus net worth; Funds from operations means net income plus depreciation expense; and Total debt includes interest-bearing short-term and long-term debt 2. Briefly explain the significance of each ratio calculated in requirement () to the assessment of Alpine Chemical's creditworthiness. Insert your answers to requirement 1 into Table 1 that follows. Then from Table 2 3. select an appropriate credit rating for Alpine Chemical, and comment on the performance of Alpine in relation to each of the ratios, and on the overall performance of the company. TABLE 1 Alpine Chemical Company 2012 2013e 2014 2015* 2016 2017 EBIT Interest expense 4.95 3.46 4.96 4.79 4.70 Long-term debtTotal 44% 28% 34%* 34%* 34% capitalization Funds from operations/Total 54% 84% 93% 56% debte 51% 13% 13% 13% 14% Operating income/Sales 12% TABLE 2 Industry Data Three-Year Medians (2015-2017) by Credit-Rating Category Bbb Bbe Аaа Аае Ae Ве EBIT Interest expense 11.0 9.5 4.5 2.0 3.04 1.04 Long-term debt/Total capitalization 13.0 16.5 29.5 39.0 45.5 63.5 83.0 74.0 45.5 31.5 18.5 8.0 Funds from operations/Total debt 21.5 16.0 15.0 12.0 11.0 9.0 Operating income/Sales 4. Are the operating profits (EBITD) of Alpine keeping pace with sales? Comment on the growth (increase/decrease) of sales and operating profits in 2017 in respect to the prior years. Show all your workings, including percentages (workings to be tabulated) 5. Compute and comment on the days receivables outstanding using year-end receivables for each year in the schedule. Use additional ratios to comment on the accounts receivables of Alpine (for example, comparing sales growth and accounts receivable growth in 2017 relative to the earlier years) 6. Show the cash flow from operating activities of Alpine Chemical Company in 2017 (for this part of the requirement, assume all net sales are credit sales; accrued liabilities include operating expense, interest expense and income taxes, and no prepaid expenses). Taking into account your computations and comments in parts (i), (v) and (vi), comment on the overall liquidity and cash flow position of Alpine Chemical Company in 2017. 7. Identify the accounts that most likely would require further disclosure in the notes to the financial statements in an annual report, and describe what information would have to be disclosed in those notes by Alpine Chemical Company before the statements can be included as part of the annual report for presentation to its stockholders, and that may assist prospective investors in decision-making