medium · Corporate Credit Analysis credit-metrics
An analyst is evaluating two peers. Company A has Debt/EBITDA of 4.0x and FFO/Debt of 12%. Company B has Debt/EBITDA of 4.0x and FFO/Debt of 22%.
Which of the following is the most likely credit implication?
- Company B is a stronger credit because its cash flow conversion allows for faster deleveraging.
- The credits are identical because total leverage multiples match across both companies
- Ratings must be identical since both issuers sit within the same Debt/EBITDA bucket
- Company A is stronger because it likely carries lower interest expense per dollar of debt outstanding
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