Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating. Sanderson has identified six comparable firms and calculated the credit statistics shown here.
a. Sanderson's return on assets is 5.3%. It has a total capitalization of $600 million. What are reasonable targets for long-term debt/cap, funds from operations/LT debt, and fixed charge coverage?
b. Are there any firms among the six who are particularly good or bad comparables? Explain.
c. Suppose Sanderson's current ratio of long-term debt to total cap is 60% but its fixed charge coverage is 3.00. What would you recommend?