Explanation

To determine the company's creditworthiness based on the interest coverage ratio using EBITDA, we need to calculate the EBITDA interest coverage ratio for both years and compare them.

Step 1: Calculate EBITDA for each year EBITDA = Operating Income + Depreciation and Amortization

• Year 1: EBITDA = 168 + 422 = 590
• Year 2: EBITDA = 217 + 416 = 633

Step 2: Calculate EBITDA interest coverage ratio for each year EBITDA Interest Coverage Ratio = EBITDA ÷ Interest Expense

• Year 1: 590 ÷ 120 = 4.92
• Year 2: 633 ÷ 155 = 4.08

Step 3: Analyze the trend

• Year 1 ratio: 4.92
• Year 2 ratio: 4.08

The ratio has decreased from 4.92 to 4.08, indicating that the company's ability to cover its interest payments with EBITDA has deteriorated.

Step 4: Interpretation A lower EBITDA interest coverage ratio means the company has less cushion to cover its interest obligations. This suggests:

1. Increased financial risk
2. Reduced creditworthiness
3. Higher probability of default

Therefore, based on the interest coverage ratio using EBITDA, the company's creditworthiness has deteriorated.

Key Points:

• While EBITDA increased from 590 to 633 (7.3% increase), interest expense increased from 120 to 155 (29.2% increase)
• The disproportionate increase in interest expense relative to EBITDA growth caused the coverage ratio to decline
• A ratio above 2-3 is generally considered acceptable, but the downward trend is concerning for credit analysis