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Chapter 6 Problem 14 -- Avon Products

Using the financial statements provided below and any other information you find relevant, answer the following questions:

a. What was the book value of Avon’s shareholders’ equity from 2001 to 2003? What were Avon’s liabilities-to-assets and times-interest-earned ratios in these years? (Use Pretax Income plus Interest Expense as EBIT.) What do these figures suggest about Avon’s use of financial leverage? Consulting Table 6-5 in the text, what bond rating would Avon have in 2002 if the rating were based solely on the firm’s coverage ratio?

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