The following income statement (in millions) is adapted from the 2004 10-K filing of Time Warner:
|
Revenues
|
$42,089
|
|
Cost of revenues
|
24,449
|
|
Gross profit
|
$17,640
|
|
Selling, administrative, and other expenses
|
10,300
|
|
Amortization of goodwill and other intangible assets
|
626
|
|
Other costs and expenses
|
549
|
|
Operating income
|
$ 6,165
|
|
Interest expense
|
1,754
|
|
Other nonrecurring income
|
651
|
|
Income before taxes
|
$ 5,062
|
|
Income tax expense
|
1,698
|
|
Net income
|
$ 3,364
|
Included in the preceding income statement is depreciation of property, plant, and equipment of $6,132.
1. Compute the EBITDA for 2004.
2. Compute the percentage of EBITDA to total revenues for 2004. Round to one decimal place after converting to a percentage.
3. Compute the ratio of EBITDA to interest expense for 2004. Round to one decimal place.
4. Compute the ratio of long-term debt to EBITDA for 2004. The long-term debt as of December 31, 2004, was $20,703. Round to one decimal place.
5. Comment on the ability of Time Warner to meet its interest obligations.