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 NEW YORK, Jan. 10 /PRNewswire/ -- There is a better way to predict strengthening or weakening corporate credit quality. Play down the value of the traditional, 50-year-old financial measures such as debt-to-capital and give more weight to the Fitch Cash Flow Adequacy Ratio as a measure of investor protection.
 This new methodology is based on the premise that companies that generate strong net free cash flow (cash flow after taxes, interest, and capital expenditures) relative to maturing debt have better credit profiles than those forced to rely on outside sources of capital.
 A New Fitch report, "Cash is King In Bond Analysis," ranks 47 "A" category companies for cash flow adequacy. The leaders include: Sysco Corp.; Illinois Tool Works, Inc.; Anheuser-Busch Cos.; CPC International, Inc.; and Colgate-Palmolive Cos. Companies ranking at the bottom of the group include Union Camp Corp.; Alcan Aluminum Corp.; Willamette Industries; Safety-Kleen Corp.; and Kerr-McGee Corp.
 Fitch's cash flow adequacy ratio (CFAR) compares a company's average net free cash flow (NFCF) over the past three years to the average annual principal debt maturities over the next five years. Comparison of NFCF relative to scheduled debt maturities delivers a more consistent, analytically appropriate method of predicting changes in corporate credit profiles. The ratio is a leading indicator of a company's ability to maintain credit quality through a difficult environment.
 The emphasis on NFCF and scheduled debt maturities reflects the failure of traditional key financial benchmarks to keep pace with new analytical practices as well as their diminished ability to disclose variations in true corporate credit quality. The CFAR is a step toward leveling the playing field between various industrial issuers, overcoming some of the limitations imposed by current generally accepted accounting principles.
 A Fitch survey of 47 "A" category companies reveals a wide cash flow disparity among the group. Eight of the companies surveyed reported negative cash flow from operations for three of the past five years, while their total debt soared. By comparison, the average 'A' category company could be debt free in five years.
 Fitch will host a conference call on this new rating methodology at 4 p.m. EST tomorrow (Tuesday, Jan. 11). For information about joining the conference call, please call Fitch Market Services at 1-800-75-FITCH or (212) 908-0500.
 For more information on the new rating methodology, call contact below.
 -0- 1/10/94
 /CONTACT: Thomas W. Hoens, CPA, 212-908-0569, or Keith B. Foley, 212-908-0572, both of Fitch/

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Publication:PR Newswire
Date:Jan 10, 1994

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