Compute and Interpret Liquidity, Solvency and Coverage Ratios

Balance sheets and income statements for Lockheed Martin Corporation follow. Refer to these financial statements to answer the requirements.

Income StatementYear Ended December 31 (In millions)200520042003Net salesProducts$ 31,518$ 30,202$ 27,290Service5,6955,3244,53437,21335,52631,824Cost of salesProducts27,93227,63725,306Service5,0734,7654,099Unallocated coporate costs80391444333,80833,31629,8483,4052,2101,976Other income (expenses), net(449)(121)43Operating profit2,9562,0892,019Interest expense370425487Earnings before taxes2,5861,6641,532Income tax expense761368479Net earnings$ 1,825$ 1,296$ 1,053

Balance SheetDecember 31 (In millions)20052004AssetsCash and cash equivalents$ 2,124$ 1,080Short-term investments429396Receivables4,5794,094Inventories1,9211,864Deferred income taxes861982Other current assets495557Total current assets10,4098,973Property, plant and equipment, net3,9243,599Investments in equity securities196812Goodwill8,4477,892Purchased intangibles, net560672Prepaid pension asset1,3601,030Other assets2,7282,596Total assets$ 27,624$ 25,574Liabilities and stockholders' equityAccounts payable$ 1,998$ 1,726Customer advances and amounts in excess of costs incurred4,3314,028Salaries, benefits and payroll taxes1,4751,346Current maturities of long-term debt20215Other current liabilities1,4221,451Total current liabilities9,4288,566Long-term debt4,9445,184Accrued pension liabilities1,6171,760Other postretirement benefit liabilities1,2771,236Other liabilities2,4911,807Stockholders' equityCommon stock, $1 par value per share432438Additional paid-in capital1,7242,223Retained earnings7,2785,915Accumulated other comprehensive loss(1,553)(1,532)Other(14)(23)Total stockholders' equity7,8677,021Total liabilities and stockholders' equity$ 27,624$ 25,574

Consolidated Statement of Cash FlowsYear Ended December 31 (In millions)200520042003Operating ActivitiesNet earnings$ 1,825$ 1,266$ 1,053Adjustments to reconcile net earnings to net cash provided by operating activitiesDepreciation and amortization555511480Amortization of purchased intangibles150145129Deferred federal income taxes24(58)467Changes in operating assets and liabilities:Receivables(390)(87)(258)Inventories(39)519(94)Accounts payable239288330Customer advances and amounts in excess of costs incurred296(228)(285)Other534568(13)Net cash provided by operating activities3,1942,9241,809Investing ActivitiesExpenditures for property, plant and equipment(865)(769)(687)Acquisition of business/investments in affiliated companies(784)(91)(821)Proceeds from divestiture of businesses/Investments in affiliated companies935279234Purchase of short-term investments, net(33)(156)(240)Other282953Net cash used for investing activities(719)(708)(1,461)Financing Activitiesrepayment of long-term debt(53)(1,069)(2,202)Issuances of long-term debt----1,000Long-term debt repayment and issuance costs(12)(163)(175)Issuances of common stock40616444Repurchases of common stock(1,310)(673)(482)Common stock dividends(462)(405)(261)Net cash used for financing activities(1,431)(2,146)(2,076)Net increase (decrease) in cash and cash equivalents1,04470(1,728)Cash and cash equivalents at beginning of year1,0801,0102,738Cash and cash equivalents at end of year$ 2,124$ 1,080$ 1,010

(a) Compute Lockheed Martin's current ratio and quick ratio for 2005 and 2004. (Round your answers to two decimal places.)

2005 current ratio =Answer

2004 current ratio =Answer

2005 quick ratio =Answer

2004 quick ratio =Answer

Which of the following best describes the company's current ratio and quick ratio for 2005 and 2004?

The current ratio has increased while the quick ratio has decreased in the period from 2004 to 2005, which suggests the company has a shortage of liquid assets.

Both the current and quick ratios have increased from 2004 to 2005. The company is fairly liquid.

Both the current and quick ratios have decreased from 2004 to 2005. The company is fairly illiquid.

The current ratio has decreased while the quick ratio has increased in the period from 2004 to 2005, which suggests the company has a shortage of current assets.

(b) Compute total liabilities-to-equity ratios andtotal debt-to-equity ratios for 2005 and 2004. (Round your answers to two decimal places.)

2005 total liabilities-to-stockholders' equity =Answer

2004 total liabilities-to-stockholders' equity =Answer

2005total debt-to-equity =Answer

2004total debt-to-equity =Answer

Which of the following best describes the company's total liabilities-to-equity ratios and total debt-to-equity ratios for 2005 and 2004?

The total liabilities-to-equity ratio has decreased while the total debt-to-equity ratio has increased in the period from 2004 to 2005, which suggests the company has decreased the use of short-term debt financing.

The total liabilities-to-equity ratio has increased while the total debt-to-equity ratio has decreased in the period from 2004 to 2005, which suggests the company has increased the use of short-term debt financing.

Both the total liabilities-to-equity and total debt-to-equity ratios have decreased from 2004 to 2005. The difference between these two measures reveals that any solvency concerns would be for the short run.

Both the total liabilities-to-equity and total debt-to-equity ratios have increased from 2004 to 2005. These increases suggest that the company is less solvent.

(c) Compute times interest earned ratio, cash from operations to total debt ratio, and free operating cash flow to total debt ratios. (Round your answers to two decimal places.)

2005 times interest earned =Answer

2004 times interest earned =Answer

2005 cash from operations to total debt =Answer

2004 cash from operations to total debt =Answer

2005 free operating cash flow to total debt =Answer

2004 free operating cash flow to total debt =Answer