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 Statement

Year Ended December $31($In millions$)200520042003$

Net sales

Products $ $31,518$ $ $30,202$ $ $27,290$

Service $5,6955,3244,534$

$37,21335,52631,824$

Cost of sales

Products $27,93227,63725,306$

Service $5,0734,7654,099$

Unallocated coporate costs $803914443$

$33,80833,31629,848$

$3,4052,2101,976$

Other income $($expenses$),$ net $(449)(121)43$

Operating profit $2,9562,0892,019$

Interest expense $370425487$

Earnings before taxes $2,5861,6641,532$

Income tax expense $761368479$

Net earnings $ $1,825$ $ $1,296$ $ $1,053$

Balance Sheet

December $31($In millions$)20052004$

Assets

Cash and cash equivalents $ $2,124$ $ $1,080$

Short$-$term investments $429396$

Receivables $4,5794,094$

Inventories $1,9211,864$

Deferred income taxes $861982$

Other current assets $495557$

Total current assets $10,4098,973$

Property, plant and equipment, net $3,9243,599$

Investments in equity securities $196812$

Goodwill $8,4477,892$

Purchased intangibles, net $560672$

Prepaid pension asset $1,3601,030$

Other assets $2,7282,596$

Total assets $ $27,624$ $ $25,574$

Liabilities and stockholders' equity

Accounts payable $ $1,998$ $ $1,726$

Customer advances and amounts in excess of costs incurred $4,3314,028$

Salaries, benefits and payroll taxes $1,4751,346$

Current maturities of long$-$term debt $20215$

Other current liabilities $1,4221,451$

Total current liabilities $9,4288,566$

Long$-$term debt $4,9445,184$

Accrued pension liabilities $1,6171,760$

Other postretirement benefit liabilities $1,2771,236$

Other liabilities $2,4911,807$

Stockholders' equity

Common stock, $$1$ par value per share $432438$

Additional paid$-$in capital $1,7242,223$

Retained earnings $7,2785,915$

Accumulated other comprehensive loss $(1,553)(1,532)$

Other $(14)(23)$

Total stockholders' equity $7,8677,021$

Total liabilities and stockholders' equity $ $27,624$ $ $25,574$

Consolidated Statement of Cash Flows

Year Ended December $31($In millions$)200520042003$

Operating Activities

Net earnings $ $1,825$ $ $1,266$ $ $1,053$

Adjustments to reconcile net earnings to net cash provided by operating activities

Depreciation and amortization $555511480$

Amortization of purchased intangibles $150145129$

Deferred federal income taxes $24(58)467$

Changes in operating assets and liabilities:

Receivables $(390)(87)(258)$

Inventories $(39)519(94)$

Accounts payable $239288330$

Customer advances and amounts in excess of costs incurred $296(228)(285)$

Other $534568(13)$

Net cash provided by operating activities $3,1942,9241,809$

Investing Activities

Expenditures 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 companies $935279234$

Purchase of short$-$term investments, net $(33)(156)(240)$

Other $282953$

Net cash used for investing activities $(719)(708)(1,461)$

Financing Activities

repayment of long$-$term debt $(53)(1,069)(2,202)$

Issuances of long$-$term debt $----1,000$

Long$-$term debt repayment and issuance costs $(12)(163)(175)$

Issuances of common stock $40616444$

Repurchases 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 equivalents $1,04470(1,728)$

Cash and cash equivalents at beginning of year $1,0801,0102,738$

Cash 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

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 and total 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

$2005$ total debt$-$to$-$equity $=$

Answer

$2004$ total debt$-$to$-$equity $=$

Answer