Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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) 2005 2004 2003
Net sales
Products $ 31,518 $ 30,202 $ 27,290
Service 5,695 5,324 4,534
37,213 35,526 31,824
Cost of sales
Products 27,882 27,637 25,306
Service 5,073 4,765 4,099
Unallocated coporate costs 803 914 443
33,758 33,316 29,848
3,455 2,210 1,976
Other income (expenses), net (449) (121) 43
Operating profit 3,006 2,089 2,019
Interest expense 370 425 487
Earnings before taxes 2,636 1,664 1,532
Income tax expense 811 398 479
Net earnings $ 1,825 $ 1,266 $ 1,053
Balance Sheet
December 31 (In millions) 2005 2004
Assets
Cash and cash equivalents $ 2,164 $ 780
Short-term investments 429 396
Receivables 4,579 4,094
Inventories 1,921 1,864
Deferred income taxes 861 982
Other current assets 495 557
Total current assets 10,449 8,673
Property, plant and equipment, net 3,924 3,599
Investments in equity securities 196 812
Goodwill 8,447 7,892
Purchased intangibles, net 560 672
Prepaid pension asset 1,360 1,030
Other assets 2,728 2,596
Total assets $ 27,664 $ 25,274
Liabilities and stockholders' equity
Accounts payable $ 1,998 $ 1,726
Customer advances and amounts in excess of costs incurred 4,331 4,028
Salaries, benefits and payroll taxes 1,475 1,346
Current maturities of long-term debt 202 15
Other current liabilities 1,422 1,451
Total current liabilities 9,428 8,566
Long-term debt 4,664 5,264
Accrued pension liabilities 2,097 1,300
Other postretirement benefit liabilities 1,277 1,236
Other liabilities 2,331 1,887
Stockholders' equity
Common stock, $1 par value per share 432 438
Additional paid-in capital 1,724 2,223
Retained earnings 7,278 5,915
Accumulated other comprehensive loss (1,553) (1,532)
Other (14) (23)
Total stockholders' equity 7,867 7,021
Total liabilities and stockholders' equity $ 27,664 $ 25,274
Consolidated Statement of Cash Flows
Year Ended December 31 (In millions) 2005 2004 2003
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 555 511 480
Amortization of purchased intangibles 150 145 129
Deferred federal income taxes 24 (58) 467
Changes in operating assets and liabilities:
Receivables (390) (87) (258)
Inventories (39) 519 (94)
Accounts payable 239 288 330
Customer advances and amounts in excess of costs incurred 296 (228) (285)
Other 534 568 (13)
Net cash provided by operating activities 3,194 2,924 1,809
Investing Activities
Expenditures for property, plant and equipment (865) (769) (687)
Acquisition of business/investments in affiliated companies (84) (91) (821)
Proceeds from divestiture of businesses/Investments in affiliated companies 935 279 234
Purchase of short-term investments, net (33) (156) (240)
Other 28 29 53
Net cash used for investing activities (19) (708) (1,461)
Financing Activities
repayment of long-term debt (413) (1,369) (2,202)
Issuances of long-term debt -- -- 1,000
Long-term debt repayment and issuance costs (12) (163) (175)
Issuances of common stock 406 164 44
Repurchases of common stock (1,310) (673) (482)
Common stock dividends (462) (405) (261)
Net cash used for financing activities (1,791) (2,446) (2,076)
Net increase (decrease) in cash and cash equivalents 1,384 (230) (1,728)
Cash and cash equivalents at beginning of year 780 1,010 2,738
Cash and cash equivalents at end of year $ 2,164 $ 780 $ 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 = Answerimage text in transcribed

2004 current ratio = Answerimage text in transcribed

2005 quick ratio = Answerimage text in transcribed

2004 quick ratio = Answerimage text in transcribed

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 decreased from 2004 to 2005. The company is fairly illiquid.

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

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 long-term debt-to-equity ratios for 2005 and 2004. (Round your answers to two decimal places. For long-term debt-to-equity calculations, use the debt-to-equity ratio.) 2005 total liabilities-to-stockholders' equity = Answerimage text in transcribed

2004 total liabilities-to-stockholders' equity = Answerimage text in transcribed

2005 long-term debt-to-equity = Answerimage text in transcribed

2004 long-term debt-to-equity = Answerimage text in transcribed

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

The total liabilities-to-equity ratio has decreased while the long-term 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 long-term 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 long-term debt-to-equity ratios have increased from 2004 to 2005. These increases suggest that the company is less solvent.

Both the total liabilities-to-equity and long-term 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.image text in transcribed

(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 = Answerimage text in transcribed

2004 times interest earned = Answerimage text in transcribed

2005 cash from operations to total debt = Answerimage text in transcribed

2004 cash from operations to total debt = Answerimage text in transcribed

2005 free operating cash flow to total debt = Answerimage text in transcribed

2004 free operating cash flow to total debt = Answerimage text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditor Essentials 100 Concepts Tips Tools And Techniques For Success

Authors: Hernan Murdock

1st Edition

1138036919, 978-1138036918

More Books

Students also viewed these Accounting questions