Compute and Interpret Liquidity, Solvency and Coverage Ratios Selected balance sheet and income statement information from Verizon Communications follows.

($ millions)	2005	2004
Current assets	$ 15,748	$ 19,779
Current liabilities	25,063	23,129
Total liabilities	101,896	103,545
Equity	66,434	62,613
Earnings before interest and taxes	12,857	12,556
Interest expense	2,180	2,384
Net cash flow from operating activities	$ 20,412	$ 20,020

(a) Compute the current ratio for each year and discuss any trend in liquidity. (Round your answers to two decimal places.) 2005 current ratio = Answer

2004 current ratio = Answer What additional information about the numbers used to compute this ratio might be useful in helping you assess liquidity? (Select all that apply) Answernoyes The maturity schedule of current liabilities Answernoyes The average stock price for the industry Answeryesno The average current ratio for the industry Answernoyes The amount of current assets that is concentrated in relatively illiquid inventories (b) Compute times interest earned, total liabilities-to-equity, and net cash from operating activities to total debt ratios for each year. Hint: Verizon's total debt was $39,010 and $39,267 in 2005 and 2004 respectively. (Round your answers to two decimal places.) 2005 times interest earned = Answer 2004 times interest earned = Answer 2005 total liabilities-to-equity = Answer 2004 total liabilities-to-equity = Answer 2005 net operating cash flow to total debt = Answer 2004 net operating cash flow to total debt = Answer Which of the following best describes the extent of Verizon's financial leverage and the company's ability to meet interest obligations?

Verizon's times interest earned ratio has decreased, total liabilities-to-equity has increased, and net operating cash flow to total debt ratio has increased, which suggests the company will meet its obligations.

Verizon's times interest earned ratio has increased, total liabilities-to-equity has decreased, and net operating cash flow to total debt ratio has increased, which suggests the company will meet its obligations.

Verizon's times interest earned ratio has increased, total liabilities-to-equity has increased, and net operating cash flow to total debt ratio has decreased, which suggests the company will not meet its obligations.

Verizon's times interest earned ratio has increased, total liabilities-to-equity has decreased, and net operating cash flow to total debt ratio has decreased, which suggests the company will not meet its obligations.

(c)Verizon's capital expenditures are expected to increase substantially as it seeks to respond to competitive pressures to upgrade the quality of its communications infrastructure. Which of the following best describes Verizon's liquidity and solvency in light of this strategic direction?

The company's profitability and operating cash flow are fairly strong, both are particularly high in relation to the company's liabilities and interest costs. The capital expenditures can be made with no borrowing or additional equity.

The company's profitability and operating cash flow are fairly weak, both are very low in relation to the company's liabilities and interest costs. The company is on the verge of bankruptcy.

The company's profitability and operating cash flow are fairly strong, neither is particularly high in relation to the company's liabilities and interest costs. The capital expenditures may have to be funded with higher-cost equity.

The company's profitability and operating cash flow are fairly weak, both are very low in relation to the company's liabilities and interest costs. The company cannot fund any capital expenditures.