Compute and Interpret Liquidity, Solvency and Coverage Ratios Selected balance sheet and income statement information from Verizon Communications Inc. follows. (5 millions 2016 2015 Current assets I 26.395 I 22.355 Current liabilities 30.340 35.052 Total debt 108,078 109.729 Total liabilities 220.148 226.333 Equity 24032 17.842 Earnings before interest and taxes 27.059 33 060 Interest expense 4.376 4.920 Net cash flow from operating activities S 22.715 5 38.930 Round all your answers to two decimal places. (a) Compute the current ratio for each year and discuss any trend in liquidity. (Round your answers to two decimal places.) 2016 current ratio = 2015 current ratio = What additional information about the numbers used to compute this ratio might be useful in helping you assess liquidity? (Select all that apply) The maturity schedule of current liabilities The average stock price for the industry The average current ratio for the industry 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. (Round your answers to two decimal places.) 2016 times interest earned = 2015 times interest earned = 2016 total liabilities-to-equity = 2015 total liabilities-to-equity = 2016 net operating cash flow to total debt = 2015 net operating cash flow to total debt = 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 slightly decreased, and total liabilities-to-equity ratio and net operating cash flow to debt ratio have decreased. Although the times interest earned ratio decreased, the ratio is still strong indicating a relatively low risk of default on debt. Verizon's times interest earned ratio slightly increased, and total liabilities-to-equity ratio and net operating cash flow to debt ratio have decreased. Although the net operating cash flow to debt ratio decreased, the ratio is still strong indicating the company is solvent Verizon's times interest earned ratio slightly decreased, and total liabilities-to-equity ratio and net operating cash flow to debt ratio have increased. Although the times interest earned ratio decreased, the ratio is still strong indicating a relatively low risk of default on debt. Verizon's times interest earned ratio slightly increased, total liabilities-to-equity ratio decreased, and net operating cash flow to debt ratio have increased. Improvement in ratios indicates the company is solvent with low risk of default on debt. (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 weak, both are very low in relation to the company's liabilities and interest costs. The company cannot fund any capital expenditures. 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
