DIRECTIONS: Summarize these notes

The Current Ratio measures a firms ability to pay off its short-term obligations. It is calculated as follows: Current Ratio = Current Assets/Current liabilities

Ideally, current ratio of 2 is desirable. Current ratio for both Lockheed Martin and Raytheon is less than 2. Moving from 2016 to 2017, the current ratio for both the companies improves indicating increase in current assets or decrease in current liabilities or both. For Lockheed Martin the current ratio improves from 1.2 to 1.38 and for Raytheon it moves from 1.54 to 1.66. Between the two companies, Raytheon is better placed as it has higher current ratios in both 2016 and 2017. Quick Ratio measures a firm's ability to meet current liabilities with its most liquid assets. It is calculated as: Quick Ratio = Current Assets excluding inventories/Current liabilities

A quick ratio above 1 is considered safe as liabilities can be safely paid back using liquid assets. Raytheon's quick ratio in 2016 and 2017 is 1.35 and 1.49. The company is well poised. Its quick ratio is improving year to year. Quick ratio less than 1 indicates that the firm cannot fully pay back its liabilities with its most liquid assets. Lockheed Martin has quick ratio of 0.80 and 0.91 in 2016 and 2017. This is a worrisome situation for Lockheed Martin. Even though the quick ratio is improving, it is still less than 1. Raytheon is in a better position than Lockheed Martin as far as liquidity is concerned.

From the above ratios, it can be observed that Lockheed is better in terms of asset turnover meaning that it is more efficient in using its assets. Whereas, Raytheon fairs a lot better in terms of converting its account receivables into cash. Raytheon takes about 17 days to do so which contrasts with Lockheed's 60 days.

Based on Net Profit Margin, Lockheed Martin performs better than Raytheon as Lockheed Martins was 11.22% whereas Raytheons was just 7.98% only. Higher Net Profit Margin implies that the firm generates more net profit from each dollar sales it makes. Based on Total Assets turnover, Lockheed Martin performs better than Raytheon as Lockheed Martins was .98 whereas Raytheon was just .83. Higher total asset turnover implies that the firm generates more revenue from each dollar asset it has invested in the firm. Based on equity multiplier, Equity multiplier does not always explain about firms profitability. Instead, it explains the ratio of total assets of the firm versus total equity for the respective period. Higher the ratio, lower the firms dependency on equity capital and vice-versa. Lockheed Martins equity multiplier of 21.03 implies that the firm depends very less on its equity capital when compared to Raytheon.