E4-38. Compute and Interpret Liquidity and Solvency Ratios

Selected balance sheet and income statement information from Verizon Communications Inc. for 2012 and 2011 follows ($ millions).

Total Current Assets - Total Current Liabilities - Income Before Interest and Taxes - Interest Expense, Gross - Total Liabilities - Stockholders Equity

2015. . . . . . $22,280 $35,052 $32,974 $4,920 $226,798 $17,842

2014. . . . . . 29,499 27,987 21,379 4,915 218,940 13,676

a. Compute the current ratio for each year and discuss any trend in liquidity. Do you believe the company is sufficiently liquid? Explain. What additional information about the accounting numbers comprising this ratio might be useful in helping you assess liquidity? Explain.

b. Compute times interest earned and the liabilities-to-equity ratio for each year and discuss any noticeable change.

c. What is your overall assessment of the companys liquidity and solvency from the analyses in parts a and b? Explain.