Problem P4-30 from Financial Statement Analysis and Valuation, FIFTH EDITION :

Refer to the Lockheed Martin 2016 financial statements below, to answer the following requirements:

A. Compute the following seven Moodys metrics for Lockheed Martin.

Information in the financial statements and footnotes also reveal that amortization and depreciation expense for 2016 was $468 million and $747 million respectively. Noncurrent deferred tax liabilities were $1,142 million for 2016.

1. EBITA to average assets

2. Operating margin

3. EBITA margin

4. EBITA interest coverage

5. Debt to EBITDA

6. Debt to book capitalization

7. Retained cash flow to net debt

B. Use your computations from part a, along with measures from Exhibit 4.7, to estimate a credit rating for Lockheed Martin.

EXHIBIT 4.7 Ratio Values for Different Risk Classes of Corporate Debt* Retained (FFO + Average Interest EBITA Operating IntExp) / Cash Flow/Net Debt Debt/Book EBITA/ EBITA/ CAPEX Revenue Assets Expense Margin Margin IntExp FFO/Debt Debt EBITDA Capitalization Depreciation Volatility 60.7% 49.3% 37.1% 27.7% 20.5% 11.9% 3.6% 47.4% 32.0% 28.3% 25.0% 20.3% 10.7% 4.0% 28.4% 34.6% 39.5% 47.1 % 55.6% 69.2% 89.7% 1.4 1.4 1.3 1.3 1.2 9.3 6.5 9.6 10.7 14.1 16.2 22.8 1.7 A 11.3% 11.6 15.5% 14.5% 12.9 2.8 3.6 Ba 8.0% 3.5 12.5% 11.2% B 6.6% 1.6 10.7% 8.7% Caa-C 1.4% 0.4 5.0 2.8 2.9% 2.1% 7.1 0.8 Table reports July 2016 median values: from Moody's Financial Metrics TM Key Ratios By Rating And Industry For North American Non-Financial Corporations. Report dated September 2016 (Excel Data Supplement) Ratio Definition EBITAAverage Assets EBITA/Interest Expense EBITA Margin Operating Margin (FFO Interest ExpVInterest Exp Funds From Operations Interest Expense Interest Expense FFO/Debt Retained Cash Flow/Net Debt (FFO Preferred Dividends Common Dividends Minority Dividends(Short-Term Debt + Long-Term Debt Cash Short-Term Marketable Securities) Debt/EBITDA Debt/Book Capitalization CAPEX/Depreciation Exp Revenue Volatility EBITA/Average of Current and Previous Year Assets EBITA/Interest Expense EBITA/Net Revenue Operating Profit/Net Revenue Funds From Operations/(Short-Term Debt + Long-Term Debt) (Short-Term Debt Long-Term DebtVEBITDA (Short-Term Debt Long-Term Debt(Short-Term Debt +Long-Term Debt Non-current deferred tax liabilities +Noncontrolling interest +Book Equity) Gross expenditures for plant and equipment and intangible assets per the statement of cash flows/Depreciation Expense Average revenue over five years divided by the standard deviation of revenue for that same period where: EBITA Earnings from continuing operations before interest, taxes, and amortization EBITDAEarnings from continuing operations before interest and taxes, depreciation, and amortization FFO-Funds from operations Cash flow from operations before changes in working capital and changes in other short-term and long-ternm operating assets and liabilities