Compute and Interpret Liquidity, Solvency and Coverage Ratios Balance sheets and

Question

Compute and Interpret Liquidity, Solvency and Coverage Ratios
Balance sheets and income statements for Lockheed Martin Corporation follow. Refer to these financial statements to answer the requirements.

Compute times interest earned ratio, cash from operations to total debt ratio, and free operating cash flow to total debt ratios. (Round your answers to two decimal places.)
2005 times interest earned = Answer
2004 times interest earned = Answer

2005 cash from operations to total debt = Answer
2004 cash from operations to total debt = Answer

2005 free operating cash flow to total debt = Answer
2004 free operating cash flow to total debt = Answer

Which of the following describes the company's times interest earned, cash from operations to total debt, and free operating cash flow to total debt ratios for 2005 and 2004? (Select all that apply)
Answernoyes Lockheed Martin's free operating cash flow to total debt ratio increased slightly over the year 2005 due to increased cash flow from operations and decreased levels of debt.
Answernoyes Lockheed Martin's cash from operations to total debt ratio increased slightly over the year 2005 due to increased cash flow from operations and decreased levels of debt.
Answeryesno Lockheed Martin's times interest earned increased significantly during 2005, due to both an increase in profitability and a decrease in interest expense.
Answernoyes Lockheed Martin's times interest earned decreased significantly during 2005, due to both a decrease in profitability and an increase in interest expense.

Income Statement Year Ended December 31 (In millions) 2005 2004 2003 Net sales Products $ 31,518 $ 30,202 $ 27,290 Service 5,695 5,324 4,534 37,213 35,526 31,824 Cost of sales Products 27,892 27,667 25,306 Service 5,073 4,765 4,099 Unallocated coporate costs 803 914 443 33,768 33,346 29,848 3,445 2,180 1,976 Other income (expenses), net (449) (121) 43 Operating profit 2,996 2,059 2,019 Interest expense 370 425 487 Earnings before taxes 2,626 1,634 1,532 Income tax expense 801 368 479 Net earnings $ 1,825 $ 1,266 $ 1,053

Explanation / Answer

2005 times interest earned = 2996÷370 = 8.09
2004 times interest earned = 2059÷425 = 4.84

2005 cash from operations to total debt = 3194÷20117 = 15.87%
2004 cash from operations to total debt = 2924÷18573 = 15.74%

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