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.

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

Liquidity Ratio Current Ratio = Current Asset/Current Liabilities 2005 2004 1.14 1.05 Improvement in Liquidity situation Quick Ratio = Current Assets-Inventories-Deferred Income Taxes/Current Liabilites 0.85 0.72 Improvement in Liquidity situation Solvancy Ratios Debt Equity Ratio = (Long Term Debt/Total Shareholders Equity) 0.61 0.74 Debt has reduced, solvency has improved Properietary Ratio = Shareholders Equity/Total Assets 0.28 0.27 Equity level has remained the same Coverage Ratio Interest Coverage Ratio = Earnings before Interest and Tax/Fixed Interest Charges 8.10 4.84 EBIT is well above fixed interest charges, hence it is good cash from operations to total debt = 0.67 0.56 Cash flow from operations has improved which is the major source of cash generation

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.