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 2005 2004 Balance Sheet December 31 (In millions) Assets Cash and cash equivalents Short-term investments Receivables Inventories Deferred income taxes Other current assets Total current assets Property, plant and equipment, net Investments in equity securities Goodwill Purchased intangibles, net $ 2,484 429 4,579 1,921 861 495 10,769 3,924 196 8,447 560 $1,100 396 4,094 1,864 982 557 8,993 3,599 812 7,892 672

Answer 1

Part A

Current ratio = current assets / current liabilities

2005 =10769/9428 = 1.14

2004 = 8993/8566 = 1.05

Quick ratio = (Cash and cash equivalents + short-term investments + receivables)/ current liabilities

2005 = (2484+429+4579)/ 9428 = 0.79

2004 = (1100+396+4094)/8566 = 0.65

Part C

Times interest earned ratio = operating profit / interest expense

2005: 2996/370 = 8.10

2004: 2059/425 = 4.84

Cash flow from operations to total debt = cash flow from operating activities / total debt

2005: 3194/(27984-7867) = 0.16

2004: 2924/(25594-7021) = 0.16

Free cash flow from operations to total debt = free cash flow / total debt

2005: (3194-865-244)/(27984-7867) = 0.10

2004: (2924-769-91)/(25594-7021) = 0.11