Question

Compute and Interpret Liquidity, Solvency and Coverage Ratios
Selected balance sheet and income statement information for Calpine Corporation for 2004 and 2006 follows.

($ millions)	2004	2006
Cash	$ 1,256.73	$ 1,523.36
Accounts receivable	1,097.16	735.30
Current assets	3,313.56	3,268.33
Current liabilities	3,285.39	6,057.95
Long-term debt	17,150.81	3,531.63
Short-term debt	1,033.96	4,568.83
Total liabilities	22,898.42	25,503.17
Interest expense	1,516.90	1,288.29
Capital expenditures	1,545.48	211.50
Equity	4,587.67	(7,152.90)
Cash from operations	19.89	335.98
Earnings before interest and taxes	1,659.84	1,907.84

(a) Compute the following liquidity, solvency and coverage ratios for both years. (Round your answers to two decimal places.)
2006 current ratio = Answer

2004 current ratio = Answer

2006 quick ratio = Answer

2004 quick ratio = Answer

2006 liabilities-to-equity = Answer

2004 liabilities-to-equity = Answer

2006 total debt-to-equity = Answer

2004 total debt-to-equity = Answer

2006 times interest earned = Answer

2004 times interest earned = Answer

2006 cash from operations to total debt = Answer

2004 cash from operations to total debt = Answer

2006 free operating cash flow to total debt = Answer

2004 free operating cash flow to total debt = Answer

Answer 1

There was some confusion in this question. I have assumed the following

Current assets includes cash and accounts receivable.

Current liabilities includes short-term debt. Total liabilities includes current liabilities, short-term debt and long-term debt.

As a result, I have not calculated current assets, current liabilities and total liabilities again.

current ratio	current assets / current liabilities
	2004 ($ millions)	2006 ($ millions)
current assets	3313.56	3268.33
current liabilities	3285.39	6057.95
current ratio	1.01	0.54
quick ratio	quick assets / current liabilities
	2004 ($ millions)	2006 ($ millions)
cash	1256.73	1523.36
accounts receivable	1097.16	735.3
total quick assets	2353.89	2258.66
current liabilities	3285.39	6057.95
quick ratio	0.72	0.37
liabilities to equity	total liabilities / shareholders equity
	2004 ($ millions)	2006 ($ millions)
total liabilities	22898.42	25503.17
equity	4587.67	-7152.9
liabilities to equity	4.99	-3.57
total debt-to-equity	total debt / shareholders equity
	2004 ($ millions)	2006 ($ millions)
short-term debt	1033.96	4568.83
long-term debt	17150.81	3531.63
total debt	18,184.77	8,100.46
equity	4,587.67	-7152.90
total debt-to-equity	3.96	-1.13
times interest earned	earnings before interest and tax / interest expenses
	2004 ($ millions)	2006 ($ millions)
earnings before interest and tax	1659.84	1907.84
interest expenses	1516.90	1288.29
times interest earned	1.09	1.48
cash from operations to total debt	cash from operations / total debt
	2004 ($ millions)	2006 ($ millions)
Cash from operations	19.89	335.98
total debt	18,184.77	8,100.46
cash from operations to total debt	0.00	0.04
free operating cash flow to total debt	(cash from operations - capital expenditure) / total debt
	2004 ($ millions)	2006 ($ millions)
Cash from operations	19.89	335.98
less:Capital expenditures	1,545.48	211.50
free operating cash flow	-1,525.59	124.48
total debt	18,184.77	8,100.46
free operating cash flow to total debt	-0.08	0.02