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 4534 37,213 35,526 31,824 Cost of sales Products 27,882 27,637 25,306 Service 5,073 4,765 4,099 Unallocated coporate costs 803 914 443 33,758 33,316 29,848 3,455 2,210 1,976 Other income expenses, net (449) (121) Operating profit 3,006 2,089 2,019 Interest expense 370 425 487 Earnings before taxes 2,636 1,664 1,532 Income tax expense 398 Net earnings $ 1,825 $1,266 $1,053 Balance Sheet December 31 (In millions) 2005 2004 Assets Cash and cash equivalents $ 2,164 $780 Short-term investments 429 Receivables 4,579 4,094 Inventories 1,921 Deferred income taxes 479 Other current assets Total current assets Property, plant and equipment, net Investments in equity securities Goodwill Purchased intangibles, net Prepaid pension asset Other assets Total assets Liabilities and stockholders equity 10,449 8,675 3,924 3,599 196 8,447 7,892 560 1,360 1,030 2,728 2.596 $ 27,664 525,274 $1,726 Accounts payable $ 1,998 4.331 Customer advances and amounts in excess of costs incurred

Answer 1

Answer:

2005 Current Ratio =	1.11
2004 Current Ratio =	1.01
2005 Quick Ratio =	0.90
2004 Quick Ratio =	0.79
2005 Total Debt to Equity	1.32
2004 Total Debt to Equity	1.38
2005 times interest earned	8.12
2004 times interest earned	4.92
2005 Cash flow from operation to total debt	0.31
2004 Cash flow from operation to total debt	0.30
2005 Free Operating Cash flow to total debt	0.22
2004 Free Operating Cash flow to total debt	0.22

Working Notes
		2005	2004
Current Ratio = Current Assets / Current Liabilities
Current Assets:	Cash and Cash equivalents	2,164.00	780.00
	Short term investment	429.00	396.00
	Receivables	4,579.00	4,094.00
	Inventories	1,921.00	1,864.00
	Deferred Income Taxes	861.00	982.00
	Other current assets	495.00	557.00
	Total Current Assets	10,449.00	8,673.00
	Current Liabilities	9,428.00	8,566.00
	Current Ratio =	1.11	1.01
Quick Ratio = (Current Asset - Inventories) / (Current Liabilities-Bank OD)
	Current Assets	10,449.00	8,673.00
	Inventories	1,921.00	1,864.00
	Current Assets - Inventories	8,528.00	6,809.00
	Current Liabilities	9,428.00	8,566.00
	Quick Ratio =	0.90	0.79
Total Debt to Equity = Debt / Equity
	Long term debt	4,664.00	5,264.00
	Accrued pension liabilities	2,097.00	1,300.00
	Other post retirement benefits liabilities	1,277.00	1,236.00
	Other liabilities	2,331.00	1,887.00
	Total Debt	10,369.00	9,687.00
	Total Stock holders equity	7,867.00	7,021.00
	Total Debt to Equity =	1.32	1.38
Time interest earned =	EBIT / Interest expenses
	EBIT ( Operating Profit )	3,006.00	2,089.00
	Interest Expenses	370.00	425.00
	Time interest earned =	8.12	4.92
Cash from operations to total debt
	Cash from operation	3,194.00	2,924.00
	Long term debt	4,664.00	5,264.00
	Accrued pension liabilities	2,097.00	1,300.00
	Other post retirement benefits liabilities	1,277.00	1,236.00
	Other liabilities	2,331.00	1,887.00
	Total Debt	10,369.00	9,687.00
	Cash from operations to total debt	0.31	0.30
Free Operating cash flows to total debt
	Free operating cash flow = Operating cashflow - Capex
	Operating Cash flow	3,194.00	2,924.00
	Capex
	Expenditure for property, plant and equipment	865.00	769.00
	Free Operating cash flow=	2,329.00	2,155.00
	Long term debt	4,664.00	5,264.00
	Accrued pension liabilities	2,097.00	1,300.00
	Other post retirement benefits liabilities	1,277.00	1,236.00
	Other liabilities	2,331.00	1,887.00
	Total Debt	10,369.00	9,687.00
	Free Operating cash flows to total debt	0.22	0.22