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 27,932 27,637 25,306 Service 5,073 4,765 4,099 Unallocated coporate costs 803 914 443 33,808 33,316 29,848 3,405 2,210 1,976 Other income (expenses), net (449) (121) 43 Operating profit 2,956 2,089 2,019 Interest expense 370 425 487 Earnings before taxes 2,586 1,664 1,532 Income tax expense 479 Net earnings $ 1,825 $1,296 $1,053 761 36

Answer 1

Current Ratio = Current Assets Current Liabilities For 2005 Current Assets= 10,409 Current Liabilities=9,428 Current Ratio =10,409/ 9,428 =1.10 For 2004 Current Assets= 8,973 Current Liabilities= 8,566 Current Ratio = 8,973/ 8566 =1.05 Quick Ratio = Quick Assets Current Liabilities For 2005 Quick Assets= Current Assets - Inventories - Deferred income taxes =10,409 - 1,921 - 861 =7,627 Current Liabilities=9,428 Quick Ratio =7,627/ 9,428 =0.81 For 2004 Quick Assets=Current Assets - Inventories - Deferred income taxes = 8,973 -1,864 -982 =6,127 Current Liabilities=8,566 Quick Ratio = 6,127/8,566 =0.72

Total Liabilities to equity ratio =Total Liabilities Stockholder's equity For 2005 Total Liabilities = $27,624 - $7,867 =$19,757 Stockholder's equity= $7,867 Total Liabilities to equity ratio= 19,757 7,867 = 2.51 For 2004 Total Liabilities = $25,574 - $7,021 =$18,553 Stockholder's equity= $7,021 Total Liabilities to equity ratio= 18,553 7,021 = 2.64 Total Debts to equity ratio =Total Liabilities Stockholder's equity For 2005 Total Liabilities = $27,624 - $7,867 =$19,757 Stockholder's equity= $7,867 Total Debts to equity ratio= 19,757 7,867 = 2.51 For 2004 Total Liabilities = $25,574 - $7,021 =$18,553 Stockholder's equity= $7,021 Total Debts to equity ratio= 18,553 7,021 = 2.64

Times interest earned Ratio= EBIT Interest expenses For 2005 EBIT = Earnings before taxes + Interest expenses =2586+370 =2,956 Times interest earned Ratio= 2,956 370 = 7.99 For 2004 EBIT = Earnings before taxes + Interest expenses =1664+425 =2,089 Times interest earned Ratio= 2,089 425 = 4.92

Free operating cash flow to total debt= Free operating cash flow Total Debts For 2005 Free operating Cash flow = Cash flow from operating activities - Capital expenditure =3,194 - 865 =2,329 Total Debts=$27,624 - $7,867 =$19,757 Free operating cash flow to total debt= 2,329 19,757 =0.12 For 2004 Free operating Cash flow = Cash flow from operating activities - Capital expenditure =2,924- 769 =2,155 Total Debts=$25,574 - $7,021 =$18,553 Free operating cash flow to total debt=2,155 18,553 =0.17