Question

Compute and interpret the Z-score Balance sheets and income statements for Lockheed Martin Corporation follow. Refer to these financial statements to answer the requirements Consolidated Statements of Earnings Year Ended December 31 milions 2016 2015 Net als Products 5 40.365 $34368 Services 6.893 5.668 Totalne ses 40536 Cost of sales Products 36601,001) Services 16,6400 Severance and other charges 1500 Other unallocated costs Total cost of a 421) Gross Profe Other coment Operating promet 182 220 Otherton-perating income (op.net Earnings before taxes Income tax expert Met earnings from continuing operations Narning from discontinued operations Net Garning 30 4836 (1.133 (1.1730 2753 $5300 $ 3.606

Answer 1

55 Z score for 2016 = 1.2 X1 + 1.4 X2 +3.3 X3 + 6 X 4+ 1. X5 56 (15108 -12542) X1 Working Capital Total Assets 47806 57 58 59 60 61 62 2566 47806 0.0537 63 64 65 = 66 X2 Retained Earnings Total Assets 13324 47806 67 68 69 0.2787 70 71 72 X3 EBIT TA 5549 47806 73 74 75 0.1161 76

77 78 X4 Market Value of Equity Long Term Debt 72232.66 46200 79 80 81 1.56 82 83 84 X5 Sales Total Assets 47248 47806 85 86 87 0.9883 88 89 Z score for 2016 1.2 (.0537) + 1.4 (-2787) +3.3(-1161) +6 (1.56) +1.9883) 90 91 Z score for 2016 2.76 92

93 Z score for 2015 1.2 X1 + 1.4 X2 + 3.3 X3 + 6 X 4 + 1 X 5 94 95 (14573-13918) X1 Working Capital Total Assets 96 97 98 49304 655 49304 99 0.0133 100 101 102 103 - 104 X2 Retained Earnings Total Assets 14238 49304 105 106 107 0.2888 108 109 = 110 X3 EBIT TA 4712 49304 111 112 113 0.0956

115 116 X 4 Market Value of Equity Long Term Debt 66599 46207 117 118 119 1.44 120 121 122 X 5 Sales Total Assets 40536 49304 123 124 125 0.8222 126 127 Z score for 2015 = 1.2 (.0133) + 1.4 (-2888) +3.30.0956) +.6 (1.44) +1(8222) 128 129 Z score for 2015 2.42 130

Which of the following explain the trend in the Z-scores from 2015 to 2016? Lockheed improved its working capital by decreasing its current liabilities. Lockheed improved its earnings before interest and taxes by increasing its total net sales. The market value of Lockheed's equity improved over the year. 131 132 133 134 135 136 137 138 139 140 141 142 (b) Which of the following statements best describes the company's Altman Z-scores? The Altman Z-scores have increased from 2015 to 2016 which indicates the company's bankruptcy risk has decreased.