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.
Consolidated Statements of Earnings | |||
---|---|---|---|
Year Ended December 31 (In millions) | 2016 | 2015 | |
Net sales | |||
Products | $ 40,365 | $ 34,868 | |
Services | 6,883 | 5,668 | |
Total net sales | 47,248 | 40,536 | |
Cost of sales | |||
Products | (36,616) | (31,091) | |
Services | (6,040) | (4,824) | |
Severance and other charges | (80) | (82) | |
Other unallocated costs | 550 | (47) | |
Total cost of sales | (42,186) | (36,044) | |
Gross Profit | 5,062 | 4,492 | |
Other income, net | 487 | 220 | |
Operating profit | 5,549 | 4,712 | |
Interest expense | (663) | (443) | |
Other non-operating income (expense), net | - | 30 | |
Earnings before taxes | 4,886 | 4,299 | |
Income tax expense | (1,133) | (1,173) | |
Net earnings from continuing operations | 3,753 | 3,126 | |
Net (loss) earnings from discontinued operations | 1,549 | 479 | |
Net earnings | $ 5,302 | $ 3,605 |
Consolidated Balance Sheets | ||
---|---|---|
December 31 (in millions, except par value) | 2016 | 2015 |
Assets | ||
Current Assets | ||
Cash and cash equivalents | $ 1,837 | $ 1,090 |
Receivables, net | 8,202 | 7,254 |
Inventories, net | 4,670 | 4,819 |
Other current assets | 399 | 441 |
Assets of discontinued operations | - | 969 |
Total current assets | 15,108 | 14,573 |
Property, plant and equipment, net | 5,549 | 5,389 |
Goodwill | 10,764 | 10,695 |
Intangible assets, net | 4,093 | 4,022 |
Deferred income taxes | 6,625 | 6,068 |
Other noncurrent assets | 5,667 | 5,396 |
Assets of discontinued operations | - | 3,161 |
Total assets | $ 47,806 | $ 49,304 |
Liabilities and stockholders' equity | ||
Current Liabilities | ||
Accounts payable | $ 1,653 | $ 1,745 |
Customer advances and amounts in excess of costs incurred | 6,776 | 6,703 |
Salaries, benefits and payroll taxes | 1,764 | 1,707 |
Current maturities of long-term debt | - | 956 |
Other current liabilities | 2,349 | 1,859 |
Liabilities of discontinued operations | - | 948 |
Total current liabilities | 12,542 | 13,918 |
Long-term debt | 14,282 | 14,305 |
Accrued pension liabilities | 13,855 | 11,807 |
Other post-retirement benefit liabilities | 862 | 1,070 |
Other noncurrent liabilities | 4,659 | 4,902 |
Liabilities of discontinued operations | - | 205 |
Total Liabilities | 46,200 | 46,207 |
Stockholders' equity | ||
Common stock, $1 par value per share | 289 | 303 |
Additional paid-in capital | -- | -- |
Retained earnings | 13,324 | 14,238 |
Accumulated other comprehensive loss | (12,102) | (11,444) |
Total stockholders' equity | 1,511 | 3,097 |
Noncontrolling interests in subsidiary | 95 | - |
Total equity | 1,606 | 3,097 |
Total liabilities and stockholders' equity | $ 47,806 | $ 49,304 |
Consolidated Statement of Cash Flows | |||
---|---|---|---|
Year Ended December 31 (in millions) | 2016 | 2015 | |
Operating Activities | |||
Net earnings | $ 5,302 | $ 3,605 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||
Depreciation and amortization | 1,215 | 1,026 | |
Stock-based compensation | 149 | 138 | |
Deferred income taxes | (152) | (445) | |
Severancecharges | 99 | 102 | |
Gain on divestiture of IS&GS business | (1,242) | - | |
Gain on step acquisition of AWE | (104) | - | |
Changes in operating assets and liabilities: | |||
Receivables, net | (811) | (256) | |
Inventories, net | (46) | (398) | |
Accounts payable | (188) | (160) | |
Customer advances and amounts in excess of costs incurred | 3 | (32) | |
Post-retirement benefit plans | 1,028 | 1,068 | |
Income taxes | 146 | (48) | |
Other, net | (210) | 501 | |
Net cash provided by operating activities | 5,189 | 5,101 | |
Investing Activities | |||
Capital expenditures | (1,063) | (939) | |
Acquisition of business/investments in affiliated | - | (9,003) | |
Other, net | 78 | 208 | |
Net cash used for investing activities | (985) | (9,734) | |
Financing Activities | |||
Special cash payment from divestiture of IS&GS businessk | 1,800 | - | |
Repurchases of common stock | (2,096) | (3,071) | |
Proceeds from stock option exercises | 106 | 174 | |
Dividends paid | (2,048) | (1,932) | |
Proceeds from the issuance of long-term debt | - | 9,101 | |
Repayments of long-term debt | (952) | - | |
Proceeds from borrowings under revolving credit facilities | - | 6,000 | |
Repayments from borrowings under revolving credit facilities | - | (6,000) | |
Other, net | (267) | 5 | |
Net cash (used for) financing activities | (3,457) | 4,277 | |
Net change in cash and cash equivalents | 747 | (356) | |
Cash and cash equivalents at beginning of year | 1,090 | 1,446 | |
Cash and cash equivalents at end of year | $ 1,837 | $ 1,090 |
(a) Compute Lockheed Martin's current ratio and quick ratio for
2016 and 2015. (Round your answers to two decimal places.)
2016 current ratio = Answer
2015 current ratio = Answer
2016 quick ratio = Answer
2015 quick ratio = Answer
Which of the following best describes the company's current ratio
and quick ratio for 2016 and 2015?
The current ratio has increased while the quick ratio has decreased in the period from 2015 to 2016 , which suggests the company has a shortage of liquid assets.
Both the current and quick ratios have decreased from 2015 to 2016 however, the company is liquid.
Both the current and quick ratios have increased from 2015 to 2016, meaning the company is liquid.
The current ratio has decreased while the quick ratio has increased from 2015 to 2016, which suggests the company has a shortage of current assets.
(b) Compute total liabilities-to-equity ratios and total
debt-to-equity ratios for 2016 and 2015 . (Round your answers to
two decimal places.)
2016 total liabilities-to-stockholders' equity = Answer
2015 total liabilities-to-stockholders' equity = Answer
2016 total debt-to-equity = Answer
2015 total ebt-to-equity = Answer
Which of the following best describes the company's total
liabilities-to-equity ratios and total debt-to-equity ratios for
2016 and 2015?
The total liabilities-to-equity ratio has decreased while the total debt-to-equity ratio has increased in the period from 2015 to 2016, which suggests the company has decreased the use of short-term debt financing.
The total liabilities-to-equity ratio has increased while the total debt-to-equity ratio has decreased in the period from 2015 to 2016, which suggests the company has increased the use of short-term debt financing.
Both the total liabilities-to-equity and total debt-to-equity ratios have increased from 2015 to 2016. These increases suggest that the company is less solvent.
Both the total liabilities-to-equity and total debt-to-equity ratios have decreased from 2015 to 2016. The difference between these two measures reveals that any solvency concerns would be for the short run.
(c) Compute times interest earned ratio, cash from operations to
total debt ratio, and free operating cash flow to total debt
ratios. (Round your answers to two decimal places.)
2016 times interest earned = Answer
2015 times interest earned = Answer
2016 cash from operations to total debt = Answer
2015 cash from operations to total debt = Answer
2016 free operating cash flow to total debt = Answer
2015 free operating cash flow to total debt = Answer
Which of the following describes the company's times interest
earned, cash from operations to total debt, and free operating cash
flow to total debt ratios for 2016 and 2015? (Select all that
apply)
Answeryesno Lockheed Martin's free operating cash flow to total
debt ratio slightly decreased over the year 2016 due to decreased
cash flow from operations.
Answeryesno Lockheed Martin's times interest earned decreased
during 2016, due an increase in interest expense.
Answeryesno Lockheed Martin's cash from operations to total debt
ratio slightly increased over the year 2016 due to a decrease in
total debt.
Answeryesno Lockheed Martin's times interest earned increased
during 2016, due to an increase in profitability.
(d) Summarize your findings in a conclusion about the company's
credit risk. Do you have any concerns about the company's ability
to meet its debt obligations?
Lockheed Martin's total debt-to-equity is low, thus increasing any immediate solvency concerns. The company's ability to meet its debt requirements will depend on increasing short-term debt.
Lockheed Martin's quick ratio is low, thus increasing immediate solvency concerns. The company's ability to meet its debt requirements will depend on liquidating inventories for emergency cash.
Lockheed Martin's times interest earned ratio is strong, thus lessening any immediate solvency concerns. The company's ability to meet its debt requirements will depend on its continued profitability.
Lockheed Martin's total liabilities-to-equity is high, thus lessening any immediate solvency concerns. The company's ability to meet its debt requirements will depend on its use of equity financing.
Current Ratio | 2016 | 2015 | |||||||
current ratio= | current assets / current liabilities | ||||||||
CA | 15,108 | 14,573 | |||||||
CL | 12,542 | 13,918 | |||||||
CA/CL | 1.20 | 1.05 | |||||||
Quick Ratio | 2016 | 2015 | |||||||
Quick ratio = | liquid assets / current liabilities | ||||||||
Liquid assets = CA - other current assets - assets of discontinued operations - inventory | |||||||||
LA | 10,039 | 8,344 | |||||||
CL | 12,542 | 13,918 | |||||||
LA/CL | 0.80 | 0.60 | |||||||
Both the current and quick ratios have increased from 2015 to 2016, meaning the company is liquid. |
2016 | 2015 | |||
Total liability / stock holders' qeuity | ||||
Total Liability | 46,200 | 46,207 | ||
stock holders' qeuity | 1,511 | 3,097 | ||
30.58 | 14.92 | |||
Total debt / equity | ||||
Total debt | 14,282 | 14,305 | ||
equity | 289 | 303 | ||
49.42 | 47.21 | |||
The total liabilities-to-equity ratio has increased while the total debt-to-equity ratio has decreased in the period from 2015 to 2016, which suggests the company has increased the use of short-term debt financing. |
2016 | 2015 | ||
Times interest earned = | Earnings before Interest & tax / interest expense | ||
EBIT | 5,549 | 4,712 | |
Interest expense | 663 | 443 | |
8.37 | 10.64 | ||
cash from operations / total debt | |||
cash from operations | 5,189 | 5,101 | |
total debt | 14,282 | 14,305 | |
0.36 | 0.36 | ||
free operating cash flow / total debt | |||
free operating cash flow | operating cash flow - caper | ||
5189-1063 | 5101-939 | ||
free operating cash flow | 4,126 | 4,162 | |
Total debt | 14,282 | 14,305 | |
0.29 | 0.29 | ||
Answeryesno Lockheed Martin's times interest earned decreased during 2016, due an increase in interest expense. |
Answeryesno Lockheed Martin's cash from operations to total debt ratio slightly increased over the year 2016 due to a decrease in total debt. |
Lockheed Martin's times interest earned ratio is strong, thus lessening any immediate solvency concerns. The company's ability to meet its debt requirements will depend on its continued profitability.
Compute and Interpret Liquidity, Solvency and Coverage Ratios Balance sheets and income statements for Lockheed Martin...
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