ompute 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 761 368 479 Net earnings $ 1,825 $ 1,296 $ 1,053 Balance Sheet December 31 (In millions) 2005 2004 Assets Cash and cash equivalents $ 2,124 $ 1,080 Short-term investments 429 396 Receivables 4,579 4,094 Inventories 1,921 1,864 Deferred income taxes 861 982 Other current assets 495 557 Total current assets 10,409 8,973 Property, plant and equipment, net 3,924 3,599 Investments in equity securities 196 812 Goodwill 8,447 7,892 Purchased intangibles, net 560 672 Prepaid pension asset 1,360 1,030 Other assets 2,728 2,596 Total assets $ 27,624 $ 25,574 Liabilities and stockholders' equity Accounts payable $ 1,998 $ 1,726 Customer advances and amounts in excess of costs incurred 4,331 4,028 Salaries, benefits and payroll taxes 1,475 1,346 Current maturities of long-term debt 202 15 Other current liabilities 1,422 1,451 Total current liabilities 9,428 8,566 Long-term debt 4,944 5,184 Accrued pension liabilities 1,617 1,760 Other postretirement benefit liabilities 1,277 1,236 Other liabilities 2,491 1,807 Stockholders' equity Common stock, $1 par value per share 432 438 Additional paid-in capital 1,724 2,223 Retained earnings 7,278 5,915 Accumulated other comprehensive loss (1,553) (1,532) Other (14) (23) Total stockholders' equity 7,867 7,021 Total liabilities and stockholders' equity $ 27,624 $ 25,574 Consolidated Statement of Cash Flows Year Ended December 31 (In millions) 2005 2004 2003 Operating Activities Net earnings $ 1,825 $ 1,266 $ 1,053 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 555 511 480 Amortization of purchased intangibles 150 145 129 Deferred federal income taxes 24 (58) 467 Changes in operating assets and liabilities: Receivables (390) (87) (258) Inventories (39) 519 (94) Accounts payable 239 288 330 Customer advances and amounts in excess of costs incurred 296 (228) (285) Other 534 568 (13) Net cash provided by operating activities 3,194 2,924 1,809 Investing Activities Expenditures for property, plant and equipment (865) (769) (687) Acquisition of business/investments in affiliated companies (784) (91) (821) Proceeds from divestiture of businesses/Investments in affiliated companies 935 279 234 Purchase of short-term investments, net (33) (156) (240) Other 28 29 53 Net cash used for investing activities (719) (708) (1,461) Financing Activities repayment of long-term debt (53) (1,069) (2,202) Issuances of long-term debt -- -- 1,000 Long-term debt repayment and issuance costs (12) (163) (175) Issuances of common stock 406 164 44 Repurchases of common stock (1,310) (673) (482) Common stock dividends (462) (405) (261) Net cash used for financing activities (1,431) (2,146) (2,076) Net increase (decrease) in cash and cash equivalents 1,044 70 (1,728) Cash and cash equivalents at beginning of year 1,080 1,010 2,738 Cash and cash equivalents at end of year $ 2,124 $ 1,080 $ 1,010 (a) Compute Lockheed Martin's current ratio and quick ratio for 2005 and 2004. (Round your answers to two decimal places.) 2005 current ratio = Answer 2004 current ratio = Answer 2005 quick ratio = Answer 2004 quick ratio = Answer Which of the following best describes the company's current ratio and quick ratio for 2005 and 2004? The current ratio has increased while the quick ratio has decreased in the period from 2004 to 2005, which suggests the company has a shortage of liquid assets. Both the current and quick ratios have increased from 2004 to 2005. The company is fairly liquid. Both the current and quick ratios have decreased from 2004 to 2005. The company is fairly illiquid. The current ratio has decreased while the quick ratio has increased in the period from 2004 to 2005, which suggests the company has a shortage of current assets. ( (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.) 2005 times interest earned = Answer 2004 times interest earned = Answer 2005 cash from operations to total debt = Answer 2004 cash from operations to total debt = Answer 2005 free operating cash flow to total debt = Answer

ompute 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 761 368 479 Net earnings $ 1,825 $ 1,296 $ 1,053 Balance Sheet December 31 (In millions) 2005 2004 Assets Cash and cash equivalents $ 2,124 $ 1,080 Short-term investments 429 396 Receivables 4,579 4,094 Inventories 1,921 1,864 Deferred income taxes 861 982 Other current assets 495 557 Total current assets 10,409 8,973 Property, plant and equipment, net 3,924 3,599 Investments in equity securities 196 812 Goodwill 8,447 7,892 Purchased intangibles, net 560 672 Prepaid pension asset 1,360 1,030 Other assets 2,728 2,596 Total assets $ 27,624 $ 25,574 Liabilities and stockholders' equity Accounts payable $ 1,998 $ 1,726 Customer advances and amounts in excess of costs incurred 4,331 4,028 Salaries, benefits and payroll taxes 1,475 1,346 Current maturities of long-term debt 202 15 Other current liabilities 1,422 1,451 Total current liabilities 9,428 8,566 Long-term debt 4,944 5,184 Accrued pension liabilities 1,617 1,760 Other postretirement benefit liabilities 1,277 1,236 Other liabilities 2,491 1,807 Stockholders' equity Common stock, $1 par value per share 432 438 Additional paid-in capital 1,724 2,223 Retained earnings 7,278 5,915 Accumulated other comprehensive loss (1,553) (1,532) Other (14) (23) Total stockholders' equity 7,867 7,021 Total liabilities and stockholders' equity $ 27,624 $ 25,574 Consolidated Statement of Cash Flows Year Ended December 31 (In millions) 2005 2004 2003 Operating Activities Net earnings $ 1,825 $ 1,266 $ 1,053 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 555 511 480 Amortization of purchased intangibles 150 145 129 Deferred federal income taxes 24 (58) 467 Changes in operating assets and liabilities: Receivables (390) (87) (258) Inventories (39) 519 (94) Accounts payable 239 288 330 Customer advances and amounts in excess of costs incurred 296 (228) (285) Other 534 568 (13) Net cash provided by operating activities 3,194 2,924 1,809 Investing Activities Expenditures for property, plant and equipment (865) (769) (687) Acquisition of business/investments in affiliated companies (784) (91) (821) Proceeds from divestiture of businesses/Investments in affiliated companies 935 279 234 Purchase of short-term investments, net (33) (156) (240) Other 28 29 53 Net cash used for investing activities (719) (708) (1,461) Financing Activities repayment of long-term debt (53) (1,069) (2,202) Issuances of long-term debt -- -- 1,000 Long-term debt repayment and issuance costs (12) (163) (175) Issuances of common stock 406 164 44 Repurchases of common stock (1,310) (673) (482) Common stock dividends (462) (405) (261) Net cash used for financing activities (1,431) (2,146) (2,076) Net increase (decrease) in cash and cash equivalents 1,044 70 (1,728) Cash and cash equivalents at beginning of year 1,080 1,010 2,738 Cash and cash equivalents at end of year $ 2,124 $ 1,080 $ 1,010 (a) Compute Lockheed Martin's current ratio and quick ratio for 2005 and 2004. (Round your answers to two decimal places.) 2005 current ratio = Answer 2004 current ratio = Answer 2005 quick ratio = Answer 2004 quick ratio = Answer Which of the following best describes the company's current ratio and quick ratio for 2005 and 2004? The current ratio has increased while the quick ratio has decreased in the period from 2004 to 2005, which suggests the company has a shortage of liquid assets. Both the current and quick ratios have increased from 2004 to 2005. The company is fairly liquid. Both the current and quick ratios have decreased from 2004 to 2005. The company is fairly illiquid. The current ratio has decreased while the quick ratio has increased in the period from 2004 to 2005, which suggests the company has a shortage of current assets. ( (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.) 2005 times interest earned = Answer 2004 times interest earned = Answer 2005 cash from operations to total debt = Answer 2004 cash from operations to total debt = Answer 2005 free operating cash flow to total debt = Answer

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter9: Metric-analysis Of Financial Statements

Section: Chapter Questions

Problem 9.4.16P: Twenty metrics of liquidity, solvency, and profitability The comparative financial statements of...

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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	761	368	479
Net earnings	$ 1,825	$ 1,296	$ 1,053

Balance Sheet
December 31 (In millions)	2005	2004
Assets
Cash and cash equivalents	$ 2,124	$ 1,080
Short-term investments	429	396
Receivables	4,579	4,094
Inventories	1,921	1,864
Deferred income taxes	861	982
Other current assets	495	557
Total current assets	10,409	8,973
Property, plant and equipment, net	3,924	3,599
Investments in equity securities	196	812
Goodwill	8,447	7,892
Purchased intangibles, net	560	672
Prepaid pension asset	1,360	1,030
Other assets	2,728	2,596
Total assets	$ 27,624	$ 25,574
Liabilities and stockholders' equity
Accounts payable	$ 1,998	$ 1,726
Customer advances and amounts in excess of costs incurred	4,331	4,028
Salaries, benefits and payroll taxes	1,475	1,346
Current maturities of long-term debt	202	15
Other current liabilities	1,422	1,451
Total current liabilities	9,428	8,566
Long-term debt	4,944	5,184
Accrued pension liabilities	1,617	1,760
Other postretirement benefit liabilities	1,277	1,236
Other liabilities	2,491	1,807
Stockholders' equity
Common stock, $1 par value per share	432	438
Additional paid-in capital	1,724	2,223
Retained earnings	7,278	5,915
Accumulated other comprehensive loss	(1,553)	(1,532)
Other	(14)	(23)
Total stockholders' equity	7,867	7,021
Total liabilities and stockholders' equity	$ 27,624	$ 25,574

Consolidated Statement of Cash Flows
Year Ended December 31 (In millions)	2005	2004	2003
Operating Activities
Net earnings	$ 1,825	$ 1,266	$ 1,053
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	555	511	480
Amortization of purchased intangibles	150	145	129
Deferred federal income taxes	24	(58)	467
Changes in operating assets and liabilities:
Receivables	(390)	(87)	(258)
Inventories	(39)	519	(94)
Accounts payable	239	288	330
Customer advances and amounts in excess of costs incurred	296	(228)	(285)
Other	534	568	(13)
Net cash provided by operating activities	3,194	2,924	1,809
Investing Activities
Expenditures for property, plant and equipment	(865)	(769)	(687)
Acquisition of business/investments in affiliated companies	(784)	(91)	(821)
Proceeds from divestiture of businesses/Investments in affiliated companies	935	279	234
Purchase of short-term investments, net	(33)	(156)	(240)
Other	28	29	53
Net cash used for investing activities	(719)	(708)	(1,461)
Financing Activities
repayment of long-term debt	(53)	(1,069)	(2,202)
Issuances of long-term debt	--	--	1,000
Long-term debt repayment and issuance costs	(12)	(163)	(175)
Issuances of common stock	406	164	44
Repurchases of common stock	(1,310)	(673)	(482)
Common stock dividends	(462)	(405)	(261)
Net cash used for financing activities	(1,431)	(2,146)	(2,076)
Net increase (decrease) in cash and cash equivalents	1,044	70	(1,728)
Cash and cash equivalents at beginning of year	1,080	1,010	2,738
Cash and cash equivalents at end of year	$ 2,124	$ 1,080	$ 1,010

(a) Compute Lockheed Martin's current ratio and quick ratio for 2005 and 2004. (Round your answers to two decimal places.)
2005 current ratio = Answer

2004 current ratio = Answer

2005 quick ratio = Answer

2004 quick ratio = Answer

Which of the following best describes the company's current ratio and quick ratio for 2005 and 2004?

The current ratio has increased while the quick ratio has decreased in the period from 2004 to 2005, which suggests the company has a shortage of liquid assets.

Both the current and quick ratios have increased from 2004 to 2005. The company is fairly liquid.

Both the current and quick ratios have decreased from 2004 to 2005. The company is fairly illiquid.

The current ratio has decreased while the quick ratio has increased in the period from 2004 to 2005, which suggests the company has a shortage of current assets.

(

(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.)
2005 times interest earned = Answer

2004 times interest earned = Answer

2005 cash from operations to total debt = Answer

2004 cash from operations to total debt = Answer

2005 free operating cash flow to total debt = Answer

2004 free operating cash flow to total debt = Answer

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