Compute and Interpret Liquidity and Solvency RatiosSelected balance sheet and income statement information fromVerizon...Compute...

70.2K

Verified Solution

Question

Accounting

Compute and Interpret Liquidity and Solvency Ratios
Selected balance sheet and income statement information from
Verizon Communications Inc. follows.
$ millions 2015 2014
Current assets . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . $?22,280 $?29,499
Current liabilities. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . 35,052 2 7,9 87
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 226,798 218,940
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . 17,84213,676
Earnings before interest and taxes . . . . . . . . . . . . . . .. . . . . . . . . . . . . 32,974 21,379
Interest expense, gross . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 4,920 4,915
Net cash flow from operating activities . . . . . . . . . . . .. . . . . . . . . . . . 38,930 30,631
A) Compute the current ratio for each year and discuss any trendin liquidity. What additional infor-
mation about the numbers used to calculate this ratio might beuseful in helping us assess liquidity?
Explain.
b. Compute times interest earned and the liabilities-to-equityfor each year and discuss any noticeable
change. (The average liabilities-to-equity ratio for thetelecommunications industry is 1.7.) Do you
have any concerns about Verizon’s financial leverage and thecompany’s ability to meet interest
obligations? Explain.
c. Verizon’s capital expenditures are expected to increasesubstantially as it seeks to respond to com-
petitive pressures to upgrade the quality of its communicationinfrastructure. Assess Verizon’s li-
quidity and solvency in light of this strategic direction.

Answer & Explanation Solved by verified expert

4.2 Ratings (921 Votes)

Answer to Part a Current Ratio Current Assets Current Liabilities Year 2014 Current Ratio 29499 27987 Current Ratio 105 1 Year 2015 Current Ratio 22280 35052 Current Ratio 064 1 Additional information which might be used 1 Industry Average Current See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: AccountingCompute and Interpret Liquidity and Solvency RatiosSelected balance sheet and income statement information fromVerizon...Compute and Interpret Liquidity and Solvency RatiosSelected balance sheet and income statement information fromVerizon Communications Inc. follows.$ millions 2015 2014Current assets . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . $?22,280 $?29,499Current liabilities. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . 35,052 2 7,9 87Total liabilities. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 226,798 218,940Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . 17,84213,676Earnings before interest and taxes . . . . . . . . . . . . . . .. . . . . . . . . . . . . 32,974 21,379Interest expense, gross . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 4,920 4,915Net cash flow from operating activities . . . . . . . . . . . .. . . . . . . . . . . . 38,930 30,631A) Compute the current ratio for each year and discuss any trendin liquidity. What additional infor-mation about the numbers used to calculate this ratio might beuseful in helping us assess liquidity?Explain.b. Compute times interest earned and the liabilities-to-equityfor each year and discuss any noticeablechange. (The average liabilities-to-equity ratio for thetelecommunications industry is 1.7.) Do youhave any concerns about Verizon’s financial leverage and thecompany’s ability to meet interestobligations? Explain.c. Verizon’s capital expenditures are expected to increasesubstantially as it seeks to respond to com-petitive pressures to upgrade the quality of its communicationinfrastructure. Assess Verizon’s li-quidity and solvency in light of this strategic direction.