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)	2012	2011	2010
Net sales
Products	$ 37,817	$ 36,925	$ 36,380
Services	9,365	9,574	9,291
Total net sales	47,182	46,499	45,671
Cost of sales
Products	(33,495)	(32,968)	(32,539)
Services	(8,383)	(8,514)	(8,382)
Severance and other charges	(48)	(136)	(220)
Other unallocated costs	(1,060)	(1,137)	(686)
Total cost of sales	(42,986)	(42,755)	(41,827)
Gross Profit	4,196	3,744	3,844
Other income, net	238	276	261
Operating profit	4,434	4,020	4,105
Interest expense	(383)	(354)	(345)
Other non-operating income (expense), net	21	(35)	18
Earnings before taxes	4,072	3,631	3,778
Income tax expense	(1,327)	(964)	(1,164)
Net earnings from continuing operations	2,745	2,667	2,614
Net (loss) earnings from discontinued operations	--	(12)	264
Net earnings	$ 2,745	$ 2,655	$ 2,878

Consolidated Balance Sheets
December 31 (in millions, except par value)	2012	2011
Assets
Current Assets
Cash and cash equivalents	$ 1,898	$ 3,582
Receivables, net	6,563	6,064
Inventories, net	2,937	2,481
Deferred income taxes	1,269	1,339
Other current assets	1,188	628
Total current assets	13,855	14,094
Property, plant and equipment, net	4,675	4,611
Goodwill	10,370	10,148
Deferred income taxes	4,809	4,388
Other noncurrent assets	4,948	4,667
Total assets	$ 38,657	$ 37,908
Liabilities and stockholders' equity
Current Liabilities
Accounts payable	$ 2,038	$ 2,269
Customer advances and amounts in excess of costs incurred	6,503	6,399
Salaries, benefits and payroll taxes	1,649	1,664
Current maturities of long-term debt	150	--
Other current liabilities	1,815	1,798
Total current liabilities	12,155	12,130
Long-term debt	6,158	6,460
Accrued pension liabilities	15,278	13,502
Other post-retirement benefit liabilities	1,220	1,274
Other noncurrent liabilities	3,807	3,541
Total Liabilities	38,618	36,907
Stockholders' equity
Common stock, $1 par value per share	321	321
Additional paid-in capital	--	--
Retained earnings	13,211	11,937
Accumulated other comprehensive loss	(13,493)	(11,257)
Total stockholders' equity	39	1,001
Total liabilities and stockholders' equity	$ 38,657	$ 37,908

Consolidated Statement of Cash Flows
Year Ended December 31 (in millions)	2012	2011	2010
Operating Activities
Net earnings	$ 2,745	$ 2,655	$ 2,878
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	988	1,008	480
Stock-based compensation	167	157	129
Deferred income taxes	930	(2)	467
Severance and other charges	48	136
Reduction in tax expense from resolution of certain tax matter	--	(89)	(258)
Tax expense related to Medicare Part D reimbursement	--	--	(94)
Net adjustments related to discontinued operations	--	(16)	330
Changes in operating assets and liabilities:
Receivables, net	(460)	(363)	3
Inventories, net	(422)	(74)	(207)
Accounts payable	(236)	609	(364)
Customer advances and amounts in excess of costs incurred	57	502	706
Post-retirement benefit plans	(1,883)	(393)	(1,027)
Income taxes	(535)	304	70
Other, net	162	(181)	21
Net cash provided by operating activities	1,561	4,253	3,801
Investing Activities
Capital expenditures	(942)	(987)	(1,074)
Acquisition of business/investments in affiliated	(304)	(649)	(148)
Net proceeds from sale of EIG	--	--	798
Net cash provided by (used for) short-term investment transactions	--	510	(171)
Other,net	24	313	22
Net cash used for investing activities	(1,222)	(813)	(573)
Financing Activities
Repurchases of common stock	(990)	(2,465)	(2,420)
Proceeds from stock option exercises	440	116	59
Dividends paid	(1,352)	(1,095)	(969)
Premium paid on debt exchange	(225)	--	--
Issuance of long-term debt, net of related costs	--	1,980	--
Repayments of long-term debt	--	(632)	--
Other, net	(104)	(23)	(28)
Net cash used for financing activities	(2,023)	(2,119)	(3,358)
Net change in cash and cash equivalents	(1,684)	1,321	(130)
Cash and cash equivalents at beginning of year	3,582	2,261	2,391
Cash and cash equivalents at end of year	$ 1,898	$ 3,582	$ 2,261

(a) Compute Lockheed Martin's current ratio and quick ratio for 2012 and 2011. (Round your answers to two decimal places.) 2012 current ratio = Answer 2011 current ratio = Answer 2012 quick ratio = Answer 2011 quick ratio = Answer Which of the following best describes the company's current ratio and quick ratio for 2012 and 2011?

The current ratio has increased while the quick ratio has decreased in the period from 2011 to 2012, which suggests the company has a shortage of liquid assets.

Both the current and quick ratios have slightly decreased from 2011 to 2012 however, the company is fairly liquid.

Both the current and quick ratios have slightly increased from 2011 to 2012, meaning the company is fairly liquid.

The current ratio has decreased while the quick ratio has increased from 2011 to 2012, which suggests the company has a shortage of current assets.

(b) Compute total liabilities-to-equity ratios and total debt-to-equity ratios for 2012 and 2011. (Round your answers to two decimal places.) 2012 total liabilities-to-stockholders' equity = Answer 2011 total liabilities-to-stockholders' equity = Answer 2012 total debt-to-equity = Answer 2011 total debt-to-equity = Answer Which of the following best describes the company's total liabilities-to-equity ratios and total debt-to-equity ratios for 2012 and 2011?

The total liabilities-to-equity ratio has decreased while the total debt-to-equity ratio has increased in the period from 2011 to 2012, 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 2011 to 2012, 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 2011 to 2012. These increases suggest that the company is less solvent.

Both the total liabilities-to-equity and total debt-to-equity ratios have decreased from 2011 to 2012. 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.) 2012 times interest earned = Answer 2011 times interest earned = Answer 2012 cash from operations to total debt = Answer 2011 cash from operations to total debt = Answer 2012 free operating cash flow to total debt = Answer 2011 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 2012 and 2011? (Select all that apply) Answeryesno Lockheed Martin's free operating cash flow to total debt ratio decreased over the year 2012 due to decreased cash flow from operations. Answeryesno Lockheed Martin's times interest earned decreased during 2012, due to both a decrease in profitability and an increase in interest expense. Answeryesno Lockheed Martin's cash from operations to total debt ratio decreased over the year 2012 due to decreased cash flow from operations. Answeryesno Lockheed Martin's times interest earned increased during 2012, due to both 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 very 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 very 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 high, 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.