DIRECTIONS: Summarize these notes

The Current Ratio measures a firm’s ability to pay off itsshort-term obligations. It is calculated as follows: Current Ratio= Current Assets/Current liabilities Ideally, current ratio of 2 isdesirable. Current ratio for both Lockheed Martin and Raytheon isless than 2. Moving from 2016 to 2017, the current ratio for boththe companies improves indicating increase in current assets ordecrease in current liabilities or both. For Lockheed Martin thecurrent ratio improves from 1.2 to 1.38 and for Raytheon it movesfrom 1.54 to 1.66. Between the two companies, Raytheon is betterplaced as it has higher current ratios in both 2016 and 2017. QuickRatio measures a firm's ability to meet current liabilities withits most liquid assets. It is calculated as: Quick Ratio = CurrentAssets excluding inventories/Current liabilities A quick ratioabove 1 is considered safe as liabilities can be safely paid backusing liquid assets. Raytheon's quick ratio in 2016 and 2017 is1.35 and 1.49. The company is well poised. Its quick ratio isimproving year to year. Quick ratio less than 1 indicates that thefirm cannot fully pay back its liabilities with its most liquidassets. Lockheed Martin has quick ratio of 0.80 and 0.91 in 2016and 2017. This is a worrisome situation for Lockheed Martin. Eventhough the quick ratio is improving, it is still less than 1.Raytheon is in a better position than Lockheed Martin as far asliquidity is concerned. From the above ratios, it can be observedthat Lockheed is better in terms of asset turnover meaning that itis more efficient in using its assets. Whereas, Raytheon fairs alot better in terms of converting its account receivables intocash. Raytheon takes about 17 days to do so which contrasts withLockheed's 60 days. Based on Net Profit Margin, Lockheed Martinperforms better than Raytheon as Lockheed Martin’s was 11.22%whereas Raytheon’s was just 7.98% only. Higher Net Profit Marginimplies that the firm generates more net profit from each dollarsales it makes. Based on Total Assets turnover, Lockheed Martinperforms better than Raytheon as Lockheed Martin’s was .98 whereasRaytheon was just .83. Higher total asset turnover implies that thefirm generates more revenue from each dollar asset it has investedin the firm. Based on equity multiplier, Equity multiplier does notalways explain about firm’s profitability. Instead, it explains theratio of total assets of the firm versus total equity for therespective period. Higher the ratio, lower the firm’s dependency onequity capital and vice-versa. Lockheed Martin’s equity multiplierof 21.03 implies that the firm depends very less on its equitycapital when compared to Raytheon.