In: Finance
Compute the Z-score
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) | |
Severance charges | 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 |
As of December 31, there were the approximate shares
outstanding:
2016 - 289 million
2015 - 303 million
As of December 31, the company's stock closed at the following
values:
2016 - $249.94
2015 - $219.80
(a) Compute and compare the Altman Z-scores for both years. (Do
not round until your final answer; then round your answers to two
decimal places.)
2016 Z-score = Answer
2015 Z-score = Answer
Altman Z-score formula (Source: Wikipedia)
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5. |
X1 = working capital / total assets. Measures liquid assets in relation to the size of the company. |
X2 = retained earnings / total assets. Measures profitability that reflects the company's age and earning power. |
X3 = earnings before interest and taxes / total assets. Measures operating efficiency apart from tax and leveraging factors. It recognizes operating earnings as being important to long-term viability. |
X4 = market value of equity / book value of total liabilities. Adds market dimension that can show up security price fluctuation as a possible red flag. |
X5 = sales / total assets. Standard measure for total asset turnover (varies greatly from industry to industry). |
2016 | 2015 | |
Total Assets | $47,806 | $49,304 |
Working Capital | $2,566 | $655 |
Retained Earnings | 13,324 | 14,238 |
EBIT | 5,549 | 4,712 |
MV Equity | 72233 | 66599 |
BV Total Liabilities | 46,200 | 46,207 |
Sales | 47,248 | 40,536 |
2016 | 2015 | |
X1 | 0.05 | 0.01 |
X2 | 0.28 | 0.29 |
X3 | 0.12 | 0.10 |
X4 | 1.56 | 1.44 |
X5 | 0.99 | 0.82 |
Substituting the values in the formulas for Z-Score
Z-Score for 2016 = 2.76
Z-Score for 2015 = 2.42