Question

List the Ratios for 2016 and 2017- for the companies LOCKHEED MARTIN AND RAYTHEON!

Total Asset Turnover:

Average Collection Period:

After finding the ratios, Comment on what the numbers show and how both companies compare and contrast.

Answer 1

Total assets turnover ratio is calculate as:

Where average total assets is the average of previous and current year's total asset figures. This ratio gives a sense of how well a company is able to use its assets to earn revenues out of them.

Average collection period ratio is calculated as:

Where average accounts receivables is the average of previous and current year's account receivable figures. Please note that credit sales give a more accurate value of average collection period. But if credit sales are not given in company financials, net sales can also be used. This ratio tells us how much time or days, the company takes to convert its account receivables into cash.

Calculation for Lockheed Martin:

Calculations for Raytheon:

From the above ratios, it can be observed that Lockheed is better in terms of asset turnover meaning that it is more efficient in using its assets. Whereas, Raytheon fairs a lot better in terms of converting its account receivables into cash. Raytheon takes about 17 days to do so which is in contrast to Lockheed's 60 days.