Operating Activities Consolidated Statement of Cash Flows Year Ended December 31 (In millions) 2005 2004 2003 Net earnings $ 1,825 $1,266 $1,053 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 555 511 480 Amortization of purchased intangibles 150 145 129 Deferred federal income taxes 24 (58) 467 Changes in operating assets and liabilities: Receivables (390) (87) (258) Inventories (39) 519 (94) Accounts payable 239 288 330 Customer advances and amounts in excess of costs incurred 296 (228) (285) Other 534 568 (13) Net cash provided by operating activities 3,194 2,924 1,809 Investing Activities Expenditures for property, plant and equipment (865) (769) (687) Acquisition of business/investments in affiliated companies (244) (91) (821) Proceeds from divestiture of businesses/Investments in affiliated companies 935 279 234 Purchase of short-term investments, net (33) (156) (240) Other Net cash used for investing activities 28 (179) 29 (708) (1,461) 53 Financing Activities repayment of long-term debt Issuances of long-term debt Long-term debt repayment and issuance costs Issuances of common stock Repurchases of common stock Common stock dividends Net cash used for financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (253) (1,049) (2,202) 1,000 (12) (163) (175) 406 164 44 (1,310) (673) (482) (462) (405) (261) (1,631) (2,126) (2,076) 1,384 90 (1,728) 1,100 1,010 2,738 $2,484 $1,100 $1,010 (a) Compute Lockheed Martin's current ratio and quick ratio for 2005 and 2004. (Round your answers to two decimal places.) 2005 current ratio = 2004 current ratio = 2005 quick ratio = 2004 quick ratio = Which of the following best describes the company's current ratio and quick ratio for 2005 and 2004? Both the current and quick ratios have increased from 2004 to 2005. The company is fairly liquid. OThe current ratio has increased while the quick ratio has decreased in the period from 2004 to 2005, which suggests the company has a shortage of liquid assets. OBoth the current and quick ratios have decreased from 2004 to 2005. The company is fairly illiquid. OThe current ratio has decreased while the quick ratio has increased in the period from 2004 to 2005, which suggests the company has a shortage of current assets. Income Statement Year Ended December 31 (In millions) Net sales Products Service 2005 2004 2003 $31,518 $30,202 $27,290 5,695 5,324 4,534 37,213 35,526 31,824 Cost of sales Products 27,892 27,667 25,306 Service 5,073 4,765 4,099 Unallocated coporate costs 803 914 443 33,768 33,346 29,848 3,445 2,180 1,976 Other income (expenses), net (449) (121) 43 Operating profit 2,996 2,059 2,019 Interest expense 370 425 487 Earnings before taxes 2,626 1,634 1,532 Income tax expense 801 368 479 Net earnings $ 1,825 $1,266 $1,053 Balance Sheet December 31 (In millions) Assets Cash and cash equivalents Short-term investments Receivables 2005 2004 $2,484 $1,100 429 396 4,579 4,094 Inventories 1,921 1,864 Deferred income taxes 861 982 Other current assets 495 557 Total current assets 10,769 8,993 Property, plant and equipment, net 3,924 3,599 Investments in equity securities 196 812 Goodwill 8,447 7,892 Purchased intangibles, net 560 672 Prepaid pension asset 1,360 1,030 Other assets 2,728 2,596 Total assets $27,984 $25,594 Liabilities and stockholders' equity Accounts payable $1,998 $1,726 Customer advances and amounts in excess of costs incurred 4,331 4,028 Salaries, benefits and payroll taxes 1,475 1,346 Current maturities of long-term debt 202 15 Other current liabilities 1,422 1,451 Total current liabilities 9,428 8,566 Long-term debt 4,784 5,224 Accrued pension liabilities 2,217 1,580 Other postretirement benefit liabilities 1,277 1,236 Other liabilities 2,411 1,967 Stockholders' equity Common stock, $1 par value per share 432 438 Additional paid-in capital 1,724 2,223 Retained earnings Accumulated other comprehensive loss Other Total stockholders' equity Total liabilities and stockholders' equity $27,984 $25,594 7,278 5,915 (1,553) (1,532) (14) (23) 7,867 7,021