Homework answers / question archive / Compute and Interpret Liquidity, Solvency and Coverage Ratios Selected balance sheet and income statement information for Calpine Corporation for 2004 and 2006 follows

Compute and Interpret Liquidity, Solvency and Coverage Ratios Selected balance sheet and income statement information for Calpine Corporation for 2004 and 2006 follows

Finance

Share With

---

Compute and Interpret Liquidity, Solvency and Coverage Ratios Selected balance sheet and income statement information for Calpine Corporation for 2004 and 2006 follows.

($ millions) 2004 2006

Cash $ 1,376.73 $ 1,503.36

Accounts receivable 1,097.16 735.30

Current assets 3,563.56 3,168.33

Current liabilities 3,285.39 6,057.95

Long-term debt 16,940.81 3,351.63

Short-term debt 1,033.96 4,568.83

Total liabilities 22,628.42 25,743.17

Interest expense 1,516.90 1,288.29

Capital expenditures 1,545.48 211.50

Equity 4,587.67 (7,152.90)

Cash from operations 9.89 155.98

Earnings before interest and taxes 1,589.84 1,877.84

(a) Compute the following liquidity, solvency and coverage ratios for both years. (Round your answers to two decimal places.)

2006 current ratio = Answer

 

2004 current ratio = Answer

 

 

2006 quick ratio = Answer

 

2004 quick ratio = Answer

 

 

2006 liabilities-to-equity = Answer

 

2004 liabilities-to-equity = Answer

 

 

2006 total debt-to-equity = Answer

 

2004 total debt-to-equity = Answer

 

 

2006 times interest earned = Answer

 

2004 times interest earned = Answer

 

 

2006 cash from operations to total debt = Answer

 

2004 cash from operations to total debt = Answer

 

 

2006 free operating cash flow to total debt = Answer

 

2004 free operating cash flow to total debt = Answer

 

 

(b) Which of the following best describes the company's credit risk?

Both the quick ratio and current ratio for 2006 are lower than 1.0 and have increased in the past two years. Along with interest coverage ratios that are exceedingly high, the probability that the company will face default has significantly increased.

Both the quick ratio and current ratio for 2006 are lower than 1.0 and have decreased in the past two years. Along with interest coverage ratios that are exceedingly low, the probability that the company will face default has significantly increased.

Both the quick ratio and current ratio for 2006 are above 1.0 and have decreased in the past two years. Along with interest coverage ratios that are exceedingly low, the probability that the company will face default has significantly decreased.

Both the quick ratio and current ratio for 2006 are above 1.0 and have increased in the past two years. Along with interest coverage ratios that are exceedingly high, the probability that the company will face default has significantly decreased.