Compute and Interpret Liquidity, Solvency and Coverage Ratios Selected balance sheet and income statement information fo

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Compute and Interpret Liquidity, Solvency and Coverage
Ratios
Selected balance sheet and income statement information for Calpine
Corporation for 2004 and 2006 follows.
(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?
a) 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.
b) 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.
c) 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.
d) 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.