An investigation of Lockheed's solvency by use of financial ratios

Abstract

This thesis is an application of the methodology in studies by Beaver and one by Dascher to an analysis of the financially troubled Lockheed Aircraft Corporation. There three previous studies used financial ratios in attempting to predict failure. All three studies were performed with firms that had already failed. their results demonstrate that there is a significant difference in financial ratios of failed and non-failed firms. This difference is particularly obvious when observing the non-liquid asset ratios. This thesis attempts to determine Lockheed's solvency in 1971, when it claimed to be facing bankruptcy. The conclusion is that failure in 1971 was, indeed, quite probable. In addition, Lockheed's ratios are analyzed during 197101972, as the firm has stated that it faces a new crisis, though not nearly of the proportion of the 1971 disaster. These last two years will serve as a starting point for future ratio analyses of Lockheed.