Chesapeake's operations are focused on "developmental drilling and producing property acquisitions." These operations are "concentrated in three major areas: the Mid-continent, the onshore Gulf of Mexico and far northeastern British Columbia, Canada" [Chesapeake Annual Report, 1998, p. 1].

Aubrey K. McClendon is Chesapeake's Chairman of the Board, Chief Executive Officer and Director. Tom L. Ward is the President, Chief Operating Officer and Director. "McClendon met cofounder Tom Ward in the 1980's. Both were independent oil producers; they teamed up in 1983" [Morgenson, p. 2]. They each have more than 16 years of experience in the oil and natural gas industry. All other members of

Keown, Arthur J., David F. Scott, Jr., John D. Martin and J. William Petty, Basic Financial Management (7th Edition), Prentice Hall, 1996.

The acid test ratios are as follows: .94 (June 96), 2.00 (June 97), 1.37 (December 97), and .81 (December 98). As previously mentioned, current liabilities remained constant. Net accounts receivable remained flat as a percentage of total assets: 9% in 1996, 7% in 1997 (Both June & December), and 9% in 1998. Marketable securities were sold off during the past three years, decreasing from 11% ($104 million) of total assets to zero. Cash decreased from 13% ($124 million) of total assets in 1997 (both June & December) to 4% in 1998. The combination of severe decreases in both cash and marketable securities are the reasons that the acid test ratio decreased so dramatically.

The firm's ability to meet its obligations with cash, as they come due, is approximated by the cash flow liquidity ratio. As previously mentioned, solvency improved and then deteriorated as indicated by the current and quick ratios. The trends are confirmed when looking at cash flow. From 1995 to 1997, Chesapeake's cash flow liquidity improved from 1.47 to 1.8. 1997 to 1998 showed a large drop in liquidity from 1.8 to 0.95. The company's financial statement data gives an indication as to why.

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