You have been presented with selected information taken from the financial statements of Southwest Airlines Co., shown on the next page.
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SOUTHWEST AIRLINES CO. |
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2008 |
2007 |
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Total current assets |
$ 2,893 |
$ 4,443 |
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Noncurrent assets |
11,415 |
12,329 |
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Total assets |
$14,308 |
$16,772 |
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Current liabilities |
$ 2,806 |
$ 4,836 |
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Long-term liabilities |
6,549 |
4,995 |
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Total liabilities |
9,355 |
9,831 |
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Shareholders” equity |
4,953 |
6,941 |
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Total liabilities and shareholders” equity |
$14,308 |
$16,772 |
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Other information: |
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Net income (loss) |
2008 |
2007 |
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Income tax expense |
$ 178 |
$ 645 |
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Interest expense |
100 |
413 |
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Cash provided by operations |
130 |
119 |
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Capital expenditures |
(1,521) |
2,845 |
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Cash dividends |
923 |
1,331 |
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13 |
14 |
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Note 8. Leases
The majority of the Company”s terminal operations space, as well as 82 aircraft, were under operating leases at December 31, 2008. Future minimum lease payments under noncancelable operating leases are as follows: 2009, $376,000; 2010, $324,000; 2011, $249,000; 2012, $208,000; 2013, $152,000; after 2013, $728,000.
Instructions
(a) Calculate each of the following ratios for 2008 and 2007.
(1) Current ratio.
(2) Free cash flow.
(3) Debt to total assets.
(4) Times interest earned ratio.
(b) Comment on the trend in ratios.
(c) Read the company”s note on leases. If the operating leases had instead been accounted for like a purchase, assets and liabilities would increase by approximately $1,600 million. Recalculate the debt to total assets ratio for 2008 in light of this information, and discuss the implictions for analysis