Assignment: You have been presented with the following selected information taken from the financial statements of Southwest Airlines Co.
SOUTHWEST AIRLINES CO.
Balance Sheet (partial)
December 31
(in millions)
|
|
2004
|
2003
|
|
Total current assets
|
$ 2,172
|
$ 2,313
|
|
Noncurrent assets
|
9,165
|
7,565
|
|
Total assets
|
$ 11,337
|
$ 9,878
|
|
|
|
|
|
Current liabilities
|
$ 2,142
|
$ 1,723
|
|
Long-term liabilities
|
3,671
|
3,103
|
|
Total liabilities
|
5,813
|
4,826
|
|
Shareholders' equity
|
5,524
|
5,052
|
|
Total liabilities and shareholders' equity
|
$ 11,337
|
$ 9,878
|
|
Other information:
|
|
|
2004
|
2003
|
|
Net income (loss)
|
$ 313
|
$ 442
|
|
Income tax expense
|
176
|
266
|
|
Interest expense
|
88
|
91
|
|
Cash provided by operations
|
1,157
|
1,336
|
|
Capital expenditures
|
1,775
|
1,238
|
|
Cash dividends
|
14
|
14
|
The majority of the Company’s terminal operations space, as well as 88 aircraft, were under operating leases at December 31, 2004. Future minimum lease payments under non-cancelable operating leases are as follows: 2005, $343,000; 2006, $279,000; 2007, $256,000; 2008, $226,000; 2009, $204,000; after 2009, $1,369,000.
Instructions:
a. Calculate each of the following ratios for 2004 and 2003.
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, asset and liabilities would increase by approximately $1,500 million. Recalculate the debt to total assets ratio for 2004 in light of this information, and discuss the implictions for analysis.