Suppose you have been presented with selected information taken from the financi
ID: 2454953 • Letter: S
Question
Suppose you have been presented with selected information taken from the financial statements of Southwest Airlines Co. shown below.
Southwest Airlines Co.
Balance Sheet (partial)
December 31 (in millions)
$109
Note 8. Leases:
The majority of the Company's terminal operations space, as well as 82 aircraft were under operating leases at December 31, 2014. Future minimum lease payments under noncancelable operating leases as follows: 2015, $367,000; 2016, $324,000; 2017, $249,000; 2018, $208,000; 2019, $152,000; after 2020, $728,000.
(a) Calculate each of the following ratios for 2014 and 2013.
1. Current ratio (Round to 2 decimal places, e.g. 6.25:1.)
2. Free cash flow (Enter negative amounts using either a negative sign preceding the number -45 or parenthesis e.g. (45).)
3. Debt to assets ratio (Round to 0 decimal places, e.g. 62%.)
4. Time interest earned (Round to 2 decimal places, e.g. 6.25.)
2014 2013 Total current assets $2,782 $4,025 Noncurrent assets 11,396 12,542 Total assets $14,178 $16,567 Current liabilities $2,827 $4,595 Long-term liabilities 6,631 5,487 Total liabilities 9,458 10,082 Shareholders' equity 4,720 6,485 Total liabilities and shareholders' equity $14,178 $16,567 Other information 2014 2013 Net income (loss) $180 $648 Income tax expense$109
390 Interest expense 129 116 Cash provided by operations (1,553) 2,780 Capital expenditures 901 1,328 Cash dividends 13 20Explanation / Answer
1
Calculation of Current ratio:
2014
2013
Total current assets (A)
$ 2,782
$ 4,025
Current liabilities (B)
$ 2,827
$ 4,595
Current Ratio (A/B)
0.98
0.88
2
Calculation of Free cash flow :
2014
2013
Cash provided by operations
$ (1,553)
$ 2,780
Capital expenditures
$ (901)
$ (1,328)
Calculation of Free cash flow
$ (2,454)
$ 1,452
3
Calculation of Debt to assets ratio:
2014
2013
Total liabilities (A)
$ 9,458
$ 10,082
Total assets (B)
$ 14,178
$ 16,567
Debt to assets ratio = A/B
67%
61%
4
Calculation of Time interest earned:
2014
2013
Net income (loss)
$ 180
$ 648
Add: Income tax expense
$ 109
$ 390
Add: Interest expense
$ 129
$ 116
Earnings before interest and tax (A)
$ 418
$ 1,154
Interest expense (B)
$ 129
$ 116
Time interest earned = A/B
3.24
9.95
1
Calculation of Current ratio:
2014
2013
Total current assets (A)
$ 2,782
$ 4,025
Current liabilities (B)
$ 2,827
$ 4,595
Current Ratio (A/B)
0.98
0.88
2
Calculation of Free cash flow :
2014
2013
Cash provided by operations
$ (1,553)
$ 2,780
Capital expenditures
$ (901)
$ (1,328)
Calculation of Free cash flow
$ (2,454)
$ 1,452
3
Calculation of Debt to assets ratio:
2014
2013
Total liabilities (A)
$ 9,458
$ 10,082
Total assets (B)
$ 14,178
$ 16,567
Debt to assets ratio = A/B
67%
61%
4
Calculation of Time interest earned:
2014
2013
Net income (loss)
$ 180
$ 648
Add: Income tax expense
$ 109
$ 390
Add: Interest expense
$ 129
$ 116
Earnings before interest and tax (A)
$ 418
$ 1,154
Interest expense (B)
$ 129
$ 116
Time interest earned = A/B
3.24
9.95
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