Question

Computing and Interpreting Key Ratios

Assume the data presented below are from the financial statements of JetBlue and Southwest Airlines.

($ millions)	Jet Blue Airways	Southwest Airlines
Total Liabilities, 2013	$5,039	$9,526
Total Liabilities, 2012	5,003	8,815
Total Assets, 2013	6,593	15,463
Total Assets, 2012	6,549	14,269
Revenue, 2013	3,779	12,104
Net Income, 2013	197	559

Required
a. Compute the return on equity ratio for JetBlue and Southwest for 2013. (Round your answer to one decimal place.)

JetBlue Airways Answer%

Southwest Airlines Answer%

Which company earned the higher return for its shareholders?

AnswerSouthwest AirlinesJet Blue Airways

b. Compute the debt-to-equity ratio for each company as of December 31, 2013. (Round your answer to one decimal place.)

JetBlue Airways Answer

Southwest Airlines Answer

Which company relies more on creditor financing?

AnswerSouthwest AirlinesJet Blue Airways

c. For each firm, compute net income as a percentage of revenue in 2013. (Round your answer to one decimal place.)

JetBlue Airways Answer%

Southwest Airlines Answer%

Answer 1

				Jet Blue Airways		Southwest Airlines
a		Total Assets, 2013		$                             6,593		15463
b		Total Liabilities, 2013		$                             5,039		9526
c		Total Stockholders' equity, 2013	a-b	$                             1,554		$                                5,937
d		Total Assets, 2012		$                             6,549		14269
e		Total Liabilities, 2012		$                             5,003		8815
f		Total Stockholders' equity, 2012	d-e	$                             1,546		$                                5,454
g		Average Stockholders' equity	(c+f)/2	$                             1,550		$                                5,696
h		Revenue, 2013		$                             3,779		12104
i		Net Income, 2013		$                                197		559
(a)		Return on equity ratio
Company		Choose Numerator	/	Choose Denominator	=	Return on equity ratio
		Net Income	/	Average Stockholders' equity	=	Return on equity ratio
Jet Blue Airways		$                                         197	/	$                            1,550	=	12.7%
Southwest Airlines		$                                         559		$                            5,696	=	9.8%
		Which company earned the higher return for its shareholders?
Ans		Jet Blue Airways
		Because Jet Blue Airways has better return on equity than Southwest Airlines.
(b)		Debt-to-equity Ratio for each company as of December 31, 2013
Company		Choose Numerator	/	Choose Denominator	=	Debt-to-equity Ratio
		Total Liabilities, 2013	/	Total Stockholders' equity, 2013	=	Debt-to-equity Ratio
Jet Blue Airways		$                                      5,039	/	$                            1,554	=	3.2
Southwest Airlines		$                                      9,526	/	$                            5,937	=	1.6
		Which company relies more on creditor financing?
Ans		Jet Blue Airways
		Because Jet Blue Airways has higher debt to equity ratio.
(c)		Net income as a percentage of revenue in 2013
Company		Choose Numerator	/	Choose Denominator	=	Net income as a percentage of revenue
		Net Income, 2013	/	Revenue, 2013	=	Net income as a percentage of revenue
Jet Blue Airways		$                                         197	/	$                            3,779	=	5.21%
Southwest Airlines		$                                         559	/	$                          12,104	=	4.62%

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