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)
		2022			2021
Total current assets		$2,795			$4,450
Noncurrent assets		10,450			12,360
Total assets		$13,245			$16,810
Current liabilities		$2,795			$4,895
Long-term liabilities		6,495			4,990
Total liabilities		9,290			9,885
Shareholders’ equity		3,955			6,925
Total liabilities and shareholders’ equity		$13,245			$16,810
Other information:
		2022			2021
Net income (loss)		$ 175			$ 565
Income tax expense		110			365
Interest expense		125			105
Cash provided by operations		(1,435	)		2,710
Capital expenditures		900			1,445
Cash dividends		20			21

(a) Calculate each of the following ratios for 2022 and 2021.

				2022 2021 1. Current ratio (Round answers to 2 decimal places, e.g. 6.25:1.) enter current ratio rounded to 2 decimal places :1enter current ratio rounded to 2 decimal places :1 2. Free cash flow (Enter negative amounts using either a negative sign preceding the number -45 or parenthesis e.g. (45).) $enter a dollar amount $enter a dollar amount 3. Debt to assets ratio (Round answers to 0 decimal places, e.g. 62%.) enter percentages rounded to 0 decimal places %enter percentages rounded to 0 decimal places % 4. Times interest earned (Round answers to 2 decimal places, e.g. 6.25.) enter times interest earned rounded to 2 decimal places timesenter times interest earned rounded to 2 decimal places times

Answer 1

Calculate following

	Formula	2022	2021
Current ratio	Current assets/Current liabilities	2795/2795 = 1	4450/4895 = 0.91
Free Cash flow	Net cash flow from operating activities-Capital expense-Dividend paid	-1435-900-20 = -2355	2710-1445-21 = 1244
Debt to asset ratio	Total liabilities/Total assets	9290/13245 = 70%	9885/16810 = 59%
Times interest earned ratio	Income before interest and tax/Interest expense	(175+110+125)/125 = 3.28	(565+365+105)/105 = 9.86