Question

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2. Using the attached excerpts from Southwest Airlines Co’s 2019 Annual Report answer the following questions. In addition:

• All numbers are in $millions (except per share data).
• Provide calculations when necessary.

a. Long-term Assets

1. What is the net book value (NBV) of Southwest’s property, plant and equipment as of December 31, 2019?
2. What is the balance of Southwest’s accumulated depreciation account as of December 31, 2019?

b. Shares Issued and Outstanding

1. How many shares of Common Stock were authorized as of December 31, 2019? How many had been issued as of December 31, 2019?
2. Southwest also has repurchased some of its own shares of stock that had been previously issued (i.e. Treasury Stock). How many shares did Southwest hold as Treasury Stock as of December 31, 2019?
3. How many shares of Southwest’s Common Stock were outstanding as of December 31, 2019?

c. Common Stock

1. What is the par value of each share of common stock issued?
2. How much money in excess of the par value of the stock (i.e. Additional Paid in Capital, or APIC) had been contributed by shareholders as of the end of 2019 (hint: this is listed as Capital in Excess of Par Value on the balance sheet)?

d. Equity analysis:

1. What is Southwest’s Earnings Per Share (Basic) for the fiscal year ended 12/31/2019?
2. What is the Return on Equity (ROE) for Southwest for the fiscal year ended 12/31/2019?

(NOTE: when calculating average equity for the denominator of ROE, for the 12/31/2018 ending equity balance, use the ‘reported balance‘ number, $9,853 million. Average that amount with the 12/31/2019 ending equity balance to calculate average equity for the period)

December 31, 2018 $ 1,854 1,835 568 461 310 5,028 Southwest Airlines Co. Consolidated Balance Sheet (in millions, except share data) December 31, 2019 ASSETS Current assets: Cash and cash equivalents 2,548 Short-term investments 1,524 Accounts and other receivables 1,086 Inventories of parts and supplies, at cost 529 Prepaid expenses and other current assets 287 Total current assets 5,974 Property and equipment, at cost: Flight equipment 21,629 Ground property and equipment 5,672 Deposits on flight equipment purchase contracts 248 Assets constructed for others 164 27,713 Less allowance for depreciation and amortization 10.688 17,025 Goodwill 970 Operating lease right-of-use assets 1,349 Other assets 577 25.895 21.753 4,960 775 1,768 29,256 9,731 19,525 970 720 26,243 S s 1,416 1,749 1,574 1.749 353 4,457 819 8,952 4,134 606 7,905 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued liabilities Current operating lease liabilities Air traffic liability Current maturities of long-term debt Total current liabilities Long-term debt less current maturities Air traffic liability - noncurrent Deferred income taxes Construction obligation Noncurrent operating lease liabilities Other noncurrent liabilities Stockholders' equity: Common stock, $1.00 par value: 2,000,000,000 shares authorized; 807,611,634 shares issued in 2019 and 2018 Capital in excess of par value Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost: 288,547,318 and 255,008,275 shares in 2019 and 2018 respectively Total stockholders' equity 1.846 1,053 2,364 164 978 706 2,771 936 2,427 1,701 650 808 1,581 17.945 (61) 808 1,510 15.967 20 (10,441) 9,832 25,895 (8,452) 9.853 26,243 S

Answer 1

Solution

a) Long term assets

i) Net Book Value of the assets is the value of the assets after deducting accumulated depreciation and amortization. Therefore, NBV of Southwest's plant, property and equipment as of December 31,2019 is $17025m.

ii) Balance of accumulated depreciation account as of 31 December 2019 is $ 10688m.

b) Shares issued and outstanding

i) Authorized shares as of 31 December 2019 is 2,000,000,000 shares

Issued shares as of 31 December 2019 is 807,611,634 shares

ii) Number of shares held as Treasury Stock as of December 31, 2019 is 288,547,318 shares.

iii) Number of shares outstanding as of 31 December 2019 is 807,611,634 shares.

c) Common stock

i)Par Value of each share of common stock issued is $1.

ii) Money in excess of par value of stock at the end of 2019 is $ 1581m

d) Equity Analysis

i) Earnings per share for the fiscal year ended 31 December 2019 is $ 4.28

ii) ROE = Net income / Average Shareholder's equity

Average Shareholder's equity= (9853+9832)/2 =$9842.5m

Net Income = $ 2300m

ROE = ($ 2300m / $ 9842.5 )*100 = 23.37%