Suppose you have been presented with selected information taken from the financial statements of Southwest Airlines Co., shown on the next page.

Instructions

(a) Calculate each of the following ratios for 2017 and 2016.

(1) Current ratio.

(2) Free cash flow.

(3) Debt to assets ratio.

(4) Times interest earned.

(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, assets and liabilities would increase by approximately $1,600 million.

Recalculate the debt to assets ratio for 2017 in light of this information, and discuss the implications for analysis.

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Total current assets Noncurrent assets Total assets Current liabilities Long-term liabilities Total liabilities SOUTHWEST AIRLINES CO. Balance Sheet (partial) December 31 Locations Shareholders' equity Total liabilities and shareholders' equity Other information: Net income (loss) Income tax expense Interest expense Cash provided by operations Capital expenditures 2017 $ 2,893 11,415 $14,308 2016 $ 4,443 12,329 $16,772 $ 2,806 $ 4,836 6.549 4,995 9,355 9,831 4,953 6,941 $14,308 $16,772 2017 2016 178 645 100 413 130 119 (1,521) 2,845 923 1,331 13 14 Cash dividends Note 8. Leases The majority of the Company's terminal operations space, as well as 82 aircraft, were under operating leases at December 31, 2017. Future minimum lease payments under noncancelable operating leases are as follows: 2018, $376,000; 2019, $324,000; 2020, $249,000; 2021, $208,000; 2022, $152,000; after 2023, $728,000.