Delta Air Lines, Inc., and Southwest Airlines Co. are two publicly traded airline companies. They reported the following in their financial statements (in millions of dollars, except per-share amounts and stock prices):

Required:

1. Compute the 2016 ROE for each company. Express ROE as a percentage rounded to one decimal place. Which company appears to generate greater returns on stockholders’ equity in 2016?

2. Compute the 2016 P/E ratio for each company (rounded to one decimal place). Do investors appear to value one company’s earnings more than the other’s? Explain.

Transcribed Image Text:

Delta Southwest 2016 2015 2016 2015 $ 4,373 Net income Total stockholders' equity Earnings per share Stock price when annual results reported $ 4,526 $2,244 $2,181 12,287 8,441 3.58 10,850 7,358 5.82 5.68 3.30 49.51 46.10 53.23 35.69