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)
2014 2013 Total current assets $ 2,893 $ 4,443 Noncurrent assets 11,415 12,329 Total assets $14,308 $16,772 Current liabilities $ 2,806 $ 4,836 Long-term liabilities 6,549 4,995 Total liabilities 9,355 9,831 Shareholders’ equity 4,953 6,941 Total liabilities and shareholders’ equity $14,308 $16,772 Other information:
2014 2013 Net income (loss) $ 178 $ 645 Income tax expense 100 413 Interest expense 130 119 Cash provided by operations (1,521) 2,845 Capital expenditures 923 1,331 Cash dividends 13 14 Note 8. Leases The majority of the Company’s terminal operations space, as well as 82 aircraft, were under operating leases at December 31, 2014. Future minimum lease payments under noncancelable operating leases are as follows: 2015, $376,000; 2016, $324,000; 2017,

$249,000; 2018, $208,000; 2019, $152,000; after 2020, $728,000.

Instructions

(a) Calculate each of the following ratios for 2014 and 2013.

(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 2014 in light of this information, and discuss the implications for analysis.AppendixLO2