2. 3. Refer to Tables A-1 through A-5 in Appendix II of the text for the operational definitions of and formulas for numerous common financial ratios, including profitability, liquidity, leverage, activity, and shareholders' return. Using these formulas, complet at least one ratio from each of the five categories, though you may apply as many of the ratios for which you can find the required information in the firm's financial reports. On your calculations page, specify for which formulas you are solving.

For southwest airlines

1. Determine which of the ratios provides the most key insights into the firm's current level of performance. How can you assess whether the results of your calculations are positive or negative? Explain which of the ratios give you a reason to be concerned with the organization's current strategy and why.
2. The Organizational and Operational Plans assignment references the possible benefits and risks of forming a strategic alliance. What would be the risks of forming a strategic alliance in terms of the firm's profitability ratios? Which of those five ratios is most likely to reveal immediate information for analysis of the alliance's effectiveness?
3. Considering today's financial climate, how likely is it that the organization could acquire the capital necessary to support an aggressive value-enhancement strategy? From where would that capital originate? Compared to current interest rates, what do you believe is a real interest rate the firm might incur? Which of the liquidity ratios will be impacted by the influx of capital, if borrowed?

And this is all the information we have been given. And the formulas are listed within the information in the tables. I tried to submit a picture for this but was unable to do so.

Table A-1 - Profitability Ratios

Ratio Formula What it shows

1)Return on total assets Profits after taxes The net return on total investments of the firm

Total assets

OR or

Profits after taxes + interest The return on both creditors' and shareholders'

Total Assets

2)Return on stockholder's Profits after taxes How profitably the company is utilizing

equity Total Stockholders' equity shareholder's funds

3)Return on common equity Profits after taxes - The net return to common stockholders

Preferred stock dividends

Total stockholders' equity - Par value of preferred stock

4)Operation profit margin Profits before taxes and before interest The firm's profitability from regular

(or return on sales) Sales operations

5)Net profit margin (or net Profit after taxes The firm's net profit as a percentage of

return on sales) Sales total sales total sales

Table A-2 - Liquidity Ratios

Ratio Formula What it Shows

1)Current Ratio Current assets The firm's ability to meet its current financial

Current liabilities liabilities

2)Quick Ratio Current assets - Inventory The firm's ability to pay off short-term

(or acid test ratio) Current liabilities obligations

3)Inventory to net Inventory The extent to which the firm's working capital

capital Current assets - Current liabilities is tied up in inventory

Table A-3 - Leverage Ratios

Ratio Formula What it Shows

1) Debt-to-assets Total debt Total borrowed funds as a percentage of total

Total assets assets

2)Debt-to-equity Total debt Borrowed funds versus the funds provided by

Total shareholders' equity shareholders

3)Long-term Long-term debt Leverage used by the firm

debt-to-equity Total shareholders' equity

4)Times-interest-earned profits before interest and taxes The firm's ability to meet all interest payments

(or coverage ratio) Total interest charge

5)Fixed charge coverage Profits before taxes and interest + The firm's ability to meet all fixed-charge

Lease Obligations obligations including lease payments

Total interest charges + leased

obligations

Table A-4 - Activity Ratios

Ratio Formula What it Shows

1)Inventory turnover Sales The effectiveness of the firm in employing

Inventory of finished goods inventory

2)Fixed-assets turnover Sales The effectiveness of the firm in utilizing plant

Fixed assets and equipment

3)Total assets turnover Sales The effectiveness of the firm in utilizing total

Total Assets assets

4)Accounts receivable Annual credit sales How many times the total receivables have

turnover Accounts receivable been collected during the accounting period

5)Average collecting Accounts receivable The average length of time the firm waits to

period Average daily sales collect payment after sales

Table A-5 - Shareholders' Return Ratios

Ratio Formula What it Shows

1)Dividend yield on Annual dividend per share A measure of return to common stockholders

common stock Current market price per share in the form of dividends

2)Price-earnings ration Current market price per share An indication of market perception of the firm;

After-tax earnings per share usually, the faster-growing or less risky firms

tend to have higher PE ratios than the slower-

growing or more risky firms

3)Dividend payout ratio Annual dividends per share An indication of dividends paid out as a

After-tax earnings per share percentage of profits

4)Cash flow per share After-tax profits + Depreciation A measure of total cash per share available for

Number of common shares outstanding use by the firm