mod 10-5

Reformulation for Multi-Year Capitalization of Operating Leases

Use the information provided below for Southwest Airlines to answer the requirements.

$ millions 2013 2014 2015

Net operating assets (NOA) $ 7,448 $ 6,923 $ 7,929

Net nonoperating obligations (NNO) (332) (296) 127

Total stockholders' equity 7,780 7,219 7,802

Net nonoperating expenses (NNE) 130 129 117

Net operating profit after tax (NOPAT) 884 1,265 2,298

Net income 754 1,136 2,181

Revenue 19,254 20,160 21,375

Below are the adjustments that analysts would use to account for Southwest's operating leases as if they were capitalized. Adjustments are based on the present value of Southwest's operating leases for fiscal years 2013-2015.

Balance Sheet Adjustments ($ millions) 2013 2014 2015

Net operating assets (NOA) +3,267 +4,244 +3,188

Net nonoperating obligations (NNO) +3,267 +4,244 +3,188

Equity 0 0 0

Income Statement Adjustments ($ millions) 2013 2014 2015

Interest expense +129 +167 +126

Net nonoperating expense, NNE +81 +105 +79

Net operating profit after tax, NOPAT +81 +105 +79

Net income 0 0 0

a. Compute the following ratios using the unadjusted and the adjusted numbers for each year. For simplicity only, use year-end balances for NOA, NNO, and equity.

Round ROE, RNOA, and NOPM to one decimal place (ex: 0.2345 = 23.5%).

Round NOAT and FLEV to two decimal places.

Use negative signs with answers, when appropriate.

2013 2014 2015

Unadjusted Adjusted Unadjusted Adjusted Unadjusted Adjusted

ROE Answer

0

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0

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0

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0

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0

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0

RNOA Answer

0

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0

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0

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0

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0

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0

NOPM Answer

0

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0

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0

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0

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0

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0

NOAT Answer

0

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0

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0

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0

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0

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0

FLEV Answer

0

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0

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0

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0

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0

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0