Question

Data presented below are from the financial statements of JetBlue Airways and Southwest Airlines.

($ millions)	Jet Blue Airways	Southwest Airlines
Total Liabilities, 2017	$1,108	$13,973
Total Liabilities, 2016	1,444	14,845
Total Assets, 2017	9,781	25,110
Total Assets, 2016	9,323	23,286
Revenue, 2017	7,015	21,171
Net Income, 2017	1,147	3,488

a. Compute the return on equity ratio for JetBlue and Southwest for 2017. (Round your answer to one decimal place.)
JetBlue Airways =
Southwest Airlines =

Which company earned the higher return for its shareholders?

b. Compute the debt-to-equity ratio for each company as of December 31, 2017. (Round your answer to one decimal place.)
JetBlue Airways =
Southwest Airline =

Which company relies more on creditor financing?

c. For each firm, compute net income as a percentage of revenue in 2017. (Round your answer to one decimal place.)
JetBlue Airways =
Southwest Airlines =

Answer 1

ANSWER

a)	Return on equity ratio	Net income/Equity	ROE
	Jet blue airways	1,147/(9,781-1,108)	13.2%
	Southwest airlines	3,488/(25,110-13,973)	31.3%
	Southwest airlines has earned higher return for its shareholders
b)	Debt to equity ratio	Debt/equity	ratio
	Jet blue airways	1,108/(9,781-1,108)	12.8%
	Southwest airlines	13,973/(25,110-13,973)	125.5%
	jet blue airways relies more on creditor financing
c)	net income as a percentage of revenue	Net income/revenue	ratio
	Jet blue airways	1147/7,015	16.3%
	Southwest airlines	3488/21,171	16.5%
	Southwest airlines earned higher returns for its shareholders

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