WestJet Airlines Ltd. was founded in 1996 by a team of Calgary entrepreneurs and, as of December 31, 2012, has grown from serving five western Canadian destinations with three aircraft to servingWestJet Airlines Ltd. was founded in 1996 by a team of Calgary entrepreneurs and, as of December 31, 2012, has grown from serving five western Canadian destinations with three aircraft to serving 81 destinations in North America, Central America, and the Caribbean with 100 aircraft. WestJet€™s financial statements for 2012 and 2011 and excerpts from selected notes to its financial statements are shown below:

Required:
1. Examine WestJet€™s statements of financial position. The company€™s assets increased in 2012. Which asset shows the largest increase?
2. WestJet€™s current liabilities include the advance ticket sales account with a balance of $ 480,947. What does this account represent, and what type of transactions would cause an increase or a decrease in the account balance? Explain.
3. Compute the total asset turnover ratio, return on assets, return on equity, and net profit margin ratio for both 2011 and 2012. Comment on the profitability of WestJet€™s operations in both years. WestJet€™s total assets and shareholders€™ equity at December 31, 2010, amounted to $ 3,383,980 and $ 1,304,233, respectively.
4. WestJet€™s operations generated significant amounts of cash during both 2011 and 2012. The company also made significant investments in new aircraft in 2012. How did the company finance the acquisition of additional aircraft?
5. Compute and interpret the quality of earnings ratio and the capital expenditures ratio for both 2011 and 2012. (Note: Include property and equipment and intangible assets in your computation of the ratio.)
6. Access one of the online information services listed in the chapter, search for WestJet Airlines Ltd. (WJA. TO), and look for earnings estimates. What is the average analysts€™ estimate of WestJet€™s earnings per share (EPS) for the next two fiscal years? Do analysts expect WestJet€™s EPS to increase or decrease in the future? What information did the analysts take into consideration in computing their EPS estimates for the next two years?

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION WestJet Airlines Ltd December 31, 2012 and 2011 (stated in thousands of Canadian dollars) 2012 2011 Current assets: Cash and cash equivalents Restricted cash Accounts receivable Prepaid expenses, deposits, and other Inventory 1.408,199 51,623 37,576 101,802 1.243,605 48,341 34.122 66,936 31.695 1.424.699 1634,795 Non-current assets Property and equipment Intangible assets Other assets 1985,599 50,808 1.911.227 33,793 19 Total assets 3.473,678 Liabilities and shareholders' equity Current liabiities Acocunts payable and accrued lia bilities Advance ticket sales Non-refundable guest credits Current portion of long-term debt Current portion of maintenance provisions 19 19 19 10 460,003 480,947 47,859 164,909 34.135 1.187,853 307.109 432.186 43.485 158,832 941,857 Non current lia bilities: Maintenance provisions Long-term debt Obligations under finanoe leases Other liabiälities Deterred income tax 145,656 574.139 151,645 669,880 3.174 10.449 326456 2103461 10 9,914 356,748 19 Total liabiliies Shareholders' equity: Share capital Equity reserves Hedge reserves Retained earnings 12 614.899 69,856 5,746) 630408 74,184 (3.353) Total shareholders' equity Total liabilises and shareholders equity 3,746,615 3.473,678 CONSOLIDATED STATEMENTS OF EARNINGS WestJet Airlines Ltd. Years Ended December 31. 2012 and 2011 (stated in thousands of Canadian dollars, except per share amounts) Notes 2012 2011 Guest Other 3,133.492 293.917 ,427.409 2,790.299 281.241 3,071,540 Aircraft fuel Airport operations Flight operations and navigatonal charges Sales and distribution Marketing, general, and administration Depreciation and amottization Aircraft leasing Inflight Maintenance Employee profit share 992,787 454,114 366,871 313,082 208,620 185,401 173,412 156,411 154.406 46,585 915,878 421,561 344,442 296,954 186,290 174,751 165,571 139,478 148,260 23.804 Eamings from operations Non-operabng income (expense) 375,720 256,551 Finance inoome Finance costs Gain on foreign exchange Gain (lces) on disposal of property and equipment Loss on fuel detivatives 15 15 18,391 (48,900) 1,061 469 (6,512) 5,491 340,229 15,987 (60.91 1) 2,485 (54) 16 (48,545 208,006 Eamings before income taxes Income tax expense: 66,230 31,607 97,837 242,392 1,236 58,068 59,304 148,702 Current Deferred Net eamings Eamings per share: Basic Diluted $1.79 $1.78 $1.06 $1.06 The accompanying notes are an integral part of the consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS WestJet Airlines Ltd Years Ended December 31, 2012 and 2011 (stated in thousands of Canadian dollars) Notes 2012 2011 Operating activities Net eamings Items not invohing cash 242,392 148,702 185.401 34.426 Depreciation and amortization Change in long-term maintenance provisions Change in other liabilities Amortization of hedge settlements Loss on fuel derivatives Gain) loss on disposal of property and equipment Stock-based payment expense Deferred inoome tax expense Finance inoome Finance cost Unrealized foreign exchange (gain) loss 174,751 (313) 1.400 6,062 54 1.400 6,512 (469) 12,815 31,607 (18.391) 48,900 1.487) 173,563 (3.282) (6.894) 17.780 58,068 (15,987) 60,911 1.453 89,739 (19.758) (4.344) 14,631 26 Change in non-cash woring capitl Change in restricted cash Change in other assets Cash interest received Cash taxes (paid) received Purchase of shares pursuant to oompensation plans 721,634 Investing activities: Aircraft additions Other property and equipment and intangible additions (218,116) (61.265) 51.191 (57.108) 269.307) 118.373) Financing activities Increase in long-term debt Repayment of long-term debt Decrease in obligations under capital leases Shares repurchased Dividends paid Issuance of shares pursuant to compensation plans Cash interest paid Change in non-cash woning capital 72,996 199,225) (108) (74,570) (35,000) 34 (51.722) (.825 2.094) (162,678) 12 (112,065) (37,549) (43,055) 288,054 13 198 362.67 85,412 Cash flow from operating, investing, and financing activities Effect of foreign exchange on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year (1.,123) 84,289 123,605 1159316 164,273 321 164,594 1,408.199 1.243,605 The accompanying notes are an integral part of the consolidated financial statements. Source: WestJet Airlines Ltd., Annual Report 2012. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Statement of significant accounting policies: (d) Revenue recognition () Guest revenue, including the air component of vacation packages, are recognized when air transportation is provided. Tickets sold but not yet used are reported in the consolidated statement of fnancial position as advance ticket sales.