You have been presented with the selected information taken from the financial statements of Southwest Airlines Co. shown on the next page.

Note 8. Leases
The majority of the Company€™s terminal operations space, as well as 84 aircraft, were under operating leases at December 31, 2006. Future minimum lease payments under non-cancelable operating leases are as follows: 2007, $360,000; 2008, $318,000; 2009, $280,000; 2010, $250,000; 2011, $203,000; after 2011, $1,000,000.
Instructions
(a) Calculate each of the following ratios for 2006 and 2005.
(1) Current ratio.
(2) Free cash flow.
(3) Debt to total assets.
(4) Times interest earned ratio.
(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 $1,500 million. Recalculate the debt to total assets ratio for 2006 in light of this information, and discuss the implictions foranalysis.

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SOUTHWEST AIRLINES CO Balance Sheet (partial) December 31 in millions) 2006 2,601 10,859 $13,460 2005 3,620 10,383 $14,003 Total current assets Noncurrent asscts Total assets Current liabilitics Long-term liabilitics 2,887 4,124 7,011 6,449 $13,460 $3,848 3,480 Total liabilitics Shareholders' cquity 7,328 6,675 $14,003 Total liabilities and sharcholders equity Other information: 2006 2005 Net income (loss) Income tax expensc Interest expensc Cash pro Capital expenditures Cash dividends $ 499 291 128 1,406 1,399 14 $ 484 295 122 2.118 1,146 vided by operations