a.

Return on Assets = Net income / Average assets

= $754 / [0.5*($18,596 + $19,345)] = 4.0%

Return on assets measures profitability of a companyspecifically, how well a company has

employed its average assets in generating net income.

b.

Profit Margin = Net income / Sales

= $754 / $17,699 = 4.3%

Profit Margin is an income to sales ratio that reflects the profitability of sales of a company.

Southwest Airlines has a profit margin of 4.3% meaning the company records 4.3 cents of net

income (after paying taxes) for every dollar of sales. This is low - the airline industry is performing

somewhat poorly in 2013.

In millions

Total operating revenues

17,699

Net income

754

Total assets, beginning of year

18,596

Total assets, end of year

19,345

Equity, end of year

7,336

Asset Turnover = Sales / Average assets

= $17,699 / [0.5*($18,596 + $19,345)] = 0.93

Asset turnover reflects the effectiveness in generating sales from assets.

Southwest Airlines'

asset turnover ratio of 0.93, means that the company generates $0.93 in sales for every $1.00 of

assets.