Answer the following questions based on the 2021 financial statements of Southwest Airlines a. Report return on

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Question:

Answer the following questions based on the 2021 financial statements of Southwest Airlines
a. Report return on assets, asset turnover, and profit margin for the last two years. In addition,
make a common size income statement and analyze profit margin and sales changes.
b. Does Southwest Airlines have old assets? Are they doing anything about it?
c. What was the calendar year stock return percentage for American Airlines, Delta Airlines, United
Airlines, and Southwest Airlines, net of the S&P 500 for 2020, 2021, and 2022 up to March 31,
2022? Overall, are the airlines doing better or worse than the S&P in these time periods? Why?

DIRECTIONS:

For 5a
First, ROA has two components:
ROA = Profit Margin * Asset Turnover
Use the table on the bottom of page 17 of the chapter 9 outline as a template.
Second, ROA = Net income / Average Total assets
For 2020, you need 2019 total assets. They are 25,895
Profit margin is a percentage
Asset turnover is a number, not a percentage
Return on assets is a percentage
When reporting ROA, this is really all about profit margin. Therefore, there are three distinct analyses you have to
provide here:
(1) Why did profit margin change from 2019 to 2020, and this comes from reporting and analyzing a full common size income statement. We have done this on the first four assignments and both exams, and this entails reporting individual expenses as a percent of sales to show why the profit margin moved (and it declined ALOT)
o There are two very large items in 2020 that were ZERO in 2019 and 2018. These have to be mentioned
as reasons why profit margin moved.
One of these items reduced profit margin
One of these items increased profit margin
(2) Why did profit margin change from 2020 to 2021, again, citing individual expenses as a % of sales
(3) Report and analyze the percentage change in sales for both years, and report why sales changed from 2020 to
2091. See the bottom of page 57. Yes, COVID is the reason, but you have to say more than just COVID
On 5b
Use the same table like the one at the bottom of page 15 of the chapter 9 outline
PPE at Cost is a blank space in terms of words on the balance sheet (page 80); there is a number on the balance
the sheet that is net PPE
PPE, net for 2021 is 14,842
% used up tells us how old the assets are
Capital expenditures can be found on the Statement of Cash flows on page 84. Do NOT enter this as a negative number; the number is in brackets because cash is being spent. Again, NO NEGATIVE NUMBERS!
Depreciation and amortization are reported BOTH on the income statement and in the operating section of thecash flow statement
The last line of the table above should be a ratio (2 decimal points); if the ratio is greater than one, that meansthe amount they spend buying new stuff is greater than the decline in value of old stuff.