Question

($ Millions)	JetBlue Airways	Southwest Airlines
Total liabilities, 2017	$                 4,947	$                    13,973
Total current liabilities, 2017	$                 2,395	$                       6,905
Total liabilities, 2016	$                 5,310	$                    14,845
Total current liabilities, 2016	$                 2,214	$                       6,844
Total assets, 2017	$                 9,781	$                    25,110
Total current assets, 2017	$                 1,206	$                       4,815
Total assets, 2016	$                 9,323	$                    23,386
Total current assets, 2016	$                 1,403	$                       4,498
Revenue, 2017	$                 7,015	$                    21,171
Net income, 2017	$                 1,147	$                       3,488

(Please show your work so I can learn)

e.) For each company, compute the return on assets ratio (ignore any interest and tax impact – just use net income/total average assets) for 2017. Which Company earned the higher return based on its assets?   

f.) Based on your answers to questions a - e, compare these two competitors, specifically if you had $10,000, which would you invest in. What might be the cause of any differences in the ratios that you computed?            

g.) Name three specific ways/strategies that the companies could improve their current ratio.

Answer 1

(e) Calculation of return on assets ratio:-

Return on assets= (Net Income/Average total Asset) x100

JetBlue Airways:-

Net Income 2017=1147$

Calculation of Average Total Assets=(Total Assets of Current Year + Total Assets of Previous Year)/2

Total Assets of 2017=9781$

Total Assets of 2016=9323$

Average Total =(9781$+9323$)/2

Average Total Assets=9552$

Then Return on Assets=(Net Income/Average total Asset)x100

Return on Assets=(1147$/9552$)x100

Return on Assets=12%

Southwest Airlines

Net Income 2017=3488$

Calculation of Average Total Assets=(Total Assets of Current Year + Total Assets of Previous Year)/2

Total Assets of 2017=25110$

Total Assets of 2016=23386$

Average Total =(25110$+23386$)/2

Average Total Assets=24248$

Then Return on Assets=(Net Income/Average total Asset)x100

Return on Assets=(3488$/24248$)x100

Return on Assets=14.38%

Conclusion:- Southwest Airlines earned high Return

(f) If I have $10000 then i invest in Southwest Airlines becouse south west airline earned high return

if jetblue airways Earned high Return more then Southwest Airlines then i invest $10000 in Jetblue Airways

(g) Specific ways/strategies that the companies could improve their current ratio:

• Faster conversion cycle of Debtors or Accounts Receivables.
• Pay off Current Liablities
• Sell-off unproductive Assets
• Rise Shareholder's Fund (to increase current Assets