Question

($ Millions)	JetBlue Airways	Southwest Airlines
Total liabilities, 2017	$                 1,108	$                    13,973
Total liabilities, 2016	$                 1,444	$                    14,845
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 calculations so I know how to do it)

a.) Compute the return on equity ratio for JetBlue and Southwest for 2017. Which Company earned the higher return for its shareholders?                      

b.) Compute the debt-to-equity ratio for each company as of December 31, 2017. Which company relies more on creditor financing?

Answer 1

Computation of ROE
	Jet Blue	Southwest
Total Asset 2017	$9,781	$25,110
Less: Total Liabiltiies 2017	$1,108	$13,973
Equity for 2017 (a)	$8,673	$11,137
Total Asset 2016	$9,323	$23,386
Less: Total Liabiltiies 2016	$1,444	$14,845
Equity for 2016 (b)	$7,879	$8,541
Average equity (Beg + End Equity)/2 (a+b)/2	$8,276	$9,839
Net income -2017	$1,147	$3,488
Divide: Average Equity balance	$8,276	$9,839
Return on equity	13.86%	35.45%
Company Southwest has earned higher return for its shareholder

Computation of ROE
	Jet Blue	Southwest
Total Asset 2017	$9,781	$25,110
Less: Total Liabiltiies 2017	$1,108	$13,973
Equity for 2017 (a)	$8,673	$11,137
Debt to Equity Ratio (Total Liabilies/Equity)	0.13	1.25
Company Southwest has relied more on creditor Financing