Refer to the annual report of CVS Corporation and the financial statements of Southwest Airlines Co. in the Supplement to Chapter 5. Calculate the debt to equity ratio and the interest coverage ratio for both companies’ two most recent years. Find the note to the financial statements that contains information on leases and lease commitments by CVS. Southwest’s lease expenses were $469 million and $527 million in 2007 and 2008, respectively, and total lease commitments for future years were $2,032 million. What effect do the total lease commitments and lease expense have on your assessment of the ratios you calculated? Evaluate and comment on the relative performance of the two companies with regard to debt financing. Which company has more risk of not being able to meet its interest obligations? How does leasing affect the analysis? Explain.
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