Southwest Airline Ratio Analysis

6 Pages 1560 Words

Southwest Airlines Financial Ratio Analysis

Since its beginnings as a scheduled airline in 1971, Southwest Airlines has distinguished itself within the US airline industry as a unique player. Its commitment to offering a low fare structure to both businesses and leisure travelers has made air travel more affordable to many consumers and has caused a consistent increase in demand for expansion into new markets, as well as increasing price competition within the cities it serves. Since the airline regulation in 1978, Southwest has dramatically increased the number of markets it serves and its market share. It has also been the model for a number of less successful low cost start-up airlines, such as ValuJet and People’s Express.
Various ratios are used by managers and investors to analyze and forecast the profitability and efficiency of a company. This paper will discuss the ratios used for the financial analysis of Southwest Airlines.

Short Term Liquidity Ratios for Southwest Airlines Co.
This ratio is used to measure the solvency, or the ability, of Southwest Airlines Co. to meet its short-term financial obligations and to assess the liquidity, or the ability, of Southwest Airlines Co. to convert current assets to cash to reduce current liabilities. The most widely used financial ratios for establishing the short-term liquidity of a company are current ratio and quick ratio. Southwest’s current ratio is 1.01 and its quick ratio is 0.86.
The short-term liquidity ratios are used in the evaluation of short-term liquidity to convert current assets into cash in order to reduce the financial obligations of the company as they become due. These ratios are particularly significant to the creditors and potential lenders of a company because they determine the ability of that company to meet current payments of a debt. However, investors and stockholders are also interested in the company’s definition of current assets ...