Southwest Airlines Company (LUV)

Short-term

Turnover ratios

Southwest Airlines Co's activity ratios provide insights into how efficiently the company manages its assets and liabilities to generate revenue.

1. Inventory Turnover: The inventory turnover ratios for all years are reported as 0.00, indicating that Southwest Airlines Co does not hold significant levels of inventory relative to its sales. This may be common in the airline industry where inventory refers to items like fuel and supplies rather than manufactured goods.

2. Receivables Turnover: Southwest Airlines Co's receivables turnover has been relatively stable over the years, ranging from 8.01 to 22.90. A higher turnover ratio indicates that the company efficiently collects its receivables, which is positive as it shows that customers are paying their debts promptly.

3. Payables Turnover: The payables turnover ratio for all years is reported as 0.00, which could suggest that the company manages its payables effectively, potentially by negotiating favorable credit terms with suppliers.

4. Working Capital Turnover: The working capital turnover has shown an increasing trend from 2019 to 2023, with a peak of 15.36 in 2023. A higher working capital turnover ratio indicates that the company efficiently utilizes its working capital to generate revenue.

Overall, Southwest Airlines Co's activity ratios reflect a focus on efficient management of assets and liabilities to drive operational performance and revenue generation. The high receivables turnover and increasing working capital turnover are particularly positive indicators of the company's effective utilization of resources.

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Average number of days

The Days of Sales Outstanding (DSO) ratio for Southwest Airlines Co has fluctuated over the past five years, ranging from 15.94 days in 2022 to 45.58 days in 2020, with a significant increase in 2020 followed by a decrease in the subsequent years. This ratio indicates the average number of days it takes for the company to collect its accounts receivable.

The lack of data for Days of Inventory on Hand (DOH) and Number of Days of Payables limits a comprehensive analysis of Southwest Airlines Co's activity ratios related to inventory management and accounts payable. However, focusing on DSO, it is essential for the company to continue monitoring and managing its accounts receivable efficiently to ensure timely collection and maintain healthy liquidity levels.

Overall, a lower DSO is preferable as it signifies quicker collection of receivables, which can improve cash flow and working capital management. Southwest Airlines Co should aim to further reduce its DSO to improve its efficiency in collecting receivables and enhance its overall financial performance.

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Long-term

Southwest Airlines Co's long-term activity ratios have shown some fluctuations over the past five years. The fixed asset turnover ratio, which measures the efficiency of utilizing fixed assets to generate revenue, has seen variations from 2019 to 2023. It increased from 1.32 in 2019 to a peak of 1.37 in 2022, then slightly declined to 1.35 in 2023. This indicates that the company has been relatively effective in generating revenue from its fixed assets over the years with some fluctuations in performance.

On the other hand, the total asset turnover ratio, which evaluates the efficiency of using all assets to generate sales, has also displayed fluctuations. The ratio increased from 0.87 in 2019 to 0.72 in 2023, showing some improvement in asset utilization efficiency over the period. However, in some years such as 2021 and 2020, the total asset turnover ratio was notably lower at 0.43 and 0.26, respectively.

Overall, Southwest Airlines Co's long-term activity ratios indicate varying levels of efficiency in utilizing both fixed and total assets to generate revenue over the past five years. It is essential for the company to continue monitoring and managing these ratios to ensure optimal utilization of assets and sustained profitability.