Southwest Airlines Company (LUV)

Short-term

Turnover ratios

The activity ratios of Southwest Airlines Company provide insights into how efficiently the company is managing its assets and liabilities to generate sales.

1. Inventory Turnover:
- Southwest Airlines' inventory turnover has shown a steady decrease from 27.36 in 2020 to 23.47 in 2022, before slightly increasing to 27.58 in 2024.
- This indicates that the company is selling its inventory less frequently over the years, which could be due to various factors such as changes in demand or inventory management practices.

2. Receivables Turnover:
- The receivables turnover ratio has significantly increased from 11.67 in 2020 to 154.39 in 2024.
- This suggests that Southwest Airlines is collecting its receivables much more efficiently, indicating an improvement in credit policies or collection efforts.

3. Payables Turnover:
- The payables turnover ratio fluctuated but remained relatively stable over the years, ranging from 9.25 in 2022 to 12.14 in 2024.
- This implies that the company is managing its payable obligations consistently and effectively, possibly negotiating favorable payment terms with suppliers.

4. Working Capital Turnover:
- Southwest Airlines' working capital turnover ratio has shown a significant increase from 1.18 in 2020 to 15.22 in 2023, before the data for 2024 is marked as '—'.
- This sharp increase indicates that the company is utilizing its working capital more efficiently to generate sales, suggesting good management of both current assets and liabilities.

In conclusion, the activity ratios of Southwest Airlines Company reflect varying levels of efficiency in managing its inventory, receivables, payables, and working capital over the years. Further analysis and comparison with industry benchmarks would provide a more comprehensive assessment of the company's operational performance.

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Average number of days

Activity ratios provide insight into how efficiently a company manages its resources. Let's analyze Southwest Airlines Company's activity ratios based on the provided data:

1. Days of Inventory on Hand (DOH):
- In 2020, the company had 13.34 days of inventory on hand, which increased to 13.96 days in 2021. This indicates a slight increase in the time it takes to sell its inventory.
- The DOH further increased to 15.55 days in 2022, suggesting that Southwest Airlines may be carrying more inventory on hand.
- In 2023, the DOH decreased to 14.01 days, which indicates a slight improvement in inventory management efficiency.
- By the end of 2024, the DOH decreased to 13.24 days, potentially indicating better management of inventory levels.

2. Days of Sales Outstanding (DSO):
- In 2020, Southwest Airlines had 31.26 days of sales outstanding, which decreased significantly to 18.60 days in 2021, indicating faster collection of receivables.
- The DSO further decreased to 5.10 days in 2022 and 4.76 days in 2023, reflecting efficient management of accounts receivable.
- By the end of 2024, the DSO decreased to 2.36 days, demonstrating the company's effectiveness in collecting payments from customers promptly.

3. Number of Days of Payables:
- In 2020, Southwest Airlines had 30.00 days of payables, which slightly increased to 33.34 days in 2021, suggesting longer payment periods to creditors.
- The days of payables further increased to 39.44 days in 2022, indicating a longer time taken to pay off obligations.
- However, by the end of 2023 and 2024, the number of days of payables decreased to 32.33 days and 30.08 days, respectively, potentially indicating a more balanced approach in managing payables.

Overall, Southwest Airlines Company showed improvements in efficiency in managing inventory, collecting receivables, and paying off obligations over the years, which can positively impact its overall financial performance.

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Long-term

Southwest Airlines Company's fixed asset turnover has shown significant improvement over the years, increasing from 0.57 in December 31, 2020, to 1.45 in December 31, 2024. This indicates that the company is generating more revenue relative to its investment in fixed assets, reflecting increased efficiency in asset utilization.

Similarly, Southwest Airlines' total asset turnover has also shown a positive trend, rising steadily from 0.26 in December 31, 2020, to 0.81 in December 31, 2024. This demonstrates that the company is generating more sales in relation to its total assets, indicating improved efficiency in utilizing all assets to generate revenue.

Overall, the increasing trends in both fixed asset turnover and total asset turnover ratios suggest that Southwest Airlines has been effectively managing its assets to generate revenue and may be operating more efficiently over the years.