Southwest Airlines Company (LUV)

Southwest Airlines Company's liquidity ratios have shown a decreasing trend over the years. The current ratio, which measures short-term liquidity by comparing current assets to current liabilities, declined from 2.02 in 2020 to 0.92 in 2024. This suggests a potential weakening ability to cover short-term obligations.

Similarly, the quick ratio, a more stringent measure of liquidity as it excludes inventory from current assets, also decreased from 1.88 in 2020 to 0.73 in 2024. This indicates a diminishing capacity to meet immediate payment obligations without relying on selling inventory.

Furthermore, the cash ratio, which focuses solely on the most liquid assets (cash and cash equivalents) compared to current liabilities, dropped from 1.78 in 2020 to 0.71 in 2024. This suggests a decreasing ability to pay off short-term debts solely with available cash on hand.

Overall, the declining trend in Southwest Airlines Company's liquidity ratios over the years may indicate potential challenges in meeting short-term financial obligations without proper management and strategic planning to enhance liquidity.

---

Additional liquidity measure

The cash conversion cycle for Southwest Airlines Company has shown significant fluctuations over the past five years. In December 2020, the company had a cash conversion cycle of 14.61 days, indicating that it took approximately 14.61 days to convert raw materials into cash through the sales process.

However, by December 2021, the cash conversion cycle improved significantly, showing a negative value of -0.77 days. This implies that Southwest Airlines Company was able to generate cash before paying suppliers or vendors, potentially reflecting efficient inventory management and collection of receivables.

In the following years, Southwest Airlines Company continued to enhance its cash conversion cycle efficiency. By December 2022, the company achieved a notably improved cash conversion cycle of -18.79 days, indicating a further reduction in the time taken to convert inventory and receivables into cash.

In December 2023 and 2024, Southwest Airlines Company maintained its strong performance in managing its working capital, with cash conversion cycle values of -13.56 days and -14.48 days, respectively. These negative values suggest that the company is operating with a working capital structure that allows it to generate cash quickly and efficiently.

Overall, the trend in Southwest Airlines Company's cash conversion cycle over the past five years demonstrates continuous improvements in working capital management and efficiency in converting assets into cash.