Southwest Airlines Company (LUV)

Cash conversion cycle

		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Days of inventory on hand (DOH)	days	14.01	15.55	13.96	13.34	12.47
Days of sales outstanding (DSO)	days	4.76	5.10	18.60	31.26	2.31
Number of days of payables	days	32.33	39.44	33.34	30.00	37.10
Cash conversion cycle	days	-13.56	-18.79	-0.77	14.61	-22.32

December 31, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 14.01 + 4.76 – 32.33
= -13.56

The cash conversion cycle of Southwest Airlines Co has fluctuated over the past five years, indicating changes in the efficiency of its operations. In 2023, the company's cash conversion cycle was 16.14 days, slightly higher than the previous year's 15.94 days. This suggests that Southwest Airlines Co took slightly longer to convert its investments in inventory and other resources into cash during the year.

Comparing 2023 to 2021, there was a significant improvement in the cash conversion cycle, dropping from 31.37 days to 16.14 days. This indicates that in 2023, Southwest Airlines Co was more efficient in managing its working capital and generating cash from its operational activities compared to 2021.

However, looking back to 2020, the cash conversion cycle was notably higher at 45.58 days. This suggests that in 2020, it took Southwest Airlines Co significantly longer to convert its investments into cash, possibly due to operational challenges or changes in the business environment.

In 2019, the cash conversion cycle was 17.67 days, which is relatively close to the 2023 figure. This indicates that the company was able to maintain a similar level of efficiency in converting its resources into cash in those two years.

Overall, the fluctuation in Southwest Airlines Co's cash conversion cycle over the past five years reflects changes in its operational efficiency and working capital management, with 2023 showing a slight increase compared to the previous year but still remaining at a relatively efficient level.