Southwest Airlines Company (LUV)

Cash conversion cycle

		Dec 31, 2024	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020
Days of inventory on hand (DOH)	days	13.24	14.01	15.55	13.96	13.34
Days of sales outstanding (DSO)	days	2.36	4.76	5.10	18.60	31.26
Number of days of payables	days	30.08	32.33	39.44	33.34	30.00
Cash conversion cycle	days	-14.48	-13.56	-18.79	-0.77	14.61

December 31, 2024 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 13.24 + 2.36 – 30.08
= -14.48

The cash conversion cycle of Southwest Airlines Company has shown significant improvement over the years. As of December 31, 2020, the company had a cash conversion cycle of 14.61 days, indicating that it took approximately 14.61 days to convert its investments in inventory and other resources into cash inflows from sales.

Remarkably, by December 31, 2021, the company's cash conversion cycle had decreased to -0.77 days, suggesting that Southwest Airlines was able to convert its investment into cash before paying for the resources it needed. This negative cycle implies a highly efficient management of working capital.

The trend continued with further improvements in subsequent years. By December 31, 2022, the cash conversion cycle had decreased significantly to -18.79 days, indicating an even faster cash conversion cycle. This trend continued in the following years with a cash conversion cycle of -13.56 days by December 31, 2023, and -14.48 days by December 31, 2024.

Overall, the negative cash conversion cycle for Southwest Airlines signifies that the company is operating efficiently and effectively in managing its working capital, allowing it to convert its investments into cash quickly and potentially gain a competitive edge in the industry.