Southwest Airlines Company (LUV)

Cash conversion cycle

		Dec 31, 2024	Sep 30, 2024	Jun 30, 2024	Mar 31, 2024	Dec 31, 2023	Sep 30, 2023	Jun 30, 2023	Mar 31, 2023	Dec 31, 2022	Sep 30, 2022	Jun 30, 2022	Mar 31, 2022	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020
Days of inventory on hand (DOH)	days	13.24	12.57	12.97	13.74	14.01	14.46	13.13	13.83	15.55	16.16	16.58	14.87	13.96	14.88	14.85	15.40	13.34	12.08	11.05	12.41
Days of sales outstanding (DSO)	days	2.37	2.32	3.21	2.80	4.76	6.29	6.47	7.54	5.09	8.88	9.80	17.54	18.61	27.33	30.96	38.48	31.26	9.64	5.54	2.14
Number of days of payables	days	30.08	24.78	33.55	32.98	32.33	31.41	34.60	32.49	39.44	32.34	42.13	39.34	33.34	35.79	44.10	37.61	30.00	27.79	25.41	24.98
Cash conversion cycle	days	-14.47	-9.89	-17.37	-16.44	-13.56	-10.67	-15.00	-11.11	-18.81	-7.30	-15.75	-6.93	-0.77	6.42	1.71	16.27	14.60	-6.07	-8.82	-10.44

December 31, 2024 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 13.24 + 2.37 – 30.08
= -14.47

The cash conversion cycle of Southwest Airlines Company has been fluctuating over the past few years. Initially, the company had negative cash conversion cycles, indicating efficient cash management where its operating cycle was shorter than its payment cycle. However, the trend reversed in December 2020, showing that the company took longer to convert its investments in inventory back to cash.

From March 2021 onwards, the cash conversion cycle improved, indicating that the company was able to reduce the time taken to sell its inventory, collect receivables, and pay off payables more efficiently. This trend continued until June 2022, reaching its peak efficiency with a significantly negative cash conversion cycle.

In the subsequent periods, the cash conversion cycle remained negative, indicating that Southwest Airlines was able to manage its cash flows effectively by quickly converting investments in inventory into cash. The consistently negative cash conversion cycle suggests efficient working capital management and liquidity for the company.

Overall, the analysis of the cash conversion cycle shows that Southwest Airlines improved its cash conversion efficiency from 2021 onwards and maintained a strong position in managing its working capital over the observed period.