Southwest Airlines Company (LUV)
Liquidity ratios
| 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 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Current ratio | 0.92 | 0.88 | 0.90 | 1.09 | 1.14 | 1.21 | 1.25 | 1.26 | 1.43 | 1.58 | 1.66 | 1.87 | 1.97 | 2.03 | 1.54 | 1.97 | 2.02 | 2.07 | 1.70 | 0.69 |
| Quick ratio | 0.73 | 0.71 | 0.73 | 0.88 | 0.96 | 1.00 | 1.08 | 1.08 | 1.22 | 1.36 | 1.45 | 1.65 | 1.78 | 1.85 | 1.42 | 1.84 | 1.88 | 1.91 | 1.57 | 0.55 |
| Cash ratio | 0.71 | 0.70 | 0.71 | 0.86 | 0.94 | 0.97 | 1.04 | 1.03 | 1.18 | 1.31 | 1.40 | 1.56 | 1.69 | 1.75 | 1.35 | 1.75 | 1.78 | 1.87 | 1.54 | 0.54 |
Based on the provided data for Southwest Airlines Company, let's analyze the liquidity ratios:
1. Current Ratio:
- The current ratio measures the company's ability to meet its short-term obligations using its current assets. Southwest Airlines' current ratio has fluctuated over the years but generally ranges between 1.09 to 2.07.
- During the period from March 31, 2020, to December 31, 2024, the current ratio shows some volatility but generally stays above 1, indicating that Southwest Airlines generally has more current assets than current liabilities to cover its short-term obligations.
2. Quick Ratio:
- The quick ratio, also known as the acid-test ratio, provides a stricter measure of liquidity by excluding inventory from current assets. Southwest Airlines' quick ratio ranges from 0.71 to 1.91 during the period.
- The quick ratio shows a similar trend to the current ratio, staying generally above 1 over the years and indicating that the airline has an acceptable level of liquidity to cover short-term liabilities without relying on selling inventory.
3. Cash Ratio:
- The cash ratio is the most conservative liquidity metric, measuring a company's ability to cover its short-term liabilities using only cash and cash equivalents. Southwest Airlines' cash ratio ranges from 0.54 to 1.87.
- The cash ratio also fluctuates but generally stays above 1 over most periods, indicating that Southwest Airlines maintains a significant amount of cash and cash equivalents to cover immediate obligations without relying on selling other current assets.
Overall, based on the liquidity ratios, Southwest Airlines Company maintains a relatively healthy liquidity position throughout the analyzed period, ensuring that it can meet its short-term financial obligations efficiently.
Additional liquidity measure
| 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 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 |
The cash conversion cycle of Southwest Airlines Company has shown fluctuating trends over the periods analyzed. At the end of March 2020, the company had a negative cash conversion cycle of -10.44 days, indicating that it was able to convert its inventory and accounts receivable into cash quickly. This trend continued until the end of June 2021, where the company reported a low of -15.75 days, signifying efficient working capital management.
However, the situation changed at the end of December 2021, when the cash conversion cycle turned positive to 14.60 days. This shift indicated a potential slowdown in the company's cash conversion process. Southwest Airlines managed to bring the cycle back to negative territory by March 2022, continuing until the end of December 2024.
In the last period analyzed, at the end of December 2024, Southwest Airlines reported a cash conversion cycle of -14.47 days, indicating effective management in converting its sales into cash and minimizing the time it takes to complete a full cash cycle.
Overall, Southwest Airlines' cash conversion cycle has displayed fluctuations over the years, but the company has generally shown efficiency in managing its working capital and converting its assets into cash, which is a positive indicator for its financial health.