Financial Analysis of Southwest Airlines (suv)
Autor: Cafer Can Sengonul • May 22, 2016 • Case Study • 686 Words (3 Pages) • 1,126 Views
Financial Analysis of
Southwest Airlines (SUV)
ACC 511 - FINANCIAL STATEMENT ANALYSIS
Dr. Jeff Grover
March, 2015
This essay is about the financial analysis for Southwest Airlines. This paper includes comments on free cash flow, cash flow adequacy, liquidity ratio and the quality of income in 2005, 2006, 2007 and 2008.
[pic 1]*Figure 1: Southwest Airlines (LUV) – Ratios
Strongest Cash Position for Southwest Airlines
2007 should be the year in which Southwest Airlines has the strongest Cash position. “Free Cash Flow reflects the amount of cash available for business activities after allowances for investing and financing activity requirements to maintain productive capacity at current levels. Adequate free cash flow allows for growth and financial flexibility”1 In the year 2007 Southwest Airlines has the highest Free Cash Flow amount. $1.500 billion of free cash flow gives the company availability of cash to pursue new opportunities and provide financial flexibility.
“The Cash-Flow-Adequacy ratio evaluates whether cash flow from operating activities is sufficient to cover annual payment requirements. The above ratio is defined to evaluate whether net cash from operating activities is adequate to maintain productive capacity at current levels. It presents free cash flow information in a ratio format. This ratio (with modifications in the denominator) is used by credit-rating agencies to identify if there is adequate cash coverage of capital expenditures, dividends, debt, and other annual payments.”1. In 2007 Southwest Airlines has the highest 2.12 Cash Flow Adequacy ratio in given four years. This ratio gives the company adequate cash to sustain capital expenditures and dividend payments.
In 2007 Southwest Airlines has the highest Liquidity ratio. Company had sufficient liquidity to pay current liabilities as they become due. “The Cash-Flow-Liquidity ratio compares cash resources to current liabilities. This ratio uses cash and marketable securities (truly liquid current assets) and net cash from operating activities to evaluate whether adequate cash is generated from selling inventory and offering services to pay current liabilities when they come due. Even a profitable business will fail without sufficient cash. It is a cash-basis measure of short-term liquidity.”1. In the year 2007, Southwest Airlines had the highest, 1.38 ratio of Cash-Flow Liquidity.
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