Financial Analysis of Southwest Airlines Company

Southwest Airlines Company was established in 1967. It operates as a passenger airline that gives a scheduled air transport in US. The company operated 737 and 548 Boeing aircrafts. It has provided service to 35 states in 69 cities. The company provides services to companies participating in its Rapid Rewards program it also sells services, such as car rental agencies, restaurant, retail locations hotels.

The company operated 727 Boeing for a while back in the 70s and 80s. But as of September 30 2011 the company became the largest operator of 737 Boeing worldwide with about 560 of these airplanes in service, each operating a maximum of about six flights per day 

On March 1, 2012 there was a merger the company was offered with an operating certificate meaning any technical hitch that occurred Southwest and Air Tran became one Airline?

South West Airline Company has managed to come up with several cost effective strategies which allow the customer to benefit from the savings. Southwest provides coach class services to its passages but never gives full cabin services to the passages there are no meals offered only snacks beverages and snacks are offered. Another cut cost initiative that SouthWest Airline has implemented is, it only operates one type of engine and aircraft. The Boeing 737 and GE engines. This greatly reduces costs like those of maintenance, less cost in training staff and lower spare parts inventory.

The airline does not operate within a hub. It offers point to point destination transportation unlike most airlines passengers are given plastics numbered boarding passes because they can be used again, this procedure is based upon on first come first served.

South west airlines uses a direct method of distribution it does not have any partnership or alliances with international or domestic companies (airline). In the direct method of distribution i.e. it sells tickets directly to those who want to travel avoiding travel agents reducing commission incentive and the costs incur.

Objective

Short term liquidity ratio is important because it will assist in measuring the ability or the solvency of the company to convert current assists to cash to reduce current liabilities to meet its short term financial obligation and assists the ability or the liquidity of the company

This ratios are used to convert current assets into cash to reduce financial obligations they are significant in the sense that to the potential lenders and creditors they determine whether the company has the ability to meet payments (current payments) of a debt. A quick ratio of about 1:1 and current ratio of 2:1 is quite acceptable and this is one of the general rules.

The Collection Period in Days and Inventory Turnover of Southwest Airlines

The main objective of this ratio is to assist in knowing how soon inventory will be sold and how soon accounts receivable will be collected. In all financial ratios, the company’s operating and management procedures need to be accounted for.

Analysis

The quick ration has also been above 1:1 which can be considered to be a benchmark value for this ratio.

Southwest Airlines gives reduced fare air transportation services. This means that it is not highly inventory sensitive entity. Southwest's inventory turnover is high as compared medium quartiles of the industry. The inventories have got flight material expendable parts. All this are charged to expenses when given for use.

Conclusion

Economic Forecast for the Industry

This Airline has got the better part in this industry because apart from being on of the largest operator in the United States it has got a very good trend in the market. South west Air line will continue to well even in future due to its low operating costs policy. Share holders will always get better dividends and any potential investors will always be attracted to this company in future.

For anyone who wants to invest in this company can as well look at this report and other financial reports by different analysts and I am guaranteeing pure satisfaction in whatever the plan he/she has upon investing into this airline.