Provide relevant financial data that business leaders would use to understand th

Question

Provide relevant financial data that business leaders would use to understand the financial health of their organization. Also provided data that business leaders would be able to use to make sound business decisions. (Data is provided for Southwest Airlines...Income Statement, Balance Sheet, Cash Flow and Stockholders Equity).

A) Provide an analysis of the current financial health of Southwest Airlines. What is working and what is not. What areas could be improved.

SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited) Year ended December 31, Year ended December 31, Year ended December 31, 2016 20142015 CASH FLOWS FROM OPERATING ACTIVITIES: 2,181S Net income Adjustments to reconcie net income to cash provided by (used in) operating activities: 1.136 ,015 113 (109) 1,221 Loss on asset impairment Unrealized/realized (gain) loss on fiuel derivative instruments Deferred income taxes 501 Changes in certain assets and iabilities: Accounts and other receivables Other assets Accounts payable and accrued liabilities Air traffic liability 142 36 103 (119) 125 535 165 4,293 Cash collateral received from (provided to) derivative counterparties Other, net (233) Net cash provided by operating activities 2.902 CASH FLOWS FROM INVESTING ACTIVITIES: (1,748) Capital expenditures Assets constructed for others Purchases of short-term investments Proceeds from sales of short-term and other investments Other, net (2,041) (102) (1,986) (109) (3,080) 3,185 Net cash used in investing activities (1,727) (1,913) (2,272) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long term debt Proceeds from Employee stock plans Reimbursement for assets constructed for others Proceeds from termination of interest rate derivative instruments Payments of long-term debt and capital lease obligations Payments of convertible debt Payments of cash dividends Repayment of construction obligation Repurchase of common stock Other, net 300 515 110 107 12 (561) (139) (955) (213) (523) (180) (10) (1,180) (222) (1,750) Net cash used in financing activities 024 ,924 NET CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS AT END OF PERIOD 301 355 1,680

Explanation / Answer

Lets start from the beginning i.e cash flow statement

1-Their cash from operating activities is rising along with income which is a good sigh as it shows that company is able to generate cash freely to sustain business operation.

2-Their cash flow from investing and financing is negative this means cash is being spent on investment for future growth and creation of shareholder value. Negative cash flow from financing also suggest that Southwest is pruning their loan by paying their creditors. Which in future put more cash in the hand of company as interest outgo to banks and bondholders will be less

Overall cash flow statement shows sign of vary healthy company

3-Return on invested capital is rising and it has risen 4 times since 2012.30% return shows that company is using its capital very efficiently. From an shareholder perspective it a good thing company ultimately giving these my capital.

4-Company current asset are filled from cash and investment rather than inventory which can go idle or receivable which might turn bad. Cash and investment form 73% of current asset.While fixed asset is dominated by hard asset such as flight equipment.Equity portion is higher compare to LTM debt(2821/4889 =.33).Balance sheet wise too southwest looks strong.

5-If we see then we find that account payable are more than inventoy and accnt rec.this mean south west is receiving it sales payment early but paying its supplier late.From working capital management point of view this is a good thing.

6)P/L statement show that company is able to maintain NPM>10% and had no non-operating cost such as interest etc.In 2016 it seems that company revene from passenger segment has been stagant while cost have risen(PASS REV GRE JUST BY 1% WHILE COST BY 6%).this has reflected in the for of low ROIC.As an investor I would like to pause and see that if these revenue fall are cyclical or due to some other reason such as new players entry and rising competition

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