Profitability and Creditworthiness Analysis for the Southwest Airlines
Profitability and Creditworthiness Analysis for the Southwest Airlines (LUV NYSE symbol) :
Various financial ratios are used by managers and investors to analyze company's financial health. In this section we describe return on equity analysis to measure the Southwest's performance. ROE is viewed as one of the most important financial ratios. It is used in an effort to evaluate management's ability to monitor and control expenses and to earn a profit on resources committed to the business. Three levels of ROE ratios assess Southwest Airlines' strengths and weaknesses, operating results and growth potential. These ratios are used to measure how efficiently the assets are being used to generate net income and sales. The ratios also allow comparison of the profitability of Southwest Airlines to that of similar airlines within the industry. Southwest Airlines is known for their cost- cutting ideology. One of Southwest's primary competitive strengths is its low operating costs. Southwest has the lowest costs, adjusted for stage length, on a seat mile basis, of all the major airlines. Among the factors that contribute to its low cost structure are a single aircraft. Other major discount airlines, such as JetBlue (JBLU), AirTran (AAI) and SkyWest (SKYW) are also in the mix, and represent some serious competition. Through out the analysis the company is to be compared to Skywest airlines, the airlines industry, and the S&P500 index .
Southwest Airlines' ROE has fallen each period over the past four years, from a high in 2003 of 9.07% to 7.60% in 2006. ROE for the trailing 12 months (TTM) ending December 31,2006 was 7.60% and it is more incline with the last year ROE . Comparatively to the industry it is well below the mark, but the company has done better than its main competitor JetBlue (JBLU) due to the high asset turnover and profit margin. Nevertheless, the company's averaged five-year ROE rate of 6.99% exceeds the industry average which is -0.23 but certainly
Various financial ratios are used by managers and investors to analyze company's financial health. In this section we describe return on equity analysis to measure the Southwest's performance. ROE is viewed as one of the most important financial ratios. It is used in an effort to evaluate management's ability to monitor and control expenses and to earn a profit on resources committed to the business. Three levels of ROE ratios assess Southwest Airlines' strengths and weaknesses, operating results and growth potential. These ratios are used to measure how efficiently the assets are being used to generate net income and sales. The ratios also allow comparison of the profitability of Southwest Airlines to that of similar airlines within the industry. Southwest Airlines is known for their cost- cutting ideology. One of Southwest's primary competitive strengths is its low operating costs. Southwest has the lowest costs, adjusted for stage length, on a seat mile basis, of all the major airlines. Among the factors that contribute to its low cost structure are a single aircraft. Other major discount airlines, such as JetBlue (JBLU), AirTran (AAI) and SkyWest (SKYW) are also in the mix, and represent some serious competition. Through out the analysis the company is to be compared to Skywest airlines, the airlines industry, and the S&P500 index .
Southwest Airlines' ROE has fallen each period over the past four years, from a high in 2003 of 9.07% to 7.60% in 2006. ROE for the trailing 12 months (TTM) ending December 31,2006 was 7.60% and it is more incline with the last year ROE . Comparatively to the industry it is well below the mark, but the company has done better than its main competitor JetBlue (JBLU) due to the high asset turnover and profit margin. Nevertheless, the company's averaged five-year ROE rate of 6.99% exceeds the industry average which is -0.23 but certainly