After analyzing the different ratios, it would conclude that Southwest is doing very well. Liquidity Ratios: Liquidity ratios use the ratio to determine a company’s ability to pay Off its short-term debt obligations. This ratios express the company’s capabilities of repaying the short-term responsibilities using the current assets. The ratios re used by lenders, creditors among other stakeholders to show the financial muscle of the company to clarify its liquidity. The ratios are; current ratio and quick ratio, which are significant in tallying liquidity and cash flow.

The current ratio is current assets divided by current liabilities with the positive number( answer) showing the number of times the current assets can cover the current liabilities while a negative confirms the same. The quick ratio is derived by deducting the inventory figure from the current assets then dividing the answer with the current liabilities. This further elaborates the rim’s position in paying its short-term liabilities without considering inventory, which has not been sold to create cash flow.

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Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover the short-term debt. As you can see from the chart below, Southwest Airlines is very strong financially and has a lot of liquid assets/cash available to pay short-term debt if the need arose. Liquidity Ratios 12/31/2013 Net Current Assets % TA -7. 52 -631 -227 -l . 04 Market -value Indicator: These are a sequence of diverse indicators that are used by analyst, investors, and other stakeholders to understand the trends of a particular stock.

The most commonly used ratio under the market value indicators is the price-earnings ratio, derived by dividing the price per share with the earning per share in a specific period. The price to earnings ratio (PEE Ratio) is the measure of the share price relative to the annual net income earned by the firm per share. PEE ratio shows current investor demand for a company share, with the example below showing the trend in the past five years. DuPont Analysis: The industry benchmark compares the aggregate of firms in the same industry. The chart below is how Southwest Airlines is compared to their competitor Delta Airlines.