Beruflich Dokumente
Kultur Dokumente
Southwest Airlines
Name
Table of Contents
FINAL PROJECT MILESTONE ONE - Module Three 3
Financial Performance and Health 3
A. Organizational Context 3
B. Recent Financial Performance 3
C. Current Financial Health 4
FINAL PROJECT MILESTONE TWO - Module Five 6
Success Factors and Risks 6
FINAL PROJECT MILESTONE THREE - Module Seven 7
Projections 7
FINAL PROJECT SUBMISSION - Module Nine 8
Business Opportunities 8
Executive Summary 9
References 11
Appendix A 12
FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 3
United States as well as near-international markets. The provision of scheduled air transportation
services helps in setting the boundaries for business decisions since the company is usually
restricted in operating in the programmed locations. The company is organized and managed by
function. There are different individuals in the management of the organization based on the
functions that they carry out. The management of the organization has adopted a flexible
approach in its operations and associations with both workers and customers. The organization of
the company by function is critical in influencing accounting and financial information as well as
subsequent business decisions since every task is usually associated with the individuals
the company has been successful. This is because the net income for the company has been
increasing for the past three years. In 2015, the company made a net income of $2,181 million
while in 2016 the net income increased to $2,244 million. In the year 2017, the company’s net
income was $3,488 million, which also indicated an increase from the 2016 value. This being the
case, the company can be indicated to be performing strongly for the past three years (check
figure (a) in the appendix for a graph showing how the company has progressed in terms of net
provided by operating activities was high in 2016 and decreased in 2017. The net cash provided
FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 4
by operating activities in 2015 was $3238 million while in 2016 it was $4293 million. This value
indicated an increase from the 2015 amount. Alternatively, in 2017, the net cash provided by
operating activities decreased to $3929 million. However, in the case of net cash flow from
financing activities, the values showed a constant increase for the past three years. In 2015, the
value was $1913 million while in 2016 it was $2272 million. Alternatively, the value was $2408
in 2017. On the other hand, net cash flow from financing activities was the highest in 2016, but
lowest in 2015. In 2015, the value was $1024 million and increased to $1924 million in 2016
only to decrease to $1706 in 2017 (figure (b), (c) and (d) in the appendix show this relation). The
cash provided by operating activities stands out since it provides the highest values in the cash
flow statements.
that of the industry. This is evident from the company’s 2017 annual report. The 2016 and 2017
financial results indicated that the company had higher earnings, which translated to strong
performance in the stock market. The company led the industry in the two periods and the entity
was placed ninth in the entire S&P 500 for a period of five years that ended in 2017 (Southwest
Airlines, 2017). Therefore, the company can be indicated to be thriving in the industry.
as the current ratio and debt/equity ratio. The ratios are computed below as follows;
Current ratio = Current assets/ current liabilities
Current ratio = $4815 million / $6905 million
= 0.69
Debt/Equity ratio = Total liabilities / Total shareholders’ equity
= 14680/10430
= 1.41
From the current ratio, the company can be indicated to have higher current liabilities compared
to the current assets. Thus, in the short-term, the assets of the company cannot be used to support the
current operations of the entity. This implies that the financial position of the company is not so strong
FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 5
because it has to facilitate its short-term operations through debt. Alternatively, in the case of the
debt/equity ratio, it can be indicated that the company utilizes about 14% debt relative to its stock value.
Thus, the company does not use a lot of debt to facilitate its operations.
The organization has the right amount of cash as well as other resources that are important for
fueling future growth. The company has the right combination of resources since it is performing strongly
relative to other firms in the industry. Although Southwest Airlines has competitors such as JetBlue and
Frontier, it has profitability that is usually driven by decreasing costs as well as increasing passenger
revenue (Goldberg & Weiss, 2018). This being the case, the airline can be considered to have the right
resources meant for future growth. In case the organization does not have the right mix of cash and other
resources, it would not be in a position to outcompete its competitors. The resources that the company
has seem to be sufficient for future operations, but should not be misused in unworthy course.
According to The Value Investor (2018), Southwest Airlines reported its 45th year of
well as operational excellence. The company has more than doubled its sales from $10 billion in
the year 2007 to approximately $21 billion in 2017 (The Value Investor, 2018). The market price
of the company’s stock is $60.82 (The Wall Street Journal, n.d). The company has a price-to-
earnings ratio of 10 (The Wall Street Journal, n.d). This implies that the investor perceptions
concerning the business’ future are that the firm will have a higher growth in the coming days.
The organization’s financial and strategic priorities affect accounting procedures and
business decisions since they determine the course that the business should take. The direction
taken by the company may influence the success of the business since the course chosen may
support or fail the operations of the company. For instance, the management is efficiency-
FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 6
oriented and this may help in the realization of the company’s competitive advantage. The
company uses derivative contracts in managing its risks (Southwest Airlines, 2017).
The organization can capitalize on non-financial factors through different approaches. For
instance, in the case of patents, the company should review changes in government guidelines.
Federal as well as local governments have different checks and balances, which may tend to
cause disruptions to businesses in case an entity is not prepared (Ahmed, 2018). Such aspects
include patent laws. In the case of human resources, it is crucial for the Southwest Airlines to
consider market and external conditions, which may affect the operations of human resources.
A significant internal risk for the company is its low-cost structure. Although the low-cost
structure has helped in attaining a competitive advantage, it has made it difficult to enhance the
company’s industry cost position. This may influence the ability of the company to control its
costs (Southwest Airlines, 2017). Besides, any failure or delay in implementing the company’s
Projections
From the consolidated financial statements, the net income for the company is as
presented in the table above. Assuming that the future net income is based on the performance
FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 7
for the three years and changes will be constant, then the projected net income for 2018 would be
as follows;
= $2790 million
= $2972 million
In the best case scenario, for the coming year, the projected net income may be based on
the three-year moving averages so that it realizes the value $2638 million.
= $2638 million.
In the worst-case scenario, the profit may be influenced by a loss of company’s assets
worth 24 million. In this case, the projected net income will be less by 24 million
= $2614 million.
Discussion of finding
There are different influences that may have an impact on a business. This being the case,
it may be assumed that the profitability of the company will remain constant, but change
depending on the situations that may emerge. The assumptions are consistent with the company’s
mission and priorities, but they may change any time. Alternatively, the assumptions may not be
attainable. Changing the assumptions will lead to a difference in the projected values.
FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 8
Business Opportunities
international transportation. This is because the company has already made considerable strides
in providing short-haul flight services. The basic features of the investment constitute the
nations. This will help in increasing the profitability of the company as it would expand its
customer base.
There will be different costs and benefits associated with the new investments. The costs
will include purchasing long-haul jets, acquiring licenses to operate in different countries, human
resources, and technology. The costs may be approximated to around $250 billion. Alternatively,
some of the benefits would include increased profitability, enhanced sales, and augmented
market share. The approximate costs and benefits will have the impact of changing the
The potential investment will have an impact of increasing budgeting for the company
and may influence related business decisions in case it is implemented. The investment will
require a lot of funds, whose returns may not be realized within a period of one year. However, in
the long-term, the company may be in a position to recoup its expenditure used in the
Executive Summary
FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 9
United States as well as near-international markets. The provision of scheduled air transportation
services helps in setting the boundaries for business decisions since the company is usually
restricted in operating in the programmed locations. Southwest Airlines reported its 45th year of
well as operational excellence. The company is expected to continue making high profits in the
future based on its management plan. It is recommended that the company should consider
investing in international flights. This is because the company has resources that it can invest in
the project. The intended audience for the report is the investors of the company. In refining the
report further, the person that will be contacted is a financial analyst. This is because a financial
References
https://bizfluent.com/info-12042314-nonfinancial-factors-accounting.html.
Goldberg, R. & Weiss, E. (2018). Why Southwest Airlines’ competitive advantage might be
https://www.washingtonpost.com/news/business/wp/2018/01/11/why-southwest-airlines-
competitive-advantage-might-be-saying-no/?noredirect=on&utm_term=.d7ffcdff9e9a.
Southwest Airlines. (2017). Southwest Airlines Co. 2017 Annual Report to Shareholders.
IR/Bookmarked%20Annual%20no%20blanks.pdf.
The Value Investor (2018). Southwest Airlines: Quality Has a Price. Retrieved from
https://seekingalpha.com/article/4143340-southwest-airlines-quality-price.
The Wall Street Journal. (n.d). Southwest Airlines Co. Retrieved from
https://quotes.wsj.com/LUV/financials.
FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 11
Appendix A
Figure (a) Net Income of Southwest Airlines for the Past Three Years
Figure (b)
FINANCIAL PERFORMANCE AND HEALTH OF AN ORGANIZATION 12
Figure (c)
Figure (d)