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Southwest Airlines And Sec Research Paper

Southwest Airlines K Annual SEC Report Review

What 3 items of important information does the income statement reveal about the financial performance of the company over the last three years?

There are many different items that the income statement reveals about Southwest Airlines. In 2015, the company really had a good year financially. The company's total revenues grew considerably, while at the same time the total operating expenses also dropped significantly which lead to the total operating income that was nearly double that of the previous reporting year. However, many of these points were already made in the report introduction. Passenger ticket sales were up, fueling revenue growth, while at the same time, costs, primarily from decreases in fuel costs, which resulted in the company having one of its best years in the company's history.

There are some more subtle insights that can also be gained from the income statements that were not yet mentioned. For example, the aircraft rental account shows a steady decrease over the three-year period included in the reporting. It is likely that Southwest uses third-party vendors in which they rent planes from when their own internal fleet is at its capacity. It is also likely that these rentals would be associated with the freight operations, as opposed to the passenger revenues. Therefore, given that the freight business had increases in revenues, while also used less "aircraft rentals", then it is reasonable to suspect that Southwest has increased its own internal fleet of planes from the previous year. In fact, if you look at the "acquisition and integration" account it appears that the company made a large investment in acquisition in 2014 (126 million), which could explain the decreases in aircraft rental expenses that appear on the income statement.

Question 2: What 3 items of important information does the balance sheet reveal about the financial position of the company over the last two years?

Most of the asset accounts that Southwest maintains show increases over the...

However, there are some that have decreased as well. For example, the short-term investment account shows a significant decrease. This could be a result of several different kinds of activity within the company. The short-term investments could include such things as fuel or fuel contracts. Since we already know that the costs associated with fuel have decreased, it is reasonable to suspect that an investment in fuel, as a short-term investment, would reflect these changes. For example, if Southwest had to maintain a certain amount of fuel to power its fleet, then the same amount of fuel, at decreased prices, would also translate into a smaller amount of investment.
Another interesting movement in the asset accounts over these two years, is the increase in the deposits for flight equipment purchase contracts. It is clear that Southwest has leveraged some of its success over the last year to reinvest in the company's assets. Over the course of the two years represented in the balance sheet, Southwest has nearly doubled its deposits on contracts for new equipment. It is also likely that the company will continue to increase revenues by using the assets that they are contracting to purchase by either expanding their operations, or potentially retiring older equipment. The newer equipment is likely more efficient than the older models and thus they should also experience marginal benefits from operating this equipment as well.

Question 3: Can you identify the major sources of funding used by the company from the information presented in the company's annual report? Please look at the Statement of Cash Flows, formerly called the Source and Uses of Funds Statement.

The cash flow statements indicate that the company used a bulk of its cash that it made from its good 2015 performance to finance the bulk of its investing activities. For example, the net cash that was provided from its operations in 2015 was 3,238 million, but the company used 1,913 million of those funds to invest in various assets. Southwest also spent over 2 billion dollars in capital expenditures…

Sources used in this document:
Works Cited

SEC. (2017, February 7). CERTIFICATION OF CEO AND CFO. Retrieved from SEC: https://www.sec.gov/Archives/edgar/data/92380/000009238017000029/luv-12312016xex32.htm

SEC. (2017). Southwest Airlines 10-K. Retrieved from SEC: https://www.sec.gov/Archives/edgar/data/92380/000009238017000029/luv-12312016x10k.htm

Southwest Airlines. (N.d.). Audit Committee Charter. Retrieved from Southwest Airlines: http://filecache.drivetheweb.com/ir1_southwest/230/download/Audit+Committee.pdf wikinvest. (2009). Southwest Airlines Company (LUV). Retrieved from wikinvest: http://www.wikinvest.com/stock/Southwest_Airlines_Company_(LUV)/Relationship_Independent_Auditors
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