Southwest Airlines 10-K

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Muhammad Qureshi Jeff Nowakowski Phase II: Southwest Current Assets: Accounts Receivables a. Analyzing Receivables: There is limited information about the bad debt expense or the allowance for doubtful accounts on Southwest’s 10k. According to the 10k, accounts receivables are carried at cost and the allowance for doubtful accounts was immaterial so the company did not provide figures for the account. The largest source of accounts receivable for Southwest is credit cards companies. These receivables are associated with ticket sales for future travel and amounts from business partners involved in firm’s frequent flyer programs. The fact that Southwest was not required to disclose actual figures on their allowance for doubtful accounts and bad debt expense because of their immateriality indicates that the company does very well with collecting their receivables. b. Other Analysis: Southwest other minor source of receivables come from fuel contracts. As of year end 2013, the company had $57 million in the receivable from third parties for fuel contracts as a current receivable. The company uses netting policy for cash collaterals held against them. If the fuel derivatives are in net asset position, the cash collateral amounts are netted again current outstanding derivatives associated with that counterparty. Current Assets: Inventory a. Inventory Turnover: Southwest’s cost of goods sold has been consistent for the past 4 years. Inventory for 2011, 2012 and 2013 were consistent until a significant drop in 2014. The following tables show the inventory turnover for Southwest and United Airlines in the past four years. Inventory Turnover: Southwest: Year | 2011 | 2012 | 2013 | 2014 | Turnover | 30.52 | 28.57 | 28.57 | 38.34 | Days to Sell | 11.95 | 12.77 | 12.77 | 9.52 | Inventory Turnover: United Airlines: Year | 2011 | 2012 | 2013 | 2014 | Turnover |

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