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Your assignment is to prepare and submit a paper on the financial statement analysis of the southwest airlines.
Your assignment is to prepare and submit a paper on the financial statement analysis of the southwest airlines. In the financial year 2008, Southwest Airlines paid $130 million as interest expense and in this year the company earned Earning before interest and tax (EBIT) of $278 million. This gives an interest coverage ratio of 2.13 times. This means that the earnings of the company are sufficient for meeting two times the interest burden. The interest expense of Delta Airlines is $705 million and the company has a negative EBIT of $8336 million. From this, it can be inferred that the earnings of the company are not sufficient to taking care of its interest obligations. An interest coverage ratio of less than 2 indicates financial risk (Massachusetts Institute of Technology, n.d.). Although the interest coverage ratio of Southwest Airlines is not very high this is fairly good as compared with Delta Airlines.
The current ratio of Southwest Airlines is 1.03 as compared to 0.80 of Delta Airlines. This is can be interpreted as in the year 2008 the former had $1.03 for one dollar of short term liability. This is fairly good as compared to Delta Airlines which had only $0.80 for every one dollar of short term liability. From this, it is clear that the liquidity position of the former is better as compared to Delta Airlines (Washington State University-a, n. d.).
The debt-equity ratio of Southwest Airlines is 1.37 whereas the same for Delta Airlines is 50.5. This implies that the latter has a high level of debt exposure as is evident from its total debt position of $44140 million. The debt of Delta Airlines is nearly 7 times the total debt of Southwest Airlines. Due to its high leverage, the former is very risky. Moreover, Delta Airlines is making huge losses and the company is not capable of bearing such a heavy debt burden (Leonard Damodaran, n. d.).
The debt to asset ratio of Southwest Airlines is 0.44 implying that 44% of its assets are financed by debt whereas the same for Delta Airlines is 0.98. .
