Question

Use EDGAR or the company’s website to download the latest 10-K of Southwest Airlines Co. (fiscal year ending December 31, 2019). Answer the following questions:

1. What is Southwest’s Balance Sheet Equation on December 31, 2019?

2. What is Southwest’s Net Income and Basic EPS (Earnings Per Share) for the fiscal year ending December 31, 2019?

3. Did Southwest retain most of its Net Income from the fiscal year 2019, or did the company declare some of it as dividends?

4. What is Southwest’s Net Operating Cash Flow for the fiscal year 2019?

5. Did Southwest’s Net Income for the year 2019 equal its Net Operating Cash Flow for that fiscal year? Explain why.

6. How much cash and cash equivalents did Southwest have on hand on December 31, 2019? On December 31, 2018?

7. Out of Southwest’s main activities (operating, investing, and financing), which activity(ies) provided a net inflow of cash and which activity(ies) provided a net outflow of cash during the fiscal year 2019?

8. What is Southwest’s book value (of equity) and market value (of equity) on December 31, 2019? Did Southwest’s book value equal its market value on December 31, 2019? What is Southwest’s market-to-book ratio? What does this market-to-book ratio indicate?

Answer 1

1. What is Southwest’s Balance Sheet Equation on December 31, 2019?

Assets= Equity + Liabilities

$25,895m= $9,832+( $8,952+$7111)

$25,895m= $9,832m+16063m

2. What is Southwest’s Net Income and Basic EPS (Earnings Per Share) for the fiscal year ending December 31, 2019?

$2300m

Basic EPS- $4.28

3. Did Southwest retain most of its Net Income from the fiscal year 2019, or did the company declare some of it as dividends?

Dividend paid during 2019 $377m

Out of $2300 net income paid a dividend of$377m

4. What is Southwest’s Net Operating Cash Flow for the fiscal year 2019?

$3987m

5. Did Southwest’s Net Income for the year 2019 equal its Net Operating Cash Flow for that fiscal year? Explain why.

No. Net income is $2300m where as Net Operating Cash Flow is $3987m.

Net income is calculated based on accrual basis of accounting. Net Operating Cash reflect, net of operating cash paid and received during the fiscal year.

6. How much cash and cash equivalents did Southwest have on hand on December 31, 2019? On December 31, 2018?

CASH AND CASH EQUIVALENTS AT END OF 2019 $ 2,548m

CASH AND CASH EQUIVALENTS AT END OF 2018 $ 1,854m

7. Out of Southwest’s main activities (operating, investing, and financing), which activity(ies) provided a net inflow of cash and which activity(ies) provided a net outflow of cash during the fiscal year 2019?

Net inflow of cash provided by operating activities$3,987m

Net outflow of cash used in investing activities($303m)

Net outflow of cash used in financing activities($2,990m)

8. What is Southwest’s book value (of equity) and market value (of equity) on December 31, 2019? Did Southwest’s book value equal its market value on December 31, 2019? What is Southwest’s market-to-book ratio? What does this market-to-book ratio indicate?

Southwest’s book value (of equity) on December 31, 2019 $808m

Southwest’s market value (of equity) on December 31, 2019 $808+$1581=$2389m