Question

in 200 words

what would be the risks of forming a strategic alliance in terms of Southwest Airlines profitability ratios ? which of the 5 ratios ( return on total assets, return on stockholders equity, return on common equity, operating profit margin, net profit margin) is most likely to reveal immediate information for analysis of the alliances effectiveness?

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Answer 1

Southwest airline is one of the oldest aviation transportation companies run over 40 states in 100 destinations with around 50 non stop destination flights. Risk associated before forming an alliance is that the individual company should ensure that the resulting alliance is complementary to each other, not competitive to each other. Being enjoying the trail of success from histories Southwest airline always dominated over the other alliances and focused on one way relationships with"unequal contributions to the alliance". In order to gain competitive advantage and capture the market one can form the alliance with Southwest Airlines by filling and bridging the gap or the weaknesses of the Southwest airline.

In terms of profitability ratio the strategic alliance with Southwest airlines is always beneficial and there is less risk associated with the alliance because figures of profitability ratio of Southwest airline shows that the company has best to keep its promises towards its equity shareholder and has great operating efficiency with good net profit margin. Also the return on total investment of Southwest airline shows that yes the company is best to retain good success on its investment.

Operating profit margin is most likely to reveal immediate information for analysis of the alliance effectiveness because operating profit shows the relationship between the operating profit and the net sales by ignoring the non operating expenses and incomes. Operating profit is more appropriate then net profit ratio for the purpose of determining the operating efficiency. Net profit ratio may mislead the individual because it includes non operating expenses and incomes. High operating profit ratio indicates that the business is managed efficiently .