The liquidity and profitability ratios are essential in giving insight into the current financial performance of Southwest Airlines. The liquidity ratios, like the quick ratios and the current ratio, assure whether a firm can settle the current debt obligations. On the other hand, profitability ratios include the net profit margin, operating profit margin, and the return on total assets. These ratios are critical in ascertaining whether Southwest Airlines is generating enough profits to finance its expenses.

One can determine whether the calculations yield positive or negative results through the general rule that any ratios surpassing 1.0 are positive while ratios below 1.0 are negative. In addition, one can rule out a negative outcome by comparing ratios obtained by the industry averages. Some ratios that can indicate an area of concern regarding the current Southwest Airlines strategy include the low liquidity ratios, low profitability ratios, high leverage ratios, and low activity ratios.

Low liquidity ratios, marked by ratios below 1.0, indicate that Southwest Airlines cannot meet short-term financial obligations accruing to the firm. Cases of low operating profit margin and low net profit margin can suggest that the Airline is obtaining reduced income from various operations conducted by the Airline. The low-profit margin and low net profit margin can also indicate that the Airline is making losses. Regarding the activity ratios like low total asset turnover, the ratio suggests that the current Southwest Airlines strategy is underutilizing the firm’s assets.

The underutilization of the company assets challenges the ability of the firm to generate revenues effectively. The high leverage ratios, which are also critical in the evaluation of the Airline, indicate the firm is operating on negative net worth. These ratios help inform that the financing of Southwest Airlines is through debt. The percentages help ascertain any ineffectiveness of the Airline’s strategy and the likelihood of running bankrupt or seizing to operate.