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What is the focus when evaluating Southwest Airlines asset utilization ratios? This category of ratios evaluates...

What is the focus when evaluating Southwest Airlines asset utilization ratios? This category of ratios evaluates how effectively the company is using its investment in assets to generate sales.

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Answer #1

Here we are talking about Asset turnover ratio which is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue or sales income to the company. The total asset turnover ratio calculates net sales as a percentage of assets to show how many sales are generated from each dollar of company assets.

For Example : Southwest Airlines Co's Revenue for the three months ended in Mar. 2018 was $4,944 Mil and its Total Assets for the quarter that ended in Mar. 2018 was $25,307 Mil. Therefore, Southwest Airlines Co's asset turnover for the quarter that ended in Mar. 2018 was 0.20.

Why we need to focus on Asset Turnover because it is liked with ROE and ROA for the company (DuPont formula):

ROE = (net profit margin) * (asset turnover) * (equity multiplier)

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