The Current Ratio Is A Liquidity Ratio Essay

938 Words Nov 2nd, 2016 4 Pages
Liquidity Ratio
The current ratio is a liquidity ratio, which analyzes WestJet 's working capital, and measures their capability to settle its short- term obligations. This ratio also assists investors and creditors in understanding the liquidity of the airline and how easily they can pay off its current liabilities. According to WestJet 's annual reports ,"We maintain a strong liquidity position and sufficient financial resources to meet our obligations as they fall due."(WestJet, 2015). With reference to Appendix 1 and 2, and investigating the relationship between the airline 's current assets and liabilities, over the past few years, WestJet has displayed the ability to pay its current debts using assets that can be easily converted to cash in the near term. WestJet has been able to maintain a ratio that is higher than 1.0 and higher than the industry average, which suggests that 's they well equipped to meet current financial obligations. Their current ratio was 0.97 at year-end on December 31, 2015, in comparison to 1.29 at year-end on December 31, 2014, which decreased by 24.8%. According to WestJet 's annual report for 2015, "the decline in their current ratio is due primarily to increases in accounts payable and accrued liabilities, our liabilities related to our WestJet Rewards Program, and the current portion of our aircraft maintenance provision as well as a decrease in our cash and cash equivalents and the absence of an assets held for sale balance that was…

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