Westjet: Financial Analysis: Liquidity Ratio

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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
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In comparison to the debt to equity ratio benchmark of the airline industry being 0.85 which definitely under 1.0, WestJet has consistently maintained ratios that are far less than the industry average. This signifies that the proportions of debt and equity financing that they use allow for them to meet its payment obligations, which also implies that they are a more financially stable business than many of its competitors. WestJet 's low debt-to-equity ratio definitely suits them especially since they are operating under volatile and unpredictable business environments, as they cannot afford financial commitments that they cannot meet in case of sudden downturns in economic

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