Southwest's interest coverage is comfortable, at 3.909. Southwest's operating leverage is high, as they are in a low margin business. They had a negative change in EBIT over the period, as did AMR, despite both having higher sales. Southwest's combined leverage is 1.505, much stronger than AMR, which suffered a huge decline in earnings per share despite having higher sales.

10) the weighted-average cost of capital for Southwest is 0.56%. This is based on a risk free rate of 1.2% (three-month T-Bill) and a historic return on the Dow Jones of 3.2%. For AMR, the WACC is 3.53%. This reflects that AMR's equity has a negative value, and that they do not pay dividends. Their cost of capital is the cost of their debt.

11) LUV's chart is very stable, whereas AMR's is not. AMR has been highly volatile in the past couple of years, showing strong gains and then...
[ View Full Essay]