The author presents evidence that recently Southwest Airlines had a negative working capital gap.Which of the following reasons is likely to be primarily responsible for this enviable situation.

Question

Quizplus · Accepted Answer

Southwest Airlines receives payment from customers in advance of most flights, which creates a negative working capital gap. This means that Southwest has enough cash on hand to cover its current liabilities, and it does not have to rely heavily on borrowing for short-term financing. Option A is incorrect because the question asks for the primary reason, and borrowing is not the primary reason for the negative working capital gap. Option C is also incorrect because paying for fuel in advance would increase current liabilities rather than decrease them. Option D is incorrect because granting long credit terms would increase accounts receivable and reduce cash flow, thus increasing the working capital gap.

The Author Presents Evidence That Recently Southwest Airlines Had a Negative