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Presented by:
Duane Bennett
Ratio
Information received
Working Capital
$2,294 Million
Current Ratio
1.12:1
1.54:1
Cash Ratio
.425
Acid-Test Ratio
.78
.82
Page 2
Amazon.com
Information Received
Inventory Turnover
8.34 times
4.8 times
43.76 days
75.42 days
24.75%
33.55%
20.587 times
10.11 times
17.73 days
36.11 days
4/28/2016
Ratio
Information Received
Debt Ratio
74.8%
34%
297%
52%
Times-Interest-Earned Ratio
5.23 times
5.33 times
Page 3
Profitability
The profitability for Amazon was measured by using the following four ratios: Profit Margin, Return
on Total Assets, Assets Turnover, and Return on Common Stockholders Equity; as well as a
determination of the Earnings per Share. Profit Margin Ratio was calculated by dividing net
income by net sales. The negative profit margin is a concern because, in 2012, it shows that for
every dollar of sales Amazon lost 6 cents in the transaction. This could be construed as a negative
by itself when compared to the industry average. Rate of Return on Total Assets measures the
companys success in using assets to earn a profit. The formula used to calculate this is net income
and interest expense combined, divided by average total assets for the year. The industry average
is 26 times higher than how Amazon performed in this area. This again is a direct correlation to the
large increase in liabilities (debts) that are being used to finance assets. The concern here for the
return on assets will also affect the stock as an investment, as will be shown. Asset Turnover
Ratio is net sales divided by total assets. This ratio tells us how effectively the company has been
able to use its assets to generate sales. The fact that the industry average is lower than that of
Amazons ratio is a large bright spot for profitability because it means that, despite taking on
liabilities, it has the potential to generate sales, which can be used in the future to pay off those
liabilities. Return on Common Stockholders Equity is determined from net income less
preferred dividends (Amazon declared no dividends the last two years), divided by the average
common stockholders equity. This rate describes the relationship between net income available to
common stockholders and their average equity (ownership) invested in the company. As Amazon is
primarily financing with debt, this ratio will reflect that financing decision, which will make it look
poorly as an initial investment. Last, Earnings per Share is the increase or decrease in the
amount earned per share. It is a quick glance at how much holding this companys stock will
benefit the stockholder. The amount is calculated: net income less preferred dividends with the
result divided by the weighted average number of common shares outstanding. Again, the stock
has lost ground due to Amazon financing its acquisition of assets with long-term liabilities. This is
unfavorable.
Ratio
Information Received
-.06%
2.87%
.18%
4.76%
2.11
1.66
-.49 %
11.39%
-$.09
$10.54
4/28/2016
Page 4
Ratio
Information Received
Price/Earnings Ratio
-2854.67
47.17
Dividend Yield
N/A
Dividend Payout
N/A
Conclusion
It is the opinion of this analyst, that despite utilizing a large amount of long term and current
liabilities to finance the company assets, those assets are primarily warehouses which increase
capacity for inventory and website development which streamlines their marketplace. That
inventory, if sold at the current efficiency and rates of the current and previous year, would
represent a substantial increase in profitability and an increase in the ability to pay off long term
debt. Subsequently, as the profit would increase, the viability of the stock as an investment would
go up as well. Further, it is the advice of this analyst that a greater portion of financing be derived
from issuing stock to limit the impact upon profits and manage the debt load that is carried.
4/28/2016
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