Amazon Ratio

free essayThe Amazon Company is one of those Fortune 500 electronic based commerce companies; its main office is in Seattle. Amazon was founded in 1994 by Jeff Benzos. The company deals with advertising and selling music CDs, books, software, video games, VHS tapes and DVD, clothing, furniture, toys and food items.

Current Ratio

The ratio is given by Current Assets / Current Liabilities. From the calculation of 21296/19002, the ratio of 1.12 indicates the rate in which current assets can be used to service current liabilities. Current assets include cash, stock, debtors and bank. They can be used on some occasions to settle debts that relate to short-term liabilities. The short-term liabilities include creditors and other payables. The company can use the ratio to determine on what extent the management can use current liabilities to settle debt in situations when there are no other means.

Acid-test Ratio

The acid test ratio (Cash + Short-term investments + Current receivables) / Current Liabilities. The calculation is as follows: (8084+0+3364)/19002=60%. Note that acid test ratio is calculated by means of less stock, which has been found to be less liquid. The liquidity level is determined by how fast an asset can be converted to cash. This means that Amazon can have highly liquid assets. This means that the assets can be easily changed to cash. It is an advantage to the company for its assets to be easily converted to cash. They can use the current to meet unforeseen or contingent liabilities.

Accounts Receivable Turnover

The accounts receivable turnover ratio is calculated as follows: Net Sales / Average Net Accounts Receivable.

And the calculated figure of 21093/ ((3364+2571)/2) = 7.11times.This reflects the speed at which debtors can be converted to sales. The ratio indicates that debtors of the company can be converted to sales and revenues at the rate of 7.11 times. Therefore, investors will be attracted to buy Amazon company securities because the debts cannot lead to liquidity of the company. Investors believe that their money is secure in Amazon and hence they can continue to invest more. If the figure is less than one, the company may be liquidated because the debtors are not servicing the debts on the right time.

Inventory Turnover

The ratio is given by Cost of Goods Sold / (Average inventory = (Beginning inventory + End inventory) / 2) formula. From the calculation we observe that 45971/((4992+6031)/2)=8.34 times. This ratio indicates the speed at which cost of goods sold can be serviced by stock available. We notice that the Amazon Company has a strong inventory turnover of 8.34 times, meaning that stocks in the company generate revenues at a high speed. Investors feel secure with revenues in Amazon because more profit can be generated from the flamboyant stock level.

Days’ Sales Uncollected

The ratio can be calculated through the following formula: (Accounts receivable, net / Net sales) * 365. From the ratio we notice that (3364/61093)*365= 20.10.This reflects that it takes only 20 days for the company to be paid by its debtors. The worse scenario is where the debtors take more than one month. This reflects Amazon Company is on the safe side and, therefore, has the shortest day’s sales uncollected.

Day’s Sales in Inventory

The ratio can be given by the following formula: (Ending inventory / Cost of goods sold) * 365

According to our calculation, (6031/45971)*365= 47.88 days. This ratio can be used by the management to assess the speed at which the inventories can be used to generate revenues. We observe that the company takes 48 days to raise revenue from the inventories. This is long and, therefore, the management must devise new ways of reducing the period. This can even shy away the investors and hence trigger liquidation of the company. Usually the period should be less than a month for the investors to feel confident.

Total Asset Turnover

The ratio is given by Net sales / Average total assets. According to the calculation, 61093/((32555+25278)/2)= 2.11times.This ratio can be interpreted to mean that the total assets can be converted 2 times faster to sales, hence the Amazon Company can attract investors.

Debt Ratio

Debt Ratio = Total liabilities / Total assets. The ratio is calculated as follows: 24363/32555= 75%.This means that the total liabilities can be easily serviced by the total assets available; this means the company is safe for investors.

Equity Ratio

It can be calculated as follows: Total equity / Total assets; 8192/32555= 25%. The value shows that total assets cannot be easily converted into equities within the company; thus, investors find it safe to invest in the company.

Debt to Equity Ratio

The ratio can be calculated as follows: Total liabilities / Total equity; thus, 24363/8192= 2.97 times. This ratio indicates that Equities can be converted into debt at the rate of 2.97 times; this means it is safe for investors.

Times Interest Earned

The ratio is given by income before interest expense and Income taxes / Interest expense. According to the calculation, (544+92)/92 = 6.91 times. This ratio indicates the rate at which interest expense can be serviced by profits after tax. This ratio is safe for the investors.

Profit Margin Ratio

The value is calculated as follows: Net income / Net sales; as a result, (-39)/61093 = 0%.The rate at which the sales generate income is zero, meaning the company may not be safe to a certain extent.

Gross Margin Ratio

This value is calculated as follows: (Net Sales – Cost of Goods Sold) / Net Sales; from the calculation we found that, (61093-45971)/61093 = 25%.This indicates that the company is profitable and good for investors.

Return on Total Assets

The value is calculated as follows: Net income / Average total assets = ((Total Asset previous year + Total Assets current year)/2). From the calculation we find that,

(-39)/((32555+25278)/2) = 0%, meaning that assets yield zero returns, hence not suitable for investors.

Return on Common Stockholder’s Equity

The value is calculated as follows: (Net Income – Preferred Dividends) / Average common stockholder’s equity. According to the calculation, (-39-0)/((5+5)/2) = -780%. This indicates that it is risky for investors to invest in the company.

Book Value per Common Share

The ratio is calculated as follows: Shareholder’s equity applicable to common shares / Number of outstanding common shares. According to the calculation, (50+4.78+4.54)/454= 0.13 times, meaning that the shares have little value to investors.

Basic Earnings per Share

The value is calculated as follows: (Net Income – Preferred Dividends) / Weighted – average outstanding common shares. From the calculation we have the following: (-39-0)/453= -0.09, meaning investors have little interest in buying the shares.

Price Earnings Ratio

The ratio is calculated as follows: Market price per common share / Earnings per share. Thus, 346.76/0.59 = 587.73 times. This means that the earnings yield less than the share value.

Recent Company News

The Amazon Company has recently decided to expand its business operations in Africa and south Asia. This is expected to be realized by 2018.

Company Strengths

The company boasts of highly talented employees who believe in success. The company’s relations with other websites allow it to easily attract potential customers by means of adverts and links. Customers are able to conduct additional or repeat purchases with just one click, hence boosting and quickening company sales.

Threats and Risk Factors

The company faces a stiff competition from other online based companies. The national Internet sales tax is bound to be adopted soon. Potential customers may be dissatisfied with the need to pay taxes online, and may turn to other grand companies, like Wal-Mart.

Recommendation to Buy / not to Buy

It is recommended for investors not to buy the company’s shares right now, since the returns on the shares are almost zero.