April Sween

ACCT 1120

Amazon.com, Inc. Financial Statement Analysis

The purpose of this paper is to analyze the company Amazons liquidity,

profitability, and solvency. Amazon is an American electronic commence company

with headquarters in Seattle, Washington. Amazon is the largest world wide web-

based retailer in the United States. It is an online store that sells books, DVDs,

VHSs, CDs, video and MP3 downloads or software and much more. Amazon also

sells certain low-end products like USB cables under its in-house brand

AmazonBasics.

The Liquidity of Amazon.com LLC: While there are many different

formulas to determine the liquidity of Amazon LLC. The formulas to understand

whether a company has good liquidity or not, are: Current Ratio as well as the Acid-

Test Ratio. The current ratio for Amazon.com as of December 31,2012 was rated at

1.12. In comparison to the Online Sales Industry Averages at 1.54. This shows that

Amazons current ratio is strong and poses minimal risk to the business, which is

also a good sign for the investors. The Acid test ratio rates at 0.78 and the average

industries average is at 1.82. Although this ratio is below average this is considered

acceptable as most ratings fall between .90- 1.00. Amazon.com LLC is considered a

high and a worthwhile investment for those who are interested.

The Profitability of Amazon.com LLC:

 To see the profitability for Amazon.com, you must look at the following

formulas. Inventory Ratio, Days in Sales Inventory, Gross Profit percentage,

Accounts Receivable, and Days in Sales Receivables. The Inventory Ratio for

Amazon.com LLC for the 2012 year is a rating of 8.3. In order to determine this the

ratio is a number times a companys average level of merchandise inventory during

the period. The average rate runs about 4.8. Since Amazons rate is nearly double

the average this shows that they could handle sales for nearly 44 days. The 44 days

is found using the Days Sale Inventory formula. For this ratio, you must divide one

year (365 days) by the merchandise inventory. For the Gross Profit Percentage, you

will see the profitability of each sales dollar above the cost of goods sold. Amazons

rate is 24.8% and the average rate is 33.55%. As their rate is slightly lower than

the average, you would have to look back into previous years to determine is this is

something they need work on or if it was just a setback for the year. Amazons

Accounts Receivable turnover ratio was 17.7 and the industrial average is 10.11.

Amazon has a higher ratio then the average, this means they have a higher number

of times the company collects the average receivable balance a year. Days Sale in

Receivables is the number of days it takes for them to collect the average level of

receivables. Amazon.com has a rate of 17.7 days and the average sits at 36 days.

The shorter the amount of days reflects that Amazons average days sales are

better than the industry average.

The Solvency of Amazon.com LLC is determined by Debt to Total Asset,

Times Interest Earned Ratio, Profit Margin, Return on Common Stockholders Equity,

and the Price Earnings ratio. The Debt to Total Asset Ratio for Amazon.com has their

ratio in 2012 at 75 % and the industry average is 34 %. Amazon has a much higher

number then average which puts them at risk for the solvency of the company. The
Times earned interest ratio represents the businesss ability to pay expenses.

Amazon has their ratio at 5.23 and the industry average is 5.33. This shows that

amazon does not have trouble paying its debt or the liabilities. The Profit Margin for

Amazon is at -0.06% and the industry average is at 2.87%. Amazon has a small

number in comparison to the industry average, this shows Amazon may be losing

money per every sales dollar for the year ended in 2012. Amazons Return on

Common Stockholders Equity sits at -0.49% and the average is %11.39%. This is

the relationship between net income available to its stock holders and their

average common equity invested in the company. This major decrease is showing

Amazon may have potentially taken a hit from that year and would have needed to

improve in the coming years. Finally, the Price/Earnings ratio for Amazon.com is at

-2854.67. The industrial average is 47.17. Amazon needs to increase their ratio if

they are expecting to gain more investors. Based on these Solvency reports, 2012

was not an appropriate time to invest in Amazon.com stocks.

In conclusion Amazon.com is overall a worthwhile investment company but

before investing you need to look at the solvency of this company. Every business

goes through a rough patch and its good to know about these before you invest in

a company. Amazon.com LLC has improved since then in the years we are in now

being 2016. I do believe this would be a good company to invest in but it is always

good to look at the different statistics and rates before making an investment.