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Dear Professor:
This is an analysis summary of the 2011 and 2012 financial statements of Amazon Corporation. With
the figures provided I believe you will be able to determine if Amazon Corporation would be a safe
investment for you. Provided in the following you will see the profitability and efficiency of this
company. This analysis contains five sections 1) ability to pay current liabilities, 2) efficient use of
assets, 3) ability to pay long term debt 4) profitability, and 5) evaluating stock as an investment. My
overall recommendation will follow, please contact me if you have any questions.
Asset Management:
Working capital was 1.17 and 1.12 for 2011 and 2012. This means that for every dollar of
current liabilities the company has, it has $1.12 of current assets to pay off the current liability. The
average for the industry is 1.54:1. A healthy working capital ratio falls between 1.2 and 2.0. The cash
ratio for 2011 and 2012 of $.35 and $.45 means the company would need more than just cash to pay of
liabilities. They hold less than one-dollar cash for every dollar of current liabilities. The Acid Test Ratio
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measures the companys abilities to liquidate the quick assets to pay off liabilities. Amazon Corporation
Inventory Management:
The company does very well with its inventory turnover, consistently exceeding the industry
average. These numbers show that the company sells its inventory quickly on average. The Debt ratio in
2012 is 75%, meaning that the company has many of the assets financed with debt. The Debt to Equity
Ratio shows that with 47% and 18% in 2012 and 2011 the company is using less than the industry
Debt Management:
The Times Interest Earned ratio is used to evaluate a companys ability to pay its debts. The
industry average is 5.33 times, meaning that a company can pay its liabilities 5 times over. Amazon
Corporation did well in following closely with the industry average of 5.23 and 15.18 for 2012 and
2011.
Profitability:
The profitability ratios are used to determine a companys ability to generate earnings. In 2012
Amazon Corporation fell short of earnings in many of these measurements. The Gross Profit Percentage
shows that they earned $0.24 for every dollar earned and was behind by six cents of the industry
average. Further evaluation shows that stockholder equity was behind industry average and investors
Conclusion:
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In my evaluation of Amazon Corporations asset and debt management, I believe that the
company has the appropriate amount of assets to liabilities and are utilizing each efficiently. Inventory
has a high turnover rate meaning they have a good number of buyers and desirable products. The
company had a decline in profitability in 2012 and stockholders had a loss on earnings per share. I
Average
Liquidity Ratios:
Efficiency:
Inventory
Receivables
Turnover
Receivables
Earned
Profitability:
Total Assets
Ratio
Stockholders
Equity
Ratio
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Percentage
Ambra Poindexter
Title