Amazon Financial Statement Analysis After reviewing Amazons financial statements for the years 2011 and 2012,

and looking over all of the ratios, it is clear that Amazon is not doing very well financially. This company has shown to be have poor profitability and solvency but is liquid. Although there is room for improvement as far as solvency and profitability, it seems that the company has been very successful in the past. This company would clearly be a wise choice for investment since it seems to be able to bounce back up.

Liquidity: Liquidity is a measure of how quickly a company's assets can be converted to cash. Liquidity ratios can give investors an idea of how capable a company will be at raising cash to purchase additional assets or to repay creditors quickly, either in an emergency situation, or in the course of normal business. The ratios used to determine a companys liquidity include the current ratio, the acid-test ratio, receivables turnover ratio, and the inventory ratio. Current Ratio The current ratio measures a companys ability to pay short term obligations and to meet unexpected needs for cash. The current ratio is computed as current assets divided by current liabilities. If a company has a high current ratio it means that the company has sufficient current assets to maintain normal business operations. A current ratio under 1 is a bad sign; it suggests that the company is unable to pay off its obligations. However we do not want to see a current ratio that is too high, say 2.5. This would indicate that the company is too liquid and, therefore, is not using its assets effectively. In 2011 Amazon had a current ratio of 1.17:1 and a current ratio of 1.12:1 in 2012. Although Amazon had a decline, and both years currant ratios are below the industry average of 1.54:1, Amazons ratios for 2011 and 2012 are above 1. For example the 2011 ratio of 1.17:1 means that for every 1 dollar of current liabilities, Amazon has $1.17 of current assets. This suggests good liquidity. Acid-test Ratio The acid test ratio is a measure of a companys immediate short term liquidity. This ratio further refines the current ratio by measuring the amount of the most liquid current assets. The higher this ratio is, the more current the position is. If the current ratio is substantially higher than the acid test ratio then most likely the companys current assets are dependent on inventory. In 2011 Amazons acid test ratio was .69:1 and in 2012 it was .75:1. In both years Amazons current ratio was higher than its acid test ratio and the ratio is declining. The industry average was 1:82; Amazons ratios are lower than the industry average but their current ratios are above their acid test ratio results and are increasing. That is a very good sign.

Accounts Receivables Turnover The Accounts Receivables Turnover ratio and the Days Sales in Receivables ratio are used to assess the liquidity of the companys receivables. The accounts receivables turnover ratio measures the number of times, on average; the company collects the accounts receivable balance in a year. The Days in Receivables ratio indicates how many days it takes to collect the average level of receivables. In 2011 Amazons accounts receivables turnover was 23 times and had a collection period of 15.8 days. This means that receivables were collected on average every 15.8 days and Amazon collected the receivables 23 times in 2011. In 2012 the receivables were collected 21 times with a collection period of 17.7 days. The industry average for receivables turnover is 10.11 times with a collection period of 36.11 days. The higher this ratio is, the more frequently a company collects its receivables. The more frequent a company collects the more liquid they are. Inventory Turnover The inventory turnover measures the number of times, on average the companys inventory is sold during the period. A lower inventory turnover suggests that the company has poor sales and left over inventory. A higher inventory turnover suggests that a company has good sales. In 2011 Amazons inventory turnover was 9.1 times and in 2012 it was 8.3 times. The industry average was 4.8 times. Although these ratios are lower numbers, they are higher than the industry average; which is most often a good sign. Looking at all of the ratios, Amazon seems to be liquid. In most cases the years ratios were declining and lower than the industry average. In both 2011 and 2012 Amazons current ratio was higher than its acid-test ratio, suggesting that Amazon is dependent on its inventory. This is reasonable considering that it is in the business of sales. The receivables turnover ratio was high in both years. Notice that the turnover ratio was a higher number than the years collection period, this suggests that the company is able to pay off their obligations. The inventory turnover in both years was slightly higher than the industry average; however the ratios were still relatively low, suggesting that the company has good sales. Amazon seems to be very liquid.

Profitability: Profitability ratios measure the income or operating success of a company for a given period of time. There are seven ratios that measure a companys profitability. Those ratios include profit margin, asset turnover, return on assets, return on common stockholders equity, earnings per share, price-earnings ratio, and the payout ratio. Profit Margin

Profit margin is a measure of each dollar of sales that results in net income. Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of $0.20 for each dollar of sales. Amazon had a Gross Profit Margin Percentage of 22% in 2011 and 24% in 2012. The industry average was 33.55% Amazons profit margin decreased from 1.31% in 2011 to (0.06%) in 2012. The industry average was 2.87%. In both years Amazon was below the industry average. Amazon did well in 2011 but not in 2012, there was a dramatic change and they were not profitable at all in 2012.This means they lost money in 2012. This is a bad sign. Assets Turnover The asset turnover measures how efficiently a company uses its assets to generate sales. It is the amount of sales generated for every dollars worth of assets. This measurement is more useful for growth companies to check if in fact they are growing revenue in proportion to assets. Amazons asset turnover decreased slightly from 2.18 times in 2011 to 2.11 times in 2012. The industry average was 1.66 times. This shows that in 2011, for example, Amazon generated sales of $2.18 for each 1 dollar it had invested in assets. Although amazons asset turnover decreased it was still higher than the industry average in both years, this is a good sign. Return on Assets The return on assets is an indicator of how profitable a company is relative to its total assets. It gives an idea as to how efficient management is at using its assets to generate earnings. Amazons return on assets ratio decreased slightly from .75% in 2011 to (.45%) in 2012. The industry average was 4.76%. In both 2011 and 2012 Amazons ratios were dramatically lower than the industry average and seem to be declining. This is a bad sign. Return on Common Stockholders Equity The return on common stockholders equity is a measure of the companys profitability from the common stockholders viewpoint. This ratio shows how many dollars of net income the company earned for each dollar invested by the owners. This ratio is a useful tool to measure the profitability from the owners view point because the common stockholders are considered the real owners of the corporation. A higher common stockholders equity ratio indicates high profitability and strong financial position of the company and can convert potential investors into actual common stockholders. Amazons return on common stockholders equity decreased from 8.63% in 2011 to (.49%) in 2008. There was a decrease in this ratio and it was smaller than the industry average of 11.39% in both years. This is a bad sign. Price/Earnings

The price to earnings ratio is a measure of the ratio of the market price of each share of common stock to the earnings per share. It reflects investors assessments of a companys future earnings. The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings. Amazons price to earnings ratio decreased from 131.37times in 2011 to (2854.7) times in 2012. There was a decrease and both years ratios are significantly lower than the industry average of 47.17 times. This ratio means that each share of Amazons stock, in 2011 for example, sold for 131.37 times the amount that the company earned on each share. This is a good sign. Amazon seems to be somewhat profitable. The Profit margin was above the industry average in both years and it showed an increase, suggesting that the company is making money. The asset turnover showed a decrease but was higher in both years than the industry average. The return on assets decreased but was higher than the industry average in both years. This shows that the company is efficiently using their assets to generate earnings. The return on common stockholders equity was lower than the industry average and showed a significant decrease. This shows poor profitability and weak financial position for the company. Price to earnings decreased and was still significantly higher in 2011 but lower in 2012 than the industry average. Overall Amazon seems somewhat profitable but has room for improvement. Solvency: Solvency ratios measure the ability of a company to survive over a long period of time. There are two important ratios that measure solvency. These ratios are the debt to total assets ratio and the times interest earned ratio. Debt to Total Assets The debt to total assets ratio measures the percentage of the total assets that creditors provide. This ratio indicates the companys degree of leverage. It also provides some indication of the companys ability to withstand losses without impairing the interest of creditors. The higher the percentage of debt to total assets ratio, the greater the risk that the company may be unable to meet its maturing obligations. Amazons debt to total assets ratio increased from 69% in 2011 to 75% in 2012. It is a bad sign that the debt ratio has increased and it an even worse sing that in both years the ratio was above the industry average of 34%. This is one ratio that a company will always want to be low. Times Interest Earned The times interest eared ratio provides an indication of the companys ability to meet interest payments as they come due. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can

indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rationale is that a company would yield greater returns by investing its earnings into other projects and borrowing at a lower cost of capital than what it is currently paying to meet its debt obligations. Amazons times interest earned ratio increased from 13.3 times in 2011 to 7.4 times in 2012.Although it is a bad sign that the ratio decreased from 2011 to 2012, both years ratios were above the industry average of 5.33 times. Conclusion Amazon does not seem very solvent. Its debt to assets earned ratio increased from 2011 to 2012 and both years were significantly higher than the industry average. This ratio is the one ratio that a company will always want to be low. The times interest earned ratio showed an increase, but it was in both years significantly higher than the industry average, which could mean that the company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. Again, Amazon has room for improvement. After reviewing Amazons financial statements for the years 2011 and 2012, and looking over all of the ratios, it is clear that Amazon is not doing well. This company has shown to have poor profitability and poor solvency but is very liquid. Its debt ratio has increased, and so has its times interest earned ratio. This company has clearly lost money and needs to improve its profitability in solvency. However, Amazon has done well in the past and Im sure this is just a temporary downfall for the company. They will most likely bounce back up.

Works Cited
LLC, A. S. (1996-2014). Annual Reports and Proxies. Retrieved April 14, 2014, from Amazon.com: http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsAnnual Tracie Nobles, B. M. (2014). Accounting : The Financial Chapters (10 ed.). New Jersey: Pearson Education, Inc.