Nichole Pearson

Accounting 1120

The purpose of this paper is to analyze the financial standing of Amazon for 2012. Im
going to address the ability of Amazon to pay its current liabilities, and long term debt. Im
going to look at the efficiency in which Amazon sells its merchandise and collects its
receivables. Ill also look at its profitability, and evaluate its stock as an investment.
Ability to pay current liabilities:
Current Ratio
Amazon 2012
1.12

Amazon 2011 Industry Average

1.17
1.54

Acid-Test Ratio
Amazon 2012
.78

Amazon 2011 Industry Average

.82
1.82

The current ratio shows the ability of a company to pay its debts, or liabilities, using its
assets. Amazons ability to pay its current liabilities is a little on the weak side. Amazon is not
only below the industry average, but has decreased from the previous year as well. The acid-test
ratio shows the ability of a company to pay all its debts if they came due immediately. Amazon
is far below the industry average, and have come down from the previous year as well. They
would struggle to pay all their debts if the need arose.
Ability to sell merchandise inventory and collect receivables:
Gross Profit Margin
Amazon 2012
24%

Amazon 2011 Industry Average

22%
33.55%

Inventory Turnover
Amazon 2012
8.3

Amazon 2011 Industry Average

9.1
4.8

Days Sale in Inventory

Amazon 2012
43.98 days

Amazon 2011 Industry Average

40.11 days
75.42 days

Accounts Receivable Turnover

Amazon 2012
15.93

Amazon 2011 Industry Average

22.93
10.11

Gross profit margin gives the profitability of each sales dollar above the cost of goods
sold. Although Amazon has increased from 2011 to 2012, they are still far below the industry
average.

Inventory turnover tells us how many times a company sells its average level of

merchandise inventory in a specified period. Amazon sells twice as much inventory as the
industry average in a given period. Days sale in inventory tells us how many days that inventory
is held by a company. Amazon holds its inventory for about a month less than the industry
average. Accounts receivable turnover tells us the number of times a company collects the
average receivables balance in a year. Amazon collects its receivables more often than the
industry average. In 2011 they were more than twice the industry. Amazon appears to be weaker
than the industry average in its gross profit margin. This shows a need to look at how they price
their inventory. They are stronger than the industry average in its ability to sell merchandise and
collect its receivables. They know how to turn over their inventory very well.
Ability to pay long-term debt:
Debt to Asset Ratio

Amazon 2012
75%

Amazon 2011 Industry Average

69%
34%

Debt to Equity Ratio

Amazon 2012
2.97

Amazon 2011 Industry Average

2.26
.52

Times Interest Earned Ratio

Amazon 2012
5.23

Amazon 2011 Industry Average

15.8
5.33

The debt to asset ratio lets us know how much of a companys assets are financed with
debt. Amazon appears to finance quite a bit. Their current amount is near double that of the
industry average, and is up from the previous year. The debt to equity ratio tells us the
proportion of total liabilities to relative total equity. In this case, it shows us that Amazon shows
a higher risk by having such a high debt ratio compared to its equity. The average industry is far
below where Amazon currently sits. They are showing a risky trend by increasing from the
previous year as well. The times interest earned ratio shows us a companys ease in paying
interest expense. In this case, Amazon is right around the industry average. However, they have
dropped significantly from their 2011 number that showed they could very easily cover interest
expense. Amazon appears to have more debt than is ideal, however they can reasonably pay
their interest expenses.
Profitability:
Net Profit Margin
Amazon 2012
-.06%

Amazon 2011 Industry Average

1.31%
2.87%

Return on Common Stockholders Equity

Amazon 2012
-.49%

Amazon 2011 Industry Average

8.63%
11.39%

Return on Assets
Amazon 2012
.18%

Amazon 2011 Industry Average

3.16%
4.76%

Asset Turnover
Amazon 2012
2.11

Amazon 2011 Industry Average

2.18
1.66

Net profit margin tells us how much net income is earned on every dollar of sales.
Amazon has a negative percentage here, so they are losing net income on every dollar of sales.
They are far below the industry average, and have dropped significantly from the previous year
as well. Return on common stockholders equity lets us know the relationship between net
income available to common stockholders and their average common equity invested in the
company. Amazon again has a negative percentage here. Stockholders are losing money this
year. They have dropped significantly from the previous year, and are far below the industry
average. Return on assets measures the success a company has in using its assets to earn income.
Amazon is far below the industry average, and has dropped significantly from the previous year.
In 2012 they really struggled to use their assets to earn any income. The asset turnover ratio
shows how efficiently a company uses its average total assets to generate income. Amazon in
doing better than the industry average in this case. Although down a little from the previous
year, they still have a strong ability to use their assets efficiently.
unprofitable year. This year they have lost money, and arent profitable.
Evaluating Stock as an Investment:

Amazon has had an

Price/Earnings Ratio
Amazon 2012
-2854.70

Amazon 2011 Industry Average

131.37
47.17

The price/earnings ratio is the value the stock market places on $1 of a companys
earnings. Amazon has a negative price/earnings ratio. This tells us that currently the value on
Amazons stock is a loss.
Amazon has a few strong areas, they collect their receivables efficiently, inventory is
turned over quickly, and they can pay their interest expenses. However, they are also in more
debt than the industry average, and had an unprofitable year. Their stock also has no value for
the 2012 year. This report shows that there are a few areas that should be analyzed for different
tactics to see if they can improve their situation with liabilities, and their profitability.