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Introduction

This paper is a thorough analysis of Amazon Inc.’s ability to pay current liabilities, to

sell merchandise inventory and collect receivables, to pay long term debt, to profit and

to evaluate stock as an investment. The purpose of this paper is to analyze and conclude

on strength in the five areas previously listed by using financial statement ratios and

other information. With this information, you will then be able to understand and have

the knowledge to make an informed decision whether or not to invest in Amazon Inc.

Pay Current Liabilities

Working capital $4,204 (in millions) $4,204 (in millions)

Current 1.88 1.88

Acid-test (quick) .7 .7

Cash 1.66 1.66

Throughout the course of a business, a company accrues certain liabilities while in

operation. A current liability is a liability that must be paid with cash or with goods and

services within one year or within the entity’s operating cycle. A company’s ability to

pay current liabilities is measured by the current ratio. As seen by the table provided

above, average current ratio is 1.88. In 2017, for every $1 of current debt, Amazon Inc.

had $1.04 available to pay for it. Amazon Inc. has more than enough assets to pay for

their liabilities if they were all due but they don’t quite meet the average. In addition,
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the acid test ratio tells whether or not the company can pay off all their assets at a

moment's notice. The industry average of .7 and in 2017, Amazon Inc. had .7 which

proves no risk. This permits a strong financial health for the company because they

have almost double the amount of assets than they do liabilities which allows them to

pay for the liabilities at a moments notice.

Sell Merchandise Inventory and Collect Receivables

Inventory Turnover 9.66 times

Days’ sales in inventory 37.8 days

Gross profit percentage 77%

Receivables turnover 60.8 times

Days’ sales in receivables 6 days

In order to have a successful company, they must be able to sell their merchandise and

the quicker they do that, the faster the cash will flow in. Inventory turnover measures

the number of times a company sells its average level of merchandise inventory during

a year. It can be seen above that the average level of merchandise inventory was sold

9.66 times. In 2017, the inventory turnover was 8.14. Amazon Inc. is also below average

with days’ sales in receivables. The average is 37.8 days and Amazon Inc. is at 18.78

which elicits a quicker cash flow. Lastly, Amazon Inc. is below average with their gross

profit margin which is at 37% which measures the profitability of each sales dollar

above the cost of goods sold. They can increase their percentage by improving their

inventory turnover. Therefore, Amazon Inc. is fully capable of selling their inventory at
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a tremendous rate and are able to collect their receivables which increases the cash

inflow, proving great financial health.

Ability To Pay Long Term Debt

Debt to total assets .69

Debt to equity 1.39

Times-interest-earned 4.57
Long term debt is outstanding debt with a maturity of 1 year. The debt ratio shows the

proportion of assets financed with debt. The industry average is 69% which puts

Amazon Inc. above average with 79%. Meanwhile, the debt to equity ratio measures the

proportion of total liabilities to total equity. With the industry average at 1.39, and

Amazon Inc. at 79%, that puts Amazon at fair risk when compared to the average.

Therefore, Amazon Inc. is capable of paying off their long term debts without it

proposing any financial risk to the company.

Profitability

Profit margin 1.2%

Return on assets 7.2%

Asset turnover .38

Return on common SE 17.3%

Earnings per share $12.83

The primary goal of a company is to earn a profit. The profit margin ratio shows how

much net income is earned on every dollar of net sales. With an industry average of
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1.2%, and Amazon Inc. at 37% not as much money ends up as a profit. In addition, the

earnings per share ratio is the amount of net income for each share of its outstanding

common stock. With an industry average of $12.83, and Amazon Inc. with $6.32, it’s

conveyed that Amazon Inc. is a competitive company. Therefore, Amazon Inc. is able

to create a profit by using their assets which is what creates financial health for their

company.

Evaluating Investment

Price earnings 2.54

Dividend yield 0

Dividend payout 0
Investors buy stock in order to get a return and it consists of gains from selling the stock

above purchase price and dividends. The price earnings ratio measures the value that

the stock market places on $1 of a company’s earnings. Amazon Inc.’s stock is selling at

185.04 times one year’s earnings per share. With an industry average of about 2.54,

Amazon Inc. it way above average. In addition, the dividend yield is the annual

dividend per share to the stock’s market price per share. As seen above, investors

would receive $0.00 of the investment in the form of cash dividends. Lastly, dividend

payout measures the percentage of earnings paid annually to common shareholders as

cash dividends. This conveys that Amazon Inc. does not give the investors money back

in the form of cash dividends. Because their stock is selling at a price above purchasing

price, it can be interpreted that the company has great financial health.
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Conclusion

As previously said in the paper, Amazon Inc. is more than capable of paying their

current liabilities, they are able to collect receivables quickly which elicits a profit, they

can pay their long term debt without proposing any financial risk to the company, they

can create a profit by using their assets and they are able to sell their stock at a high

price. With this information, it can be concluded that Amazon Inc. is a great company to

invest in because they are very financially healthy in which they can pay off any

liabilities and can create a profit quickly.