Interpreting Financial Results
January 19, 2015
Interpreting Financial Results: Amazon.com, Inc.
Amazon.com, Inc. is successful online retailer and is listed as part of Service industry subcategory of mail and catalog retail in the financial documents. Comparing financial data for years ending 2011, 2012 and 2013, the company seems to be one of the leaders in the industry.
Below are some financial ratios calculated for the company:
The ratios are divided into 4 sections: liquidity, asset turnover, financial leverage, and profitability ratios.
First, liquidity ratios generally provide information on how the company meets their current financial obligations. Current ratio for Amazon.com is comparable over the 3 years and over 1, meaning the company has enough money to pay their debts and is using their money to grow the business. Taking inventory out of current assets creates quick ratio, it shows how the company can pay their bills of their inventory is not able to be liquidated quickly. The ratio is under 1 but close and is comparable over the years, although it did take a dip in 2013. Cash ratio is most conservative ratio used by creditors. For Amazon, it is low but comparable around 0.4 through the 3 years.
Next, asset turnover ratios show efficient the company is in using their assets. The Asset turnover ratio for Amazon.com is very similar in the 3 year comparison of around 1.9. It seems that company uses their assets efficiently. Inventory turnover is also comparable in 3 years of around 7.4. There is basically no change in their turnover ratios. This usually indicates they found what works well for them.
Third, there is financial leverage ratios. Long term debt to equity ratio seems to be the one to use in industry benchmarking. For Amazon.com the ratio through the 3 years was around 0.3 and it is slightly below industry standard of 0.5. Interest coverage ratio shows...