Throughout this course, you have been working on your research paper on a company you have chosen. For this assignment, you will consolidate the parts of the assignment you wrote in Units II, V, and V

AMAZON FINANCIAL RATIOS ANALYSIS

Unit VI

FIN 3301

University

Name

AMAZON FINANCIAL RATIOS ANALYSIS

For this part, we shall be reflecting on Amazon Company, a company recognized globally due to its convenience since customers can purchase products from the comfort of their homes. These products delivered within a shorter duration for a smaller fee. Most customers prefer Amazon due to its flexibility and availability of various products that customers can purchase based on their tastes and preferences. Therefore, for this paper, we shall analyze the profitability, solvency, and liquidity ratios of Amazon Company. These will determine whether the organization is headed in the right direction along with potential actions that should be made.

Firstly, the solvency ratio is essential to understand whether a company is meeting its long-term objectives. Therefore, this ratio helps to understand whether or not a company can pay its long-term debts. If it is able, the company is in good financial health. According to Amazon.com Inc - Alpha Spread. (n.d.), the solvency score of Amazon is seventy-four out of one hundred, or 74%. These solvency scores vary in different organizations; however, a solvency score of between twenty to thirty percent is considered healthy. Therefore 74% means that Amazon Company will default on the debts.

Secondly is the liquidity ratio, which is opposite to the solvency ratio since it determines whether an organization will pay the short-term debts or not. Therefore, the short-term investors and creditors normally look at this ratio to determine whether the previous investors were paid out or not. In 2022 first quarter, the current assets were 133 billion dollars while current liabilities were 139 billion dollars. Therefore, the company’s current ratio is 0.96. A good liquidity ratio is at least one (1); however, Amazon is below, which shows negative financial health. AMZN | Macrotrends. (n.d.).

Thirdly, the profitability ratio shows whether an organization can earn profits from its operations and potential sales. Therefore, a positive profitability ratio shows that the company is giving value to the stakeholders and executives. However, Amazon’s profitability ratio is 42%, higher than the current industry’s 40%. It shows that the company is generating profits from its activities. CSIMarket. (n.d.).

Based on the above calculations, we may conclude that the company I not headed in the right direction, considering the past ratio analysis. The solvency ratio should be at least 20%; however, the company has performed 74%. While the liquidity ratio should be one, but the company is 0.96. This means the company does not pay short-term and long-term loans and obligations. It should make any potential investor run away since the company may not meet its obligation when the time comes.

However, over the past few years, we have observed a drop in the company’s health. An example, the liquidity ratio, the 2022 Q1 performance was 0.96, while the 2021 Q3 and Q2 were 1.14 and 1.12, respectively. It shows that the company has been failing. Therefore, significant changes need to help resolve the crisis since fewer investors would like to engage a company that will not pay their value. MacroTrends. (n.d.).

While comparing other companies within the same industry, Walmart’s solvency ratio is 56%, while Target’s solvency ratio is sixty-one. While Walmart’s profitability ratio is 23.88%, Target’s profitability ratio is 29.5%. Target (TGT) Financial Ratios. (2021). While Walmart’s liquidity ratio is 0.86, Target’s liquidity ratio is 0.87%. While comparing, we understand that the three companies are in a similarly mediocre performance situation since their solvency ratio shows that they do not pay their long-term obligations on time. The profitability ratio shows that Amazon alone generally value more profits than Walmart and Target since their ratios are lower. However, for the liquidity ratio, we also understand that they do not pay their short-term obligations on time, although Amazon’s situation is better.

References

Amazon.com Inc - Alpha Spread. (n.d.). AMZN Solvency Analysis: Financial Position, Interest Coverage, all solvency ratios, and more. Retrieved July 13, 2022, from https://www.alphaspread.com/security/nasdaq/amzn/solvency

AMZN | MacroTrends. (n.d.). Amazon Current Ratio 2010-2022 Amazon Current Ratio 2010-2022 | www.macrotrends.net. Retrieved July 13, 2022, from https://www.macrotrends.net/stocks/charts/AMZN/amazon/current-ratio

CSIMarket. (n.d.). Amazon Com Inc (AMZN) Profitability Comparisons, Net Margin, Gross Margin, Tax Rate, Cash Flow Margin Comparisons Amazon Com Inc (AMZN) Profitability Comparisons, Net Margin, Gross Margin, Tax rate, Cash Flow Margin Comparisons -. Retrieved July 13, 2022, from https://csimarket.com/stocks/Profitability.php?code=AMZN

Melicher, R. W., & Norton, E. A. (2020). Introduction to finance: Markets, investments, and financial management (17th ed.). Wiley. https://online.vitalsource.com/#/books/9781119560579

MacroTrends. (n.d.). Walmart Financial Ratios for Analysis 2009-2022 | WMT | MacroTrends; www.macrotrends.net. Retrieved July 13, 2022, from https://www.macrotrends.net/stocks/charts/WMT/walmart/financial-ratios

Target (TGT) Financial Ratios. (2021, December 7). Investing.Com; www.investing.com. https://www.investing.com/equities/target-ratios