The selected company is Amazon and the link to annual report.
Amazon is an American multinational technology firm which deals with artificial intelligence, cloud computing, e-commerce, and digital streaming. As one of the world’s most valuable brands, it has been referred to as one of the most important economic and cultural forces. Big Five American tech businesses include Alphabet (Google), Apple (Apple), Meta (Meta), and Microsoft. In addition to selling books, music, movies, household items, electronics, toys, and other products, Amazon.com acts as a mediator between other businesses and Amazon.com’s millions of consumers, either directly or as an intermediary. “Cloud computing” refers to the practice of renting data storage and computer capacity through the Internet.
Liquidity = Current Ratio = Current assets / Current liabilities
=88,265,000/11,461,000
= 1.12%
This depicts the frequency with which inventories are performed throughout the year.
Debt service = net operating income / Current liabilities
= 19,334,000/43,816,000
= 2.27%
A company’s ability to pay off its present obligations is a measure of its ability to earn cash during this time period.
Profitability= Net Income / Total Assets
=2,371,000/83,402,000
= 35%
The profitability ratio measures how well a company does with the resources it has.
The current ratio is a measure of how many times a year inventory changes hands. People believe that a “good” ratio is between 1.5 percent and 3 percent, however this may not always be the case. A current ratio of less than one may sound scary, but the current ratio of a strong corporation may be affected by several scenarios. The company’s annual cash flow is largely determined by the amount of debt service it must pay on each year’s sales. A debt payment of one percent indicates that you have just enough money to pay off your obligations, but you generate no more gains. 1.25 percent of the total debt service is a usual goal. At different levels of assessment, profitability margin ratios show the company’s capacity to turn revenues into profits. According to Kenton (2019), profitability refers to a class of financial measurements used to analyze a company’s capacity to create profits compared to its shareholders’ equity, balance sheet assets, operational expenses, and revenue over time using data from a single moment in time.
Based on the current ratio, higher current ratios indicate that a corporation is better equipped to meet its short-term obligations since its short-term asset value is greater than its short-term liability value. If the firm’s current liabilities are more than three times the company’s current assets, this might suggest that the company is not utilizing its current assets effectively, does not have adequate financing, or does not manage its working capital properly. While evaluating debt service, I learned that In corporate finance, the debt-service coverage ratio (DSCR) is a measure of the cash flow available to meet existing debt commitments. The ratio of net operational income to debt commitments due in one year, including interest and principal payments as well as sinking-fund and leasing obligations. In looking at the profitability ratio of Amazon, I discovered that they had a very high percentage. Because of this, their economic efforts are effectively converted into earnings.
Amazon’s score of 1.12% suggests that the company is making good use of its assets and is adequately ensuring its future funding and working capital. Having a debt service ratio of 2.27% may suggest that they are relying too much on loans or borrowed funds (Amazon, 2022). There is a 35 percent profit margin on assets that is larger than the typical profit margin for an internet retail firm.
In the IBIS database for e-commerce enterprises in the United States, I found that Amazon is one of the most successful corporations in the sector. With data from April 2017 to March 2018, I compared Amazon’s ratios to the IBIS database. A company’s annual inventory turnover rate may be calculated using the current ratio, as we discussed before (Amazon, 2022). In comparison to the lowest and greatest percentages of 1.4% and 2.7%, in the IBIS database, Amazon’s score was just 1.12%. According to the IBIS website, their debt service ratio for 2017-2018 was between 2.1 percent and 2.6 percent, whereas Amazon’s was 2.27 percent. As compared to Amazon, the IBIS database has a much greater ratio. This may be a good idea for Amazon to check into. With an operational profit margin of 35%, this suggests that they are quite effective at producing money from their firm. I would say they are doing quite well in their field, but there is still a lot of competition.
References
Amazon (2022). Annual Reports, Proxies and Shareholder Letters. Web.
Kenton, W. (2019). Profitability Ratios Definition. Web.