Financial Ratio Analysis

Financial Ratio Analysis: Amazon

Introduction

Sustainable businesses require effective planning and this planning can be obtained through analyzing company financial analysis. As there are so many tools available to see trend of the company, the most effective one is Ratio analysis. Ratio analysis shows relation of item with respect to another. The focus of this paper would be on analyzing Amazon trend through ratio analysis.

Discussion

Liquidity Ratios

Liquidity ratio represents cash position of the company and looking at Amazon liquidity trend, it is clear that company has been reducing their liquidity due to increase in current liabilities (Brigham, 2012). In 2010, current ratio was 1.33 while it reduced to 1.17 in 2011 and 1.12 in 2012, this mean that Amazon capacity of paying their short term obligation has been reduced. As far as quick ratio is concern which shows pure cash picture of the company it reduced from 1.02 to 0.8in 2012. Overall, Amazon Liquidity position is not showing an improved picture (investorguide).

Efficiency Ratios

Receivable management is important since it has direct connection with company productivity and efficiency (Brigham, 2012). Amazon Receivable management has been reducing in 2010 it was 21.55 while it reduced to 18.70 and in 2012 it was 18.16. This shows that company now collecting their collection in more days. Amazon need to make improvement in this otherwise this can deteriorated their performance; hence they need strict credit policies. As far as inventory turnover is concern, this is also reducing from 2010 -8.12 to 2012 - 7.62 (investorguide).

Profitability Ratios

Profitability ratios are used to determine the bottom of the company and investors return (Brigham, 2012). In 2010, profit margin was 3.4% while it reduced to 1.31%. In 2012, company experience net loss which was 39 Millions of Dollars and due to this, overall profit margin is negative to -0.06% (investorguide).

ROE is importance from investors' point of view as it demonstrates return on the investors' investment (Brigham, 2012). Amazon ROE has been fluctuating i.e. in 2010 it was 16.8% while it reduced to 8.13% and in 2012 it was negative. Asset turnover has also been reducing from 6.1% to in 2010, 2.5% and in 2012 it was negative. This shows that company has not been putting effort to improve their financial position (Brigham, 2012).

Leverage Ratios

Financial leverage states how much company has financed their operation from debt or equity (Brigham, 2012). Company finance has increased their debt finance in 2012 with 37.65% while it was less in 2011 and 2010. This means that company in order to meet their expenses has been using debts. As far as Time Interest is concern, this also declining stating that company cannot manage their debt burden. It has been reduced from 40 times to 7 times in 2010 to 2012 respectively. Overall Debt Management of Amazon is not showing a good picture (investorguide).

Market Ratios

EPS that increase investors confident in company, Amazon EPS is not showing a good picture. In 2010 it was 2.58 while it reduces to ...