Financial Ratios: Amazon

For this assignment, I will consider Amazon Inc as sourced from Macrotrends.net (2018). 

Ratio201620152014
Current Ratio1.04481.05361.1153
Return on Assets2.89290.9205-0.4422
Return on Equity12.29454.4531-2.2437
Debt/Equity Ratio0.3990.61470.7695

The current ratio is a measure of a company’s ability to meet both short-term and long-term obligations. From the data above, it can be seen that the current ratio continuously deteriorated from 2014 to 2016 by about 7%. This indicates that Amazon incurred more liabilities and as such, its ability to meet obligations reduced. This is not a healthy indicator.

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Return on assets is a measure of income earned on each dollar invested in assets. From the information above, Amazon’s ROA improved tremendously from lows of negative returns to almost 300% return. This indicates tremendous improvement in the management of the company in terms of profitability and in utilizing the assets since the assets generated more returns each successive year.

The return on equity ratio from the data above shows that Amazon through the years under consideration has managed to rise remarkably from negative 200% to more than 1200%. From this, it is clear that the management of the company utilized equity prudently and earned substantially from such investments each successive year. Stockholders, therefore, were able to earn more for each dollar invested. 

The debt/equity ratio for Amazon has been indicated to reduce with time. The ratio indicates the relative proportion of equity and debt financing the company’s assets. The higher the ratio, the higher the level of debt compared to equity. Therefore, with a decreasing ratio as it is the case with Amazon, it is clear that the company was over the years reducing its debt burden and increasing investment in equity which is an indicator of prudence in the management of the company’s affairs. 

Reference

Macrotrends.net. (2018). Amazon Financial Ratios 2005-2018 | AMZN. Retrieved from Macrotrends.net Website: https://www.macrotrends.net/stocks/charts/AMZN/amazon/financial-ratios

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