The company in focus is Amazon, which was founded by Jeffrey Bezos in 1994 and has grown its business operation globally to the extent that it is arguably the biggest internet-based company worldwide. The company headquarters are in Seattle in the United States. The global position of Amazon is recognized based on its large market share that provides services and products to consumers, sellers, and content creators. The company has also established more than 2017 principle offices globally, enabling it to conduct business operations in every color of the globe. Since the establishment of Amazon.com in 1995, Amazon's ability to deliver services has continuously increased, which has played an important role in the operating income of the corporation. According to Kristensen et al. (2017), Amazon in 2019 was able to earn an operating income of USD14.5 billion, which was an increase compared to 2017 USD 4.1 billion, and 2018 USD 12.4 billion. Amazon is also considered the most valuable brand worldwide, according to BrandZ, USD 315 billion brand value. Amazon's global position is also reflected by the number of employees the company currently has, which are more than 647,500 working part-time and full-time. This paper reviews the current balance sheet and income statement of Amazon to calculate the company's current ration and the profit margin ration. The results are then used to analyze Amazon's current financial performance.
The current Amazon balance sheet and income statement were presented in the company quarterly financial statement that was provided on March 31, 2020, incorporating data for three months that ended March 31, 2020. The current ratio is also considered to be the working capital ratio, which measures the business's capability to achieve short-term commitments or those due in course the year. The ratio provides the company's monetary strength and the manner in which it can exploit its current assets’ liquidity to offset settle the debt and other payables. To calculate the current ratio, the company's current assets are divided by the company's current liabilities (CFI Education Inc., 2020). The current assets incorporate the business's all assets that are expected to be conveniently sold, used, or exhausted through the standard business operations. The current assets normally reflect on the firm's balance sheet and include account receivables, inventory, cash, and expected liquidated assets.
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On the other hand, current liabilities are current fiscal obligations of the business entity that are due and payable within one year. The liabilities are a result of the company's business that has developed expectancy for outflow of cash in future. Current liabilities of the company are reflected in the company balance sheet. They include accounts payable, accrued expenses, tax payables, and deferred revenue.
Amazon Current Ratio Calculation (three months ending March 31, 2020).
Current Ratio = Current Assets / Current Liabilities
Current Assets = $27,201B (Cash and cash equivalent) + $22,091B (marketable securities) + $18,857B (inventories) + $17,836B (account receivable, net and other).
Therefore current assets = $85,985B
Current Liabilities = $40,056B (account payable) + $30,791B (accrued expenses and other) + $8,864B (unearned revenue)
Therefore, Total Current liabilities = $79,711B
Current Ratio = $85,985B/$79,711B
Therefore, Amazon current ratio for the three months ending March 31, 2020 was 1.08 .
Interpreting the Current Ratio
The current ration that is below is an indication that the firm’s debts payable within a year or less are bigger than its assets. In contrast, the current ratio above indicates that the company has the capacity to of settle its obligations. Amazon's current ratio of 1.08 indicates that the company has a bigger percentage of short-term asset value comparative to the value of its short-term obligations. Therefore, Amazon's current financial performance indicates that the company is capable of meeting short-term debts or those payable within one year.
References
Amazon. (2020). Amazon.Com Announces First Quarter Results . Amazon. https://s2.q4cdn.com/299287126/files/doc_financials/2020/Q1/Amazon-Q1-2020-Earnings-Release.pdf
CFI Education Inc. (2020). Current Ratio Formula . Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/knowledge/finance/current-ratio-formula/
Kristensen, M., Penner, J., Nguyen, A., Moy, J., & Lam, S. (2017). Company Synopsis for: Amazon. Com, Inc.
