Comment on the liquidity position of AMAZON using current ratio, quick ratio, and cash ratio for...

Comment on the liquidity position of AMAZON using current ratio, quick ratio, and cash ratio for 2020 only.

Expert Solution

The below is the ratio details of Amazon from latest annual report( Source 10-K)

	Dec 31, 2019
Current Ratio	1.1
Quick Ratio	0.83
Cash Ratio	0.63

All the ratios above 1 is suggesting that the Company has good liquidity in order to meets its current liability

Current Ratio - It is the ratio of current assets divided by current liabilites. Ratio of more than (1.1) suggest that the Amazon has slightly higher current assets than current liabilities. The current ratio of around 1.5 is treated to be good sign of company having enough liquidity

Quick Ratio - It is the ratio of quick assets(the Company's most liquid assets) divided by its current liabilities. Amazon has quick ratio of less than 1 which suggest that the Company dont have enough quick assets to meet its short term liabilities

Cash Ratio - It considers only cash & cash equivalent in numerator and current liabilities in denominator, meaning the abiltiy of the Company to have enough cash to pay its current liabilities. Amazon has cash ratio of only 0.63, very less than 1 which suggest low cash balance with Amazont to meet its current liabilities

To sum up, though Amazon has current ratio of higher than 1, meaning it has enough current assets to meet its current liabilities, but it does not have enough quick assets including cash & cash equivalent to meet its current liabilities. It shows that the liquidity position of the Amazon is not quite strong.

jeff jeffy answered 2 years ago

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