Question

Assume that you have $5,000 that you would like to invest. The company is AMAZON. Evaluate the common stock as a potential investment. From the data available in the financial statements identify the five most important criteria that you would use to make your investment decision and explain why each is important.

Use the ratios discussed in the chapters as well as anything else discussed throughout the term in your explanation. Indicate if you would or would not invest your funds in the company.

Answer 1

5 most important criteria I would use to make my investment decision will be as follows-

A. growth rate of the company can be visible through increase in the profits of the company and growth rate of the company which is very high in case of Amazon almost in double digits.

B. debt ratio of amazen is subsequently lower than overall in the industry so I will be looking for the debt ratio of the company.

C.I will also be looking for total current assets of the company which will be higher in case of Amazon because Amazon is a highly cash generating business.

D. The overall fixed assets of the company is also very high so I will be looking for investment into this company because they will be highly capitalised companies.

E. Current liabilities of the company are very low and cash generation is very high so it will be helpful in maintaining a higher liquidity ratio for the company.

I will be using various kind of ratios like solvency ratios along with liquidity ratios and I will also be using various kinds of profitability ratio in order to maximize my analysis in terms of making investment decision and I think that I will be highly inclined to make the decision in favour of this company's future, because this company is ia high growth oriented company and it is adopting a very highly aggressive strategy in order to gain the market share and it is also using the debt capital efficiently so I will be investing my capital into this company for a longer period of time.