Question

1. Discuss and compare the debt ratio of Amazon against the competitor's.

2. Describe the risks and advantages of Amazon's debt level and indicate whether you believe it could/should be higher or lower.

Answer 1

Answer(1): Debt ratio can be calculated by dividing total liabilities by total assets. Debt equity ratio can be calculated by dividing long term debt by shareholder's equity.

Amazon's debt equity ratio for the year 2018 (June) = .70

Walmart's debt equity ratio for the year 2018 (July) = .70

Target's debt equity ratio for the year 2018 (July) = 1.00

We can very well see that Amazon's and Walmart's debt equity ratios are same and it is considered moderate debt equity ratio while Target's debt equity ratio is 1 that is higher and shows Target company has more debt than other two players in the market.

Answer(2): Amazon's long term debt in june 2018 is $24.638 Billion, it was $24.73 Billion in 2017 and $7.69 Billion in 2016. Long term debt has increased significantly in 2018, it is much higher and increases by 220% year on year. Higher debt brings interest burden, company has to pay interest out of the profit, so heavy interest amount decreases the profit for shareholders. I think, Amazon's debt should be lower.