Question

Assignment: Finance and Operations

This week we look at finance and operations, and apply a bit of quantitative analysis to the effort.

Your assignment is to analyze current financial ratios for a given business.

1. i want amazon.com Inc

2. Search the web for that business’ “Financial Statement.” (You will find many hits for the data.)

3. Select the http://www.morningstar.com/ site offering your company’s financial statement.

4. You will now see a number of financial ratios for your company. Below is an example for Apple: http://financials.morningstar.com/ratios/r.html?t=AAPL

5. Now, define the following ratios, note the ratio for your business, and explain what the ratio means for the business moving forward:

a) Return on Assets

b) Return on Equity

c) Return on Capital

d) Gross Margin

e) SG&A Margin

f) Current Ratio

g) Quick Ratio

h) Total Debt/Equity

i) Total Revenue

j) Gross Profit

Here are some additional resources:

Apple (Return on Assets): https://ycharts.com/companies/AAPL/return_on_assets

Ratios:  https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/Ratios/Profitability/Quarterly-Data#Ratios-Summary

Answer 1

http://financials.morningstar.com/income-statement/is.html?t=AMZN&region=usa&culture=en-US

In the above link, we can find all the below ratios. I am using the latest quarter ratios found on the webpage.

a) ROA = 5.66%

Return on Assets indicates how efficient a company's management is at using its assets to generate earnings. 5.66% ROA explains that for every one dollar used to purchase assets generated approximately 6 cents of net income.

b) ROE = 21.56%

ROE measures a corporation's profitability by revealing how much profit a company generates with the money shareholders invested. For every 1 dollar invested by the shareholder, the company generated 22 cents of net income.

c) Return on Capital = 15.82%

Return on capital assesses a company's efficiency at allocating the capital under its control to profitable investments.

d) Gross Margin = 23.83%

The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold. Here only 23.83 % of the sales proceedings are saved by Amazon INC.

e) SG&A margin = 7.54%

It is the margin of net sales available to incur SG&A expenses.

f) Current Ratio = 1.07

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. To gauge this ability, the current ratio considers the current total assets of a company (both liquid and illiquid) relative to that company’s current total liabilities. For every $1 liability, Amazon has $1.07 of assets to face it.

g) Quick Ratio = 0.78

The quick ratio is an indicator of a company’s short-term liquidity and measures a company’s ability to meet its short-term obligations with its most liquid assets. Because we're only concerned with the most liquid assets, the ratio excludes inventories from current assets. The quick ratio is calculated as follows:

Quick ratio = (current assets – inventories) / current liabilities

h) Total Debt/Equity = 0.7

The debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's asset. As the ratio is > 0.5, it indicates that more than 50% of the financing is done by debt issuance.

i)Total Revenue = $ 208,125 Million

Total sales revenue made by Amazon Inc. by selling its products.

j) Gross Profit = $ 49,597 Million

Gross Profit is the amount of revenue retained after taking care of the cost of goods sold.