In: Accounting
WAL-MART AMAZON
Current Assets $54,975 $17,490
Total Assets 193,406 25,278
Current Liabilities 62,300 14,896
Total Liabilities 117,645 17,521
WORKING CAPITAL
CURRENT RATIO
DEBT TO ASSET RATIO
Solution--
Wal-Mart | Amazon | |
Current Assets | $54,975 | $17,490 |
Total Assets | $193,406 | $25,278 |
Current Liabilities | $62,300 | $14,896 |
Total Liabilties | $117,645 | $17,521 |
Working Capital = Current assets - Current Liabilities
For Wal-Mart
Working Capital = $54,975 - $62,300 = -$7,325
For Amazon
Working Capital = $17,490 - $14,896 = $2,594
Working capital of Amazon is higher which concludes that the company Amazon has current assets more than current liabilities which shows the high liquidity.
Current Ratio = Current assets / Current Liabilities
For Wal-Mart
Current Ratio = $54,975 / $62,300 = 0.88
For Amazon
Current Ratio = $17,490 / $14,896 = = 1.74
Ideal Current ratio is 1 which states that current assets = current liabilties. Higher the current ratio, better liquidity. So Current Ratio is 1.74 for Amazon which is greater than 1 and greater than the current ratio for Wal-Mart. It shows that Amazon is more abe to pay its short-term liabilities.
Debt to Asset Ratio = Total Liabilities / Total Assets
For Wal-Mart
Debt to Asset Ratio = $117,645 / $193,406 = 0.61
For Amazon
Debt to Asset Ratio = $17,521 / $25,278 = 0.69
Debt to asset ratio indicates whether the liabilities can be covered by the assets or not. It should be less than 1 because if its is greater than 1, it shows that Liabilties are more than the assets due to which risk or chances of bankcruptcy is high. So lower the debt to asset ratio, lower the risk.
Debt to Asset Ratio for Wal-Mart is low in comparison to Amazon which shows low risk and high liquidity.