Question

Company: AMAZON

Ratio Used: Current Ratio: Company(amazon): 1.04 Industry: 1.25

What does the ratio tell you about the company compared to its industry? Be sure to convey the meaning of the ratio in your answer – don’t merely say “it’s better than the industry”. And be sure to compare to the industry please help me understand what amazons current ratio is in relation to the industry current ratio.

Answer 1

Current Ratio is the ratio that shows the ability of Company's Current Assets to absorb its Current Liabilities

Current Ratio =

Ideally it should be between 1.5 to 3 I.e Current Assets should be 1.5 to 3 times of its Current liabilities , then it is assumed that financial position of a company is strong as it has sufficient current assets to pay off its current liabilities. This ratio vary as per type of industries or many other factors.

This ratio deals with current transaction that may lead to Current assets and current liabilities i.e it is related to day to day business opeation.

Industry Current ratio = 1.25, it shows tthat current assets are 1.25 times of its current liabilities

Company's Current ratio = 1.04 it shows that Company's current assets are 1.04 times of its current liabilities.

Hence it can be said that company's are less effecient than industry standards as it current assets are almost equal to its current liabilities which is not an indication of sond business position as comparing with industry.