Question

Continuing Company Analysis-Amazon: Short-term liquidity analysis ADM-1 Amazon.com, Inc. is one of the largest Internet retailers in the world. Best Buy, Inc. is a leading retailer of consumer electronics and media products in the United States. Amazon and Buy compete in similar markets; however, Best Buy sells through both traditional retail stores and the Internet, while Amazon sells only through the Internet. Current asset and current liability information from recent financial statements are as follows (in millions): Best Best Buy Amazon Current assets: $14,557 Cash $2,432 2,859 Short-term investments 1,456 5,612 Accounts receivable 1,280 8,299 Inventories 5,174 Other current assets 1,387 Total current assets 31,327 $11,729 Current liabilities: Accounts payable Other current liabilities $16,459 $ 5,122 11,630 2,314 $28.0897.436 Total current liabilities 7,436 A. Compute working capital for each company B. Compute the current ratio for each company. (Round to one decimal place.) C. Compute the quick ratio for each company. (Round to one decimal place.) Can the working capital be usefully compared between the two companies? Explain. D. E. Which company has the greater debt-paying ability according to the current ratio? F. Which company has the greater short-term debt-paying ability according to the quick ratio? G.Why are the results different between (E) and (F)? (Hint: Perform a vertical analysis of the current assets.) Shot form linuidity anelueis

Answer 1

Ans-A- Working Capital= Current Assets- Current Liabilities

	Amazon.com	Best Buy
Current Assets	$31,327	$11,729
Less: Current Liabilities	$28,089	$7,436
Working Capital	$3,238	$4,293

B-Current Ratio= Current Assets/ Current Liabilities

	Amazon	Best Buy
Current Assets	$31,327	$11,729
/ Current Liabilities	$28,089	$7,436
Current Ratio	1.11	1.58

C-Quick Ratio= Cash+Short term Investments + Accounts Receivable/ Current Liabilities

	Amazon	Best Buy
Cash	$14,557	$2,432
Short-term Investments	$2,859	$1456
Accounts Receivable	$5,612	$1,280
Total	$23,028	$5,168
/ Current Liabilities	$28,089	$ 7,436
Quick Ratio	0.82	0.69

D-Working capital shows that the company's has the sufficient fund for its day to day working . Working capital cannot be useful completely to make comparison between two companies because it cannot judge the company's overall performance.

For make comparison between two companies there must be overall parameters must be compared like Current ratio, quick ratio, debt equity ratio etc.

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