Question

Continuing Company Analysis-Amazon: Asset turnover ratio ADM 1 Amazon.com, Inc. is one of the largest Internet retailers in the world. Netflix, Inc. provides digital streaming and DVD rentals in the United States. Amazon REAL WORLD and Netflix compete in streaming and digital services, however Amazon also sells many other products through the internet. The sales and total assets (in millions) from recent financial statements were reported as follows for both companies Amazon Netflix $88,988 $5,505 Total revenues (sales) Total assets: Beginning of year End of year 40,159 5,413 54,505 7,057 A. Based on your knowledge of each company, identify three major assets used by each company in generating revenue. B. Compute the asset turnover ratio for each company, (Round to two decimal places) C. Which company generates sales from total assets more efficiently?

Answer 1

Part A

Major assets used by Amzon.com, inc:

- Property Plant and Equipment

- Cash And Cash Equivalents

- inventory

Major assets used by Netflix, inc:

- Intangible Assets

- cash

- Property Plant and Equipment

Part B

Asset turnover ratio = sales / average assets

Average assets = (beginning assets +ending assets)/2

Amazon = 88988 / ((40159+54505)/2) = 1.88

Netflix = 5505/((5413+7057)/2) = 0.88

Part C

On the basis of asset turnover ratio, it can be said that Amazon.com inc, uses its assets more efficiently in generating sales revenue as its asset turnover ratio is higher than Netflix,inc.