Maria Magdalena Herbers

Accounting 1120
Lynnette M. Yerbury, Professor
11/19/2013
Amazon Financial Statements
Introduction
The following is a summary and analysis of Amazons financial standing for the year
2012. This analysis is based off of financial information presented in Amazons annual
report published in early 2013. Ratios will be used to explore these figures. This
analysis will cover the liquidity, solvency, and profitability of the company. These
components will also serve as an assessment of efficiency, productivity, and
attractiveness to potential investors.
Liquidity
Liquidity is the ability of a business to pay current liabilities, such as short-term loans,
bills to vendors, and other short-term debts. It can be evaluated by looking at ratios that
compare money already held and coming in to money owed. If a company is able to
bring money in faster than it acquires new debts, it will be very liquid. Two ratios that
help evaluate liquidity are the current ratio and the quick ratio. These ratios compare
cash and items that will soon be converted into cash to the companys short-term debt.
Amazons current ratio in 2011 was 1.17:1. In other words, for every dollar of short-term
debt, Amazon has $1.17 in cash and assets that will soon be cash. In 2012, it was

1.12:1. This ratio worsened, but not by much. However, the industry average for online
retail sales is 1.37:1. Amazons ratio is less than this, meaning that they are not as able
to pay short-term debts as other companies in their same industry. This could be
because they move product rather quickly and owe vendors many bills simultaneously.
Making more short-term investments or increasing the amount of sales could improve
this. Amazon had a quick ratio of .82:1 in 2011 and .75:1 in 2012. Unsurprisingly, this
ratio also worsened. The industry average is 1 to 1. Making the above improvements
could bring Amazon closer to the industry average, thereby increasing liquidity.
Profitability
A companys ability to make a profit can be evaluated by measuring certain ratios.
These ratios compare how much money was earned to how much money was spent. In
the year 2012, Amazon reported a net loss of $39 million. This means that in their
business operations and after taxes, more money was put out than brought in. Another
factor of this was their investment activities for the year. Amazon spent $155 million on
major investments in 2012, compared to $12 million in 2011. Even though sales went
from $48 billion in 2011 to $61 billion in 2012, Amazon reported a loss instead of a
profit. A profit margin percentage relates how much net income is gained for every
dollar of sales. Since Amazon reported a loss instead of a profit, the percentage is
negative. For 2012, the percentage was -.06%. Comparatively, it was 1.31% in 2011.
The 2012 percentage is rather low, especially compared to the prior year. It means that
for every dollar of sales, .06% of a cent was lost. While it seems insignificant, it means
the company lost money instead of having a profit. It is also well below the industry
average of 2.72%. Another way of evaluating productivity is to see how many times a

company can sell or turn-over their inventory. Amazon sold their average amount of
inventory for 2012 8.3 times. In 2011 they sold it 15.8 times. The industrys average is
10.8 times. This means Amazon was high above the average in 2011 but severely
dropped the following year. Improving this amount of turnover could boost the profit that
Amazon makes.
With regards to Amazons stock, 454 shares were outstanding at the end of 2012.
Amazon reported that $.09 were lost per share in 2012 compared to $1.39 earned per
share in 2011. This is a large difference. Both are below the industry average of $1.58
earned for every share of stock. All of these ratios show that Amazon was unprofitable
in 2012. By spending less money, increasing efficiency, and boosting sales, they could
be profitable.
Solvency
Solvency is a companys ability to pay long-term debt. Long-term debts include longterm loans, mortgages, bonds, etc. Amazon reported about $3 billion in long term debts
in 2012. This is small compared to their short-term debts of about $19 billion. Solvency
can be analyzed using similar ratios to those evaluating liquidity. In 2012, 75% of the
assets including cash, buildings, equipment, etc. were financed by debt. In 2011, this
was 69%. The industry average is 55%. The amount of total debt owed is almost 3
times the amount of equity owned by stockholders. These ratios take into account all
debt owed by Amazon. The company acquired more debt in 2012. Their ability to pay
off all their debt worsened from 2011.

Conclusion
Amazon declined in liquidity, profitability, and solvency during the year 2012. The
companys ability to pay off debts, both short-term and long-term, worsened. To improve
it, less debt must be taken on and profitability needs to be increased. Amazon lost
money in 2012. They could do better at turning over inventory. This would increase
profit. All the ratios were below average for the year 2012. By bringing them back up to
par in 2013, Amazon can boost their attractiveness to investors. Sales did increase from
year to year. Therefore, earning a profit could be as simple as spending less and
acquiring less debt. The investments made by Amazon will hopefully add to their profit
as well. Business improvements need to be made to improve these ratios and bring
them closer or higher than the industrys average.