Performance Ratio
Return on equity (ROE) is an example of a performance ratio, which measures the company’s profitability. It shows how much profit the company generates with each invested dollar in the shareholders’ equity. At the end of 2021, Amazon’s ROE was 24.134%, indicating that the company’s profitability is high and its equity returns profits well (Macrotrends, 2023). Therefore, one can conclude that Amazon’s performance is high and has a competitive advantage.
Activity Ratio
Inventory turnover measures how efficiently the company manages its inventory by showing how often it is sold and replaced. At the end of 2021, Amazon’s inventory turnover ratio was 8.34, indicating that the company is efficiently managing its inventory (Macrotrends, 2023). This means the company is active in its business affairs and constantly modernizing.
Financing Ratio
The debt-to-equity financing ratio measures the amount of debt that a company has relative to its equity. At the end of 2021, Amazon’s debt-to-equity ratio was 0.3526, indicating the company’s relatively low debt (Macrotrends, 2023). Thus, the company has no problems with debts and operates in its capacities, which benefits Amazon.
Liquidity Ratio
The current ratio is a liquidity ratio between current assets and liabilities, showing a company’s ability to pay its debts with its assets. In 2021 Amazon’s current ratio was 1.13 at the end of 2021, indicating the company has enough assets to pay its short-term debts (Macrotrends, 2023). Therefore, the company has no problems with its liabilities and can fulfill them.
Summary of Amazon’s Financial Ratios
Overall, Amazon’s financial ratios indicate that the company is performing well. Its high ROE and efficient inventory management show that it uses its resources efficiently and profits from them. In addition, its low debt-to-equity ratio and liquidity ratio, which is higher than one, shows that Amazon has low debts and can cope with those present. Still, its liquidity is only slightly higher than 1, indicating that its liabilities are slightly lower than assets. Nevertheless, Amazon’s overall financial performance remains high, showing that its innovative business model in e-commerce and technology is booming.
Reference
Macrotrends. (2023). Amazon financial ratios for analysis 2005-2023. Web.