This preview shows page 60 - 65 out of 69 pages. Financial Accounting 8/e Solutions Manual 1100 Focus on Financials: Amazon.com, Inc. (1-2 hours) Req. 1 1. Ability to pay current liabilities Ratio Computation 2008 2007 Interpretation Current CA*/CL 6,157/4,746 = 1.3 5,164/3,714 = 1.4 Declined slightly Acid-test (Quick) QA**/CL (2,769 + 958)/4,746 = .78 (2,539 + 573)/3,714 = .83 Declined slightly CA = Current Assets QA = Quick Assets (Cash and equivalents + Marketable securities) 2. Ability to sell inventory and collect receivables Ratio Computation 2008 2007 Interpretation Inventory turnover COS/Avg. Inventory* 14,896/1,300 = 11.45 11,482/1,039 = 11.05 Improved slightly Accounts receivable turnover Net sales/Avg. receivables** 19,166/766 = 25.02 14,835/552 = 26.88 Declined slightly but still high Days sales in receivables Avg. receivables**/ daily sales 766 (19,166/365) = 14.59 days 552 (14,835/365) = 13.58 days Lengthened slightly but still low *Avg. inventory 2008: (1,399 + 1,200)/2 = 1,300 2007: (1,200 + 877 1 )/2 = 1,039 **Avg. receivables 2008: (827 + 705)/2 = 766 2007: (705 + 399 1 )/2 = 552 1 Obtained from 2007 annual report at . To download more slides, ebook, solutions and test bank, visit Chapter 13 Financial Statement Analysis 1101 (continued) Focus on Financials: Amazon.com, Inc. 3. Ability to pay long-term debt Ratio Computation 2008 2007 Interpretation Debt Ratio Total debt/Total current assets (4,746 + 409 + 487) /8,314 = .678 (3,714 + 1,282 + 292)/6,485 = .815 Improved significantly Times Interest Earned Income from operations/interest expense 842/83 = = 10.14 655/90 = = 7.28 Improved significantly To download more slides, ebook, solutions and test bank, visit Financial Accounting 8/e Solutions Manual 1102 (continued) Focus on Financials: Amazon.com, Inc. 4. Profitability Ratio Computation 2008 2007 Interpretation ROS Net income/Net sales 645/19,166 = .034 476/14,835 = .032 Improved slightly ROA Net income + Interest expense /Average total assets* (645 + 71) 7,400 = .097 (476 + 77) 5,424 = .102 Declined slightly but still relatively strong ROE Net income preferred dividends/Average stockholders’ equity** 645 0 1,935 = .333 476 0 814 .584 Declined but still strong. In both years, exceeded ROA EPS Net income preferred dividends/Average common shares outstanding 645 0 (428 + 416)/2 =\$1.52 476 0 (416 + 414 1 )/2 \$1.15 Improved *Average total assets 2008: (\$8,314 + \$6,485)/2 = 7,400 2007: (\$6,485 + \$4,363 1 )/2 = 5,424 **Average s/e 2008: (\$2,672 + \$1,197)/2 = 1,935 2007: (\$1,197 + \$431 1 )/2 = 814 1 Obtained prior year data from 2007 annual report at . To download more slides, ebook, solutions and test bank, visit Chapter 13 Financial Statement Analysis 1103 (continued) Focus on Financials: Amazon.com, Inc. 5. Cash flow from operations: 2008: \$1,697 (per share = \$1,697/423) = \$4.01 2007: \$1,405 (per share = \$1,405/413) = \$3.40 Cash flow from operations substantially improved, both on a total and per share basis. In 2008, cash flow from operations exceeded net income by about 263%. In 2007, cash flow from operations exceeded net income by 295%. The company is generating significant amounts of cash from operations and using it wisely.  #### You've reached the end of your free preview.

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