Analyze and compare Amazon.com to Best BuyAmazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. Best Buy, Co. Inc. (BBY) is a leading retailer of consumer electronics and media products in the United States. Amazon and Best 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): AmazonBest BuyCurrent assets: Cash$19,334$ 1,976Short-term investments6,6471,305Accounts receivable8,3391,162Inventories11,4615,051Other current assets-392Total current assets$45,781$ 9,886Current liabilities: Accounts payable$25,309$ 4,450Other current liabilities18,5072,475Total current liabilities$43,816$ 6,925 Required:a. Compute working capital for each company.Amazon:Best Buy:b. Compute the current ratio for each company. Round to one decimal place.Amazon:Best Buy:c. Compute the quick ratio for each company. Round to one decimal place.Amazon:Best Buy:d. Can the working capital be usefully compared between the two companies? Which of the following statements is correct.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.) Round to one decimal place.AmazonBest BuyCurrent assets:Cash%Short-term investments%%Accounts receivableInventories%%Other current assets%Total current assets%%%%%% % of its current assets consisting of cash and short-term investments, compared to% for Best Buy. This difference willAmazon hasof its current assets in inventory, while Amazon only has 25.0% of current assets in inventory. This difference reflects Amazon's pure Internet strategy, which causes the current ratio to berelationship between the current and quick ratios to diverge between the two companies.Amazon's quick ratio relative to Best Buy's. Best Buy has 51.1%than Best Buy's. It also causes the

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Century 21 Accounting Multicolumn Journal

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Publisher:Gilbertson

Chapter17: Financial Statement Analysis

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Analyze and compare Amazon.com to Best Buy

Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. Best Buy, Co. Inc. (BBY) is a leading retailer of consumer electronics and media products in the United States. Amazon and Best 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):

	Amazon	Best Buy
Current assets:
Cash	$19,334	$ 1,976
Short-term investments	6,647	1,305
Accounts receivable	8,339	1,162
Inventories	11,461	5,051
Other current assets	-	392
Total current assets	$45,781	$ 9,886
Current liabilities:
Accounts payable	$25,309	$ 4,450
Other current liabilities	18,507	2,475
Total current liabilities	$43,816	$ 6,925

Required:
a. Compute working capital for each company.
Amazon:
Best Buy:
b. Compute the current ratio for each company. Round to one decimal place.
Amazon:
Best Buy:
c. Compute the quick ratio for each company. Round to one decimal place.
Amazon:
Best Buy:
d. Can the working capital be usefully compared between the two companies? Which of the following statements is correct.
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.) Round to one decimal place.
Amazon
Best Buy
Current assets:
Cash
%
Short-term investments
%
%
Accounts receivable
Inventories
%
%
Other current assets
%
Total current assets
%
%
%
%
%
%

% of its current assets consisting of cash and short-term investments, compared to
% for Best Buy. This difference will
Amazon has
of its current assets in inventory, while Amazon only has 25.0% of current assets in inventory. This difference reflects Amazon's pure Internet strategy, which causes the current ratio to be
relationship between the current and quick ratios to diverge between the two companies.
Amazon's quick ratio relative to Best Buy's. Best Buy has 51.1%
than Best Buy's. It also causes the

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