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Compare Amazon.com to Best Buy Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. We will use Amazon as a continuing company exercise to reinforce the various tools and techniques for analyzing financial statements. We will begin with the ratio of liabilities to stockholders’ equity. Ratios can be used to compare companies in the same industry. For Amazon, there are a number of competitors that sell media, electronic, and other merchandise. Best Buy, Inc. (BBY) is one such company. The following total liabilities and stockholders’ equity information (in millions) is provided for Amazon and Best Buy for the end of a recent year: a. Compute the ratio of liabilities to stockholders’ equity for each company. Round to two decimal places. b. What conclusions regarding the margin of protection to creditors can you draw for these two companies?

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 1, Problem 1MAD
Textbook Problem
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Compare Amazon.com to Best Buy

Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. We will use Amazon as a continuing company exercise to reinforce the various tools and techniques for analyzing financial statements. We will begin with the ratio of liabilities to stockholders’ equity.

Ratios can be used to compare companies in the same industry. For Amazon, there are a number of competitors that sell media, electronic, and other merchandise. Best Buy, Inc. (BBY) is one such company. The following total liabilities and stockholders’ equity information (in millions) is provided for Amazon and Best Buy for the end of a recent year:

Chapter 1, Problem 1MAD, Compare Amazon.com to Best Buy Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in

  1. a. Compute the ratio of liabilities to stockholders’ equity for each company. Round to two decimal places.
  2. b. What conclusions regarding the margin of protection to creditors can you draw for these two companies?

a.

To determine

Compute the ratio of liabilities to stockholder's equity for the given companies rounded to two decimal places.

Explanation of Solution

Ratio of liabilities to stockholder's equity: This ratio measures the claims of creditors over claims of stockholders in financing the assets of a company. A lower ratio indicates that the company is able to pay off the creditors’ obligations efficiently. Formula of ratio of liabilities to stockholder's equity:

Ratio of liabilities to stockholder's equity = Total liabilitiesTotal  stockholder's equity  

Calculation of ratio of liabilities to stockholder's equity for Company A:

Ratio of liabilities tostockholder's equity} = Total liabilitiesTotal  stockholder's equity =$51,363$13,384=3

b.

To determine

Derive conclusions on the margin of protection to creditors for the two companies.

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Financial And Managerial Accounting
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