Instructions: Describe how and why each of the ratios has changed over the three
ID: 2812419 • Letter: I
Question
Instructions: Describe how and why each of the ratios has changed over the three-year period. For example, did the current ratio increase or decrease? Why? Describe how three of the ratios you calculated for your company compare to the general industry.
Below are the rations for Amazon.com from 2015 through 2017
2016
2017 Ratio Calculations Equations Current ratio 60,197,000 / 57,883,000 = 1.04 current assets / current liabilities Debt/equity ratio 103,601,000 / 27,709,000 = 373.9% total liabilities / total equity Free cash flow 18,434,000 - 27,819,000 = $ (9,385,000) total operating cash flow - capital expenditures Earnings per share 3,033,000 / 480,000 = $ 6.32 net income / common shares outstanding Price/earnings ratio 1169.47 / 6.32 = 185.04 stock price / earnings per share Return on equity 3,033,000 / 27,709,000 = 10.9% net income / total equity Net profit margin 3,030,000 / 177,866,000 = 1.7% net income / total revenueExplanation / Answer
Equations 2017 2016 2015 Remark Current ratio current assets / current liabilities 1.04 1.04 1.08 Due to increase in business , the current assets and liabilities are increasing year of year , but the comparative growth is less in year 2016 from 2015. Debt/equity ratio total liabilities / total equity 373.90% 332.50% 389.00% For the growth in business promoters are increasing investment in form of equity , so there is growth in equity . At the same time debt level is also increasing but company prefer more from equity side Free cash flow total operating cash flow - capital expenditures ($9,385,000) $9,706,000 $7,331,000 A Sudden negative free cash flow in year 2017 , indicate high capital investment for growth in future business . Here the capital investment is done mainly to develop new market. Earnings per share net income / common shares outstanding $6.32 $5.00 $1.28 The very high grwth in EPS indicate groeth in operating profit as well as growth in market share and business for company . Year 2017 the high capital invesment and diversification leads a higher growth in EPS Price/earnings ratio stock price / earnings per share 185.04 149.97 528.04 Due to increase in EPS , the P/E ratio is reducing Return on equity net income / total equity 10.90% 12.30% 4.50% The very high grwth in ROE indicate groeth in operating profit as well as growth in market share and business for company .The moderate groeth in leverage impact the growth on return on equity. Year 2017 the high capital invesment and diversification leads a higher growth in ROE Net profit margin net income / total revenue 1.70% 1.70% 0.60% The ratio increase due to higher share of operating profit in total revenue of company . Company is growing its trading activties in new market year on year.