Chapter 10, Problem 1ADM

Continuing Company Analysis-Amazon: Short-term liquidity analysis

Amazon.com, Inc. is one of the largest Internet retailers in the world. Best Buy, Inc. 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	$14,557	$ 2,432
Short-term investments	2,859	1,456
Accounts receivable	5,612	1,280
Inventories	8,299	5,174
Other current assets	—	1,387
Total current assets	$31,327	$11,729
Current liabilities:
Accounts payable	$16,459	$ 5,122
Other current liabilities	11,630	2,314
Total current liabilities	$28,089	$ 7,436

A. Compute working capital for each company

B. Compute the current ratio for each company. (Round to one decimal place)

C. Compute the quick ratio for each company. (Round to one decimal place)

D. Can the working capital be usefully compared between the two companies? Explain.

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)