Chapter 11, Problem 11.1ADM

Continuing Company Analysis–Amazon: Times interest earned

Amazon.com, Inc. is one of the largest Internet retailers in the world. Walmart Stores, Inc. is the largest retailer in the United States. Amazon and Walmart compete in similar markets; however, Walmart sells through both traditional retail stores and the Internet, while Amazon sells only through the Internet. Interest expense and income before income tax expense from the financial statements of both companies for two recent years follow (in millions):

	Amazon	Walmart
	Year 2	Year 1	Year 2	Year 1
Interest expense	$ 210	$141	$ 2/461		$ 2,335
Income (loss) before income tax expense	(111)	274	24,799			24,656

A. Compute the times interest earned ratio for both companies for the two years. (Round to one decimal place.)

B. Interpret Amazon’s interest coverage from Year 1 to Year 2.

C. Does a times interest earned ratio less than 1.0 mean that creditors will not get paid interest?

D. Interpret Walmart’s interest coverage from Year 1 to Year 2.

E. Which company appears to have the greater protection for creditors?