Chapter 4, Problem 4.1MAD

Working Capital and Current Ratio

Analyze and compare Amazon.com to Best Buy

 Amazon.com, Inc. (AMZN) is the largest Internet retailer in the United States. Best Buy, Inc. (BBY) is a leading retailer of technology 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. The current assets and current liabilities from recent balance sheets for both companies are provided as follows (in millions):

	Amazon	Best Buy
Current assets	$45,781	$9,886
Current liabilities	43,816	6,925

a. Compute the working capital for each company.

b. Which company has the largest working capital?

c. Is working capital a good measure of relative liquidity in comparing the two companies? Explain.

d. Compute the current ratio for both companies. Round to one decimal place.

e. Which company has the larger relative liquidity based on the current ratio?