This indicates an increasing ability to meet short-term debt. However, with ratios under 2.0, Amazon's liquidity strength is relatively low. A ratio of 2.0 is generally preferred.
Solvency.
Solvency ratios measure Amazon's ability to meet its long-term debt and include debt to equity and leverage. The following table shows Amazon's solvency ratios.
1999 2000 2001 2002 2003.
Debt to Equity 8.26 -3.21 -2.14 -2.47 -2.51.
Leverage 9.26 -2.21 -1.14 -1.47 -1.51.
Amazon's solvency ratios become negative in 2000. This is the result of negative stockholder's equity reported in their financial statements. Since Amazon has never generated profits, its accumulated deficit has continued to rise, driving this negative equity. .
These negative solvency ratios indicate that Amazon will not be able meet its long-term debt. Amazon has been dependent on long-term debt and stock offerings to finance its operations. If Amazon is unable to meet its long-term debt, its ability to raise capital will be seriously hindered. Consequently, Amazon will have difficulty sustaining its operations.
Profitability.
Profitability ratios measure Amazon's ability to generate profits and include return on assets, return on equity, profit margin, earnings per share, and price to earnings. The following table lists each of these ratios from 1999-2003. The table also lists industry averages obtained from MultexInvestor.com.
1999 2000 2001 2002 2003 Industry Averages.
ROA -0.46 -0.61 -0.30 -0.08 -0.02 7.70.
ROE -3.56 NA NA NA NA 17.53.
Profit Margin -0.44 -0.51 -0.18 -0.04 -0.01 6.70.
EPS ($2.20) ($4.02) ($1.56) ($0.39) ($0.10) 38.73.
PE Ratio -34.60 -3.87 -6.94 -48.44 -484.30 38.96.
Amazon's profitability ratios are negative because they have not been able to generate profits. Amazon's ROE can not be calculated in 2000-2003 because both earnings and equity are negative.
Amazon's profitability ratios are far below industry averages and indicate that the company is not able to use its resources effectively to generate profits.
