Compute and Interpret Capital Structure, Coverage, and Liquidity Ratios

Selected balance sheet and income statement information from Amazon follows.

$ millionsCurrent Year Prior YearNet operating profit after tax $($NOPAT$)$$$10,978$$$3,222$Net income$10,0733,033$Operating profit$12,4214,106$Interest expense$1,417848$Cash from operating activities$30,72318,365$Current assets$300,40460,197$Current liabilities$68,39157,883$Cash and cash equivalents $($Cash$)31,75020,522$Marketable securities $($MS$)9,50010,464$Accounts receivable $($AR$)16,67713,164$Total debt$23,49524,743$Assets$162,648131,310$Average assets$146,979107,356$Total liabilities$119,099103,601$Equity$43,54927,709$Average equity$35,62923,497$Net operating assets $($NOA$)25,79421,466$Average NOA$23,63011,232$

Required

a$)$ Compare current and prior year profitability measures.

b$)$ Compare current and prior year coverage metrics.

c$)$ Compare current and prior year liquidity ratios.

$4)$ Compare current and prior year capital structure ratios.

Profitability and Coverage

Liquidity and Capital structure

a$.$ Compute profitability measures return on net operating assets $($RNOA$)$ and return on equity $($ROE$)$ for both years.

NumeratorDenominatorResultRNOAAccounts receivableAssetsAverage assetsAverage equityAverage NOACash and cash equivalentsCash from operating activitiesCurrent assetsCurrent liabilitiesEquityInterest expenseMarketable securitiesNet incomeNet operating assets $($NOA$)$NOPATOperating profitQuick assetsTotal debtTotal liabilitiesAccounts receivableAssetsAverage assetsAverage equityAverage NOACash and cash equivalentsCash from operating activitiesCurrent assetsCurrent liabilitiesEquityInterest expenseMarketable securitiesNet incomeNet operating assets $($NOA$)$NOPATOperating profitQuick assetsTotal debtTotal liabilitiesCurrent yearPrior yearROEAccounts receivableAssetsAverage assetsAverage equityAverage NOACash and cash equivalentsCash from operating activitiesCurrent assetsCurrent liabilitiesEquityInterest expenseMarketable securitiesNet incomeNet operating assets $($NOA$)$NOPATOperating profitQuick assetsTotal debtTotal liabilitiesAccounts receivableAssetsAverage assetsAverage equityAverage NOACash and cash equivalentsCash from operating activitiesCurrent assetsCurrent liabilitiesEquityInterest expenseMarketable securitiesNet incomeNet operating assets $($NOA$)$NOPATOperating profitQuick assetsTotal debtTotal liabilitiesCurrent yearPrior year

In which year are the profitability measures stronger? Answer $13$Current yearPrior year

Which of the two ratios has improved the most over the two years? Answer $14$RNOAROE$.$

b$.$ Compute coverage metrics Times interest earned and Cash from operating activities to total debt for both years.

NumeratorDenominatorResultTimes interest earnedAccounts receivableAssetsAverage assetsAverage equityAverage NOACash and cash equivalentsCash from operating activitiesCurrent assetsCurrent liabilitiesEquityInterest expenseMarketable securitiesNet incomeNet operating assets $($NOA$)$NOPATOperating profitQuick assetsTotal debtTotal liabilitiesAccounts receivableAssetsAverage assetsAverage equityAverage NOACash and cash equivalentsCash from operating activitiesCurrent assetsCurrent liabilitiesEquityInterest expenseMarketable securitiesNet incomeNet operating assets $($NOA$)$NOPATOperating profitQuick assetsTotal debtTotal liabilitiesCurrent yearPrior yearCash from operating activities to debtAccounts receivableAssetsAverage assetsAverage equityAverage NOACash and cash equivalentsCash from operating activitiesCurrent assetsCurrent liabilitiesEquityInterest expenseMarketable securitiesNet incomeNet operating assets $($NOA$)$NOPATOperating profitQuick assetsTotal debtTotal liabilitiesAccounts receivableAssetsAverage assetsAverage equityAverage NOACash and cash equivalentsCash from operating activitiesCurrent assetsCurrent liabilitiesEquityInterest expenseMarketable securitiesNet incomeNet operating assets $($NOA$)$NOPATOperating profitQuick assetsTotal debtTotal liabilitiesCurrent yearPrior year

Both coverage ratios Answer $27$approximately doubledapproximately tripleddropped by about $50\%$ over the two years.