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Analyze and compare Amazon.com to Best Buy

Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. Best Buy, Co. Inc. (BBY) 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	$19,334	$ 1,976
Short-term investments	6,647	1,305
Accounts receivable	8,339	1,162
Inventories	11,461	5,051
Other current assets	-	392
Total current assets	$45,781	$ 9,886
Current liabilities:
Accounts payable	$25,309	$ 4,450
Other current liabilities	18,507	2,475
Total current liabilities	$43,816	$ 6,925

Required:

a. Compute working capital for each company.

Amazon: $fill in the blank 1

Best Buy: $fill in the blank 2

b. Compute the current ratio for each company. Round to one decimal place.

Amazon: fill in the blank 3

Best Buy: fill in the blank 4

c. Compute the quick ratio for each company. Round to one decimal place.

Amazon: fill in the blank 5

Best Buy: fill in the blank 6

d. Can the working capital be usefully compared between the two companies? Which of the following statements is correct.

Yes, working capital is a good measure for comparing the liquidity of two companies because both the companies belong to the same industry.No, working capital is not a good measure Amazons current assets are over four times larger than Best Buys. Thus, the comparison is not very meaningful.Yes, working capital is a good measure Amazons current assets are equal to that of Best Buys. Thus, the comparison is very meaningful.No, the best measure for comparing the liquidity of two companies is to compare the profit and debt ratios.

e. Which company has the greater debt-paying ability according to the current ratio?

Best BuyAmazon

f. Which company has the greater short-term debt-paying ability according to the quick ratio?

Best BuyAmazon

g. Why are the results different between (e) and (f)? (Hint: Perform a vertical analysis of the current assets.) Round to one decimal place.

	Amazon	Best Buy
Current assets:
Cash	fill in the blank 10%	fill in the blank 11%
Short-term investments	fill in the blank 12%	fill in the blank 13%
Accounts receivable	fill in the blank 14%	fill in the blank 15%
Inventories	fill in the blank 16%	fill in the blank 17%
Other current assets	fill in the blank 18%	fill in the blank 19%
Total current assets	fill in the blank 20%	fill in the blank 21%

Amazon has fill in the blank 22% of its current assets consisting of cash and short-term investments, compared to fill in the blank 23% for Best Buy. This difference will

improveworsen

Amazons quick ratio relative to Best Buys. Best Buy has 51.1% of its current assets in inventory, while Amazon only has 25.0% of current assets in inventory. This difference reflects Amazons pure Internet strategy, which causes the current ratio to be

smallerlarger

than Best Buys. It also causes the relationship between the current and quick ratios to diverge between the two companies.