Description of ethics and compliance is essential for the financial analysis of every company. This research is devoted to the investigation of the Amazon.com´s organization´s annual report for the past 2 years, using financial ratios and discussing the trend for each of them.
Amazon Inc. has strengthened its ethical standards by joining to the Business Ethics Leadership Alliance (BELA). This alliance consists of more than 50 companies and works to “enhance the ethical values of corporate American that would not only be satisfactory with their employees, but with the public as well. BELA is a forum for global leaders to discuss, establish and promote best practices in corporate compliance and ethics and advance the cause of ethics and compliance to corporate executives, stakeholders and consumers” (Ethisphere, 2011).
Considering current ratio of the company (or working capital ratio), which “provides information about a firm´s ability to meet its short-term financial obligations” (NetMBA, 2010), we have indicated that it is high for both past years ( 1,33 in 2010 and 1,17 in 2011) that reduces the risk. However, as it is seen from data, it became lower in 2011 that means higher risk for the company.
Debt ratio belongs to financial leverage ratios which “provide an indication of the long-term solvency of the firm and measure the extent to which the firm is using long term debt”. It was calculated that debt ratio in 2010 is 63% and in 2011 – 69%. It is observed that the percentage became higher in 2011 that means more risk that company is considered to have taken on. As it was defined by Loth (2012): “The lower the percentage, the less leverage a company is using and the stronger its equity position”.
Return on equity refers to profitability ratios and is “the bottom line measure for the shareholders, measuring the profits earned for each dollar invested in the firm´s stock” (NetMBA, 2010). Return on equity ratio is 17% in 2010 and only 8% in 2011 that shows lower efficiency of the management. Loth (2012) indicated: “the higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors”.
Days receivable ratio in 2010 is 17 and 12 in 2011. It is defined by Investopedia (2012): “A low number means that it takes a company fewer days to collect its accounts receivable and a high number shows that a company is selling its product to customers on credit and taking longer to collect money”. It can be concluded that Amazon Inc. collects quickly its account receivable selling products to costumers.
In conclusion, Amazon Inc. follows SEC regulations and other rules that are set by government. However, investigating financial health of the firm for the past 2 years, it was defined that company was functioning better in 2010 and that in 2011 its financial health became less consistent and steady.