Accounting Statement Analysis 2022

Running head: ACCOUNTING STATEMENT ANALYSIS
Accounting statement analysis
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1ACCOUNTING STATEMENT ANALYSIS
July 26, 2019
Mr. Alex Taylor
236 Park Road,
Washington DC
Subject: providing suggestion regarding purchase of Amazon stock
Dear Mr Taylor,
This is to inform you that I have already analyzed the financial performance of Amazon Inc. for
the past 3 years and compared the same with its main competitor eBay for the same period.
Findings from the analysis are as follows –
 Liquidity ratios are used for measuring the entity’s ability of making payment for the
short term dues when they become payable. Looking into the liquidity ratios of Amazon
for the past 3 years it is observed that the current ratio of the entity has been increased
from 1.04 to 1.10 over the past 3 years. In the same way the acid test ratio or the liquid
ratio went up from 0.78 to 0.85 and working capital ratio has been increased from 1.04 to
1.10 over the past 3 years. Hence, it can be stated that the liquidity position of the entity
has been enhanced.
 Profitability ratios are utilized for measuring the ability of the entity to convert its
revenue into net earnings after meeting the expenses associated with its business
operation, interest expenses along with tax expenses. Looking into the profitability ratio it
can be identified that the net profit margin for the entity has been enhanced and increased
from 1.74% to 4.3% during the period of 2016 to 2018. Further, the return on asset that
analyses the profitability of entity against its assets has been enhanced and increased
from 3.20% to 6.85%. In the same way return on equity that measures the rate of return
on the shareholder’s holdings has been increased from 14.52% to 28.27%. Hence, it can
be stated that the profitability position of the entity has been enhanced over the past 3
years.
 Solvency ratios are computed for measuring the ability of the entity with regard to
meeting of the debt as well as other obligations. Looking into the solvency ratio of