Answered: The following total liabilities and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Ratio of Liabilities to Stockholders’ Equity CompareAmazon.com to Best Buy Obj.6 Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. We will use Amazon as a continuing company exercise to reinforce the various tools and techniques for analyzing financial statements. We will begin with the ratio of liabilities to stockholders’ equity. Ratios can be used to compare companies in the same industry. For Amazon, there are a number of competitors that sell media, electronic, and other merchandise. Best Buy, Inc. (BBY) is one such company. The following total liabilities and stockholders’ equity information (in millions) is provided for Amazon and Best Buy for the end of a recent year:
Amazon Best Buy
Total assets $64,747 $13,519
Total liabilities 51,363 9,141
Total stockholders' equity 13,384 4,378
a. Compute the ratio of liabilities to stockholders' equity for each company. Round to two decimal places.
b. What conclusions regarding the margin of protection to creditors can you draw for these two companies?

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