Chapter 11, Problem 1MAD

Analyze and compare Amazon.com and Wal-Mart

Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. Wal-Mart Stores, Inc. (WMT) is the largest retailer in the United States. Amazon and Wal-Mart compete in similar markets; however, Wal-Mart sells through both traditional retail stores and the Internet, while Amazon sells only through the Internet. Interest expense and income before income tax expense from the financial statements of both companies for two recent years follow (in millions):

1. a. Compute the times interest earned ratio for both companies for the two years. Round to one decimal place.
2. b. Interpret Amazon’s interest coverage from Year 1 to Year 2.
3. c. Does a times interest earned ratio less than 1.0 mean that creditors will not get paid interest?
4. d. Interpret Wal-Mart’s interest coverage from Year 1 to Year 2.
5. e. Which company appears to have the greater protection for creditors?