# Good research paper about accounting

1) Liquidity Measurement Ratios

## Current Ratio

The current ratio is also known as the working capital ratio. It shows the proportion or the extent to which the current liabilities of a company can be offset by the current assets. A ratio of 2 is realistic and acceptable since it means that the company is able to offset the current liabilities twice using the current assets. Companies may seek to maintain a ratio of 1 but it is always advisable to maintain the ration at two to cushion the firm against unforeseen contingencies. Current ratio must be analyzed as a trend where an increasing ratio may indicate improved liquidity. In this case the current ratio of Amazon will be:
2013 \$ 24625/22980= 1. 07
2012 \$ 21296/19002= 1. 12
2011 \$ 17490/14896= 1. 17
It can be seen from the above calculations that the current ratio of Amazon is below the realistic and acceptable ratio of 2. In addition, the ratio shows a declining trend from 2011-2013 indicating a decline in the liquidity of the firm.

## Quick Ratio

It is also referred to as the acid-test ratio. It shows the ratio of the most liquid assets and the current liabilities. For instance, a quick ratio of 0. 6 means that a firm is able to settle 60% of it’s current liabilities instantaneously. This ratio must be analyzed over time and also according to the industry the firm is operating in. A higher ratio than that of the industry indicates that the firm is investing a lot of financial resources in the working capital that may be used elsewhere. On the other hand, a lower than industry ratio means that, the firm is ignorant of the need to maintain the necessary buffer of liquid resources. In this case, Amazon’s ratios are:
2013(24625-7411)/22980= 0. 75
2012(21296-6031)/19002= 0. 80
2011(17490-4992)/14896= 0. 84
The acid test ratio also indicates a declining trend. It shows a weakening position in terms of the ability of the firm to offset its current liabilities unexpectedly.

## Cash Ratio

This is the ratio that indicates the extent to which a company is able to offset its current liabilities from its cash holdings. The ratio is rarely used since firms do not have to keep a lot of cash in their holdings. Therefore expecting the ratio to be 1 or below is realistic. In this case:
20138658/22980= 0. 4
20128084/19002= 0. 43
20115269/14869= 0. 35
The ratios are all below 1. This is realistic. However, the ratios show a fluctuating trend, and because they are rarely used due to changing conditions and reasons of holding cash, it may not be a realistic measure of the liquidity position of a firm.

## Cash Conversion Cycle

It measures the length in days that a company uses to sell its inventory, collect accounts receivables and also pay its accounts payable. A shorter cycle indicates a more liquid company in terms of its working capital than one with a longer cycle. In this case:
DIO= average inventory/ cost of sales per day
DSO= average accounts receivable/ net sales per day
DPO= average accounts payable/ cost of sales per day
2013 DIO= 6721/148. 4= 45. 3
DSO= 2383. 5/204= 11. 68
DPO= 7566. 5/148. 4= 50. 99
CCC= 5. 99
2012DIO= 5511. 5/125. 95= 43. 76
DSO= 1682/167. 4= 10
DPO= 6659/125. 95= 52. 87
CCC= 0. 89
Comparing the cycle between 2012 and 2013, it is clear that the cycle has increased indicating a weakened working capital for the company. This is because; the cycle has increased from below 1 to around 6.
2) Profitability Indicator Ratios

## Profit Margin Analysis

Pretax profit margin measures the efficiency of profit generation of a company. For instance, a 30% pretax profit margin indicates that for every \$1 worth of sales, 30 cents is earned by the firm as profit. In the case of Amazon:
2013506/74452= 0. 007= 0. 7%
2012544/61093= 0. 009= 0. 9%
2011934/48077= 0. 02= 2%
20111497/34204= 0. 04= 4%
The margin shows a low operating profit indicating a lower potential by the firm to derive profits. In addition, the trend shows a decline in the margin which may be attributed to increased selling, administrative expenses among others.
It shows the percentage of net profit compared to the earned during certain duration. Therefore, if a business has a 40% net profit margin, it means that, for every \$1 of sales, 40 cents goes towards the net profit.
2013274/74452= 0. 004= 0. 4%
2012(39)/61093= -0. 0006=-0. 06%
2011631/48077= 0. 01= 1%
20101152/34204= 0. 04= 4%
In this case of Amazon, the margin is again very low. This is because, for every \$1 sale, only 0. 4 cents in 2013 goes towards the net profit. The margins in the other years are also not impressive at all.

## Effective Tax Rate

2013161/506=-0. 32
2012428/544=-0. 79
2011291/934=-0. 31
2010352/1497=-0. 24

## Return on Assets

It shows the extent to which a company is profitable relative to its total assets. Investors like to see ROA at 5% or more but this all depends on the industry. For instance, the banking industry, ROA is very low at about 1. 5%.
2013274/2079. 5= 0. 014= 1. 4%
2012(39)/16277. 5=-0. 002= 0. 2%
2011631/12639= 0. 05= 5%

## Return on Equity

It measures how much the shareholders/stockholders earned for their investment in the company. A range of between 15-25% is modest, but as said earlier, it all depends on the industry. In this case, the ROE for Amazon is up to 3%, a figure that is low though realistic considering the industry.
2013/2012274/8969= 0. 03= 3%
2012/2011(39)/7974. 5=-0. 005= 0. 5%
ROCE measures a company’s ability to generate returns from the firm’s capital base. This is very important to investors since it gives them an overview of the company’s ability to raise revenues from the capital availed by the investors. On this front, it is clearly evident that Amazon is able to generate revenues above an 8% mark giving investors a good value of their money.

## EBIT

2013 506+141= 647
2012 544+92= 636
2011 934+65= 999

## ROCE

2013647/(4873+3716. 5)= 0. 08= 8%
2012636/(4096+2580. 5)= 0. 095= 9. 5%
2011999/(4873+1312. 5)= 0. 15= 15%

## References

www. amazon. com
Peterson, P. P., & Fabozzi, F. J. (1999). Analysis of financial statements. New Hope, Pa.: Frank J. Fabozzi Associates.