Financial Performance of Ebay and Amazon - Essay Example

The paper "Financial Performance of Ebay and Amazon" is an outstanding example of an essay on finance and accounting. Ebay and Amazon are two of the largest online retailers in the world. In order to compare the financial performance of both these companies, the ratio analysis of its financial statements was calculated. The ratio analysis is illustrated in the table below.

The net margin of Ebay is 17.80%. Ebays profitability is outstanding considering the fact that Amazon's profitability was only 0.37%. One of the reasons that Ebay has higher profitability is because the company incurs in lower operating costs. Return on assets shows how effective a company has been at generating profits from its assets. In 2013 Ebay had a return on assets of 6.88%, while Amazon had a much lower ROA at 0.68%. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested (Investodepia). Ebay had a return on equity in 2013 of 12.08% which is higher than Amazon's result of 2.81%.
The total asset turnover measures how efficient a company is at generating revenue from its assets. Ebay had a total asset turnover in 2013 of 0.39. Amazon had a much better total asset turnover in 2013 with a result of 1.85. The time's interest earned measures the amount of income that can be used to cover the interest expense of the company. A high time interest earned is the desirable outcome. Ebay had a times interest earned of 35.48. Amazon had a much lower times interest earned at 19.61. The current ratio shows the ability of a company to pay off its short term debt. The formula to calculate the current ratio is current assets divided by current liabilities The current ratio of Ebay was 1.84, while Amazon had a current ratio of 1.07. Ebays current ratio is better. The quick ratio is another short term solvency metric that is similar to the current ratio, but it eliminates inventory from the numerator of the formula. Ebay does not hold any inventory, thus its quick ratio is the same as its current ratio at 1.84. Amazon had a quick ratio in 2013 of 0.75. Based on the ratio analysis performed Ebay is a better investment option because the company has superior profitability and liquidity. Read More