Liquidity (Current Ratio): The current ratio is calculated using the current assets by current liabilities. This ratio shows how fast Netflix is able to pay off their short-term liabilities using their current assets. Netflix’s biggest competitor is Amazon and in comparison, Netflix has a better current ratio than Amazon (Yahoo Finance, 2015). In 2014, Netflix’s (NFLX) had a current ratio of: $3,940,469 / $2,663,154 = $1.48 and Amazon’s (AMZN) current ratio was $31,327,000 / $28,089,000 = $1.12. You can conclude that every dollar of debt that Netflix owes they have $1.48 to back it up for repayment. The lack of inventory with Netflix, along with the low accounts payable due is the reason why Netflix has a better current ratio …show more content…
This shows what proportion of the equity and debt the company is using to finance their assets. The general rule is the lower the number is the better off their company is, because they have lower debt in relation to their equity. In 2014, Netflix had a debt to equity ratio of $2,666,154 / $1,857,708 = 1.43 and Amazon had a debt to equity ratio of $28,089,000 / $10,741,000 = 2.62 (Yahoo Finance, 2015). The calculation shows us that Netflix had a lower risk of debt than Amazon, with a ratio of 1.43. Amazon risks having a higher debt to equity because in addition to streaming media, they need property, plants, and warehouses to store their inventory.
Profitability (Profit Margin): Profit margin measures how much money out of one dollar a company can keep for their earnings. The profit margin formula is: Net