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lilt WA 1603.OM

The reported beta for Amazon.com is 3.23, which means that Amazon has over three times the systematic risk of a typical stock. You would expect that the company is very risky, and, looking at the other numbers, we agree. Amazon's ROA is -54.23 percent. This effectively means that the net loss for the past year was one-half of assets. If you look at ROE, you will see that the number is not reported. Why? If you calculate the ROE using the earnings per share and the book value per share you will find that ROE is almost 84 percent, which would be considered great. But digging deeper, the reason ROE is so good is that Amazon has a negative book value. So, when you calculate ROE for Amazon, the more the company loses, the higher the ROE becomes—not a good situation! Amazon appears to be a good candidate for a high beta.

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