A Financial Analysis Case Of Amazon.Com And Barnes & Noble With Emphasis On The Impact Of ROE Versus EPS: Accounting Case And Instructor Notes

Abstract

This case follows two accounting interns working for a not-for-profit organization who have been asked to perform a financial analysis of two real life companies (Amazon.com and Barnes &Noble). The interns have been asked to assist the organization with a financial statement analysis of the companies in order to help the not-for-profit make an important investment decision.  The case requires the students to perform some simple ratio analyses, with a particular emphasis on how to utilize Return on Equity (ROE) and Earnings per Share (EPS) information when those values appear to provide contradictory information.  In particular, one of the primary goals of this case study is to have students discover how one company (Amazon.com) can have a greater ROE, even though the competitor (Barnes & Noble) has a larger EPS and how this seemingly contradictory information should be used in financial analysis.  Students will have the opportunity to consider which metric (ROE or EPS) is safe to use in cross-company comparisons and will use that analysis, in conjunction with other basic ratios, to provide a financial analysis report comparing the two companies. The case is appropriate for beginning financial accounting classes and intermediate accounting.