Power Point
Amazon Inc Finances
Group 1
Rakim Dyer
Nadaa Elatat
Stephen Hauschild
FINC 235
1
Financial Growth
Increased revenue growth in the last two years
In 2016, revenue was $135,987,000
In 2017, revenue was $177,866,000
Gross profit also grew from $47,722,000 to $65,932,000
The organization has increased its revenues in the past two years. This is due to a number of factors with the biggest factor being its focus on customer satisfaction.
An increase in its gross profit is also attributed to the same.
2
Implications from Cash Flow Statement
Increased cash flow indicates increased efficiency.
Decrease in free cash flow indicates increase in working capital.
Increase in net sales indicate increased revenue.
Operating income increased
Amazon has increased its cash flow through having efficient management of current assets and liabilities.
The company’s working capital seems to be increasing hence it is able to pay for its short-term operating expenses.
The company is operating on profits from the increase in sales. Its popularity among customers is increasing which is a positive thing.
The company is able to pay for all short-term expenses.
3
Increase or decrease in balance sheet items
Increased net sales leads to higher cash levels
Managed receivables
Controlled expenses
Finance and investments
Sales growth usually means a higher cash level in a balance sheet. When Amazon makes a cash sale, the accounting entries are to increase the sales account on the income statement and the cash account on the balance sheet. When it receives cash payment on credit invoices, the company moves the amounts from accounts receivable to cash.
Some sales are in cash, while others are on credit. The accounts receivable balance in the current assets section of the balance sheet contains the unpaid credit invoices. Although Amazon may receive most of the payments within the invoice period, some accounts become overdue while others are uncollectible.
Controlling expenses increases cash levels. Driving sales growth is an important but insufficient condition to increase cash.
Financing activities include proceeds from bank loans and from issuing stocks or bonds to investors.
4
Financial Statements for Amazon
Current Ratio: 2014- 112%, 2015-105%, 2016-104%, 2017-104%
Quick Ratio: 2014- 82%, 2015- 75%, 2016-78%, 2017- 76%
The company’s short-term liquidity over time has changed for the worse it has decrease over the years meaning their finances have been tied up in long term goals.
Cash Ratio: 2014- 62%, 2015- 58%, 2016- 59%, 2017- 54%
The company’s short-term liquidity over time has changed for the worse it has decrease over the years meaning their finances have been tied up in long term goals.
Amazon approach is to secure more investments lowering their readily available cash.
5
Profitability Ratios for Amazon
Gross Margin: 2014- 29%, 2015-33%, 2016- 35%, 2017-37%
Operating Margin: 2014-0%, 2015-2%, 2016-3%, 2017-2%
Pre-Tax Margin: 2014- 0%, 2015- 1%, 2016-3%, 2017-2%
Profit Margin: 2014- 0%, 2015-1%, 2016-2%, 2017-2%
Pre-Tax ROE: 2014- 1%, 2015-12%, 2016-20%, 2017-14%
After Tax ROE: 2014-2%, 2015-4%, 2016-12%, 2017-11%
ROA: 2014: -0.57%, 2015- 1.07%, 2016- 3.38%, 2017- 2.92%
The gross margins have increased over time and the profit margins has also increased stating that the company is heading in a more profitable direction.
ROA has also increased meaning that they are starting to make more off of their assets that they have acquired.
6
Amazon vs Industry Avg
Growth Rate This Year: Amazon- 325.71, Industry- 3.00
Growth Rate Last 5 years: Amazon- 42.70, Industry- 8.50
Price/Earnings(TTM): Amazon- 98.06, Industry- 19.97
Net Profit Margin(TTM): Amazon- 4.03%, Industry- 4.32%
Return on Equity(TTM): Amazon-24.35%, Industry- 11.79%
Price/Cash Flow(MRFY): Amazon- 55.96, Industry-24.24
Amazon does way better then any type of company in its industry growing at a rate way above the industry.
Price/earnings is also way above the average in the industry showing that their pricing model works well.
The return on equity of amazon is great so that means if invested you will get a good return.
7
Company Trends
Amazon has purchased more companies through mergers and are going in the direction to start focusing on long-term.
As you can see with the ratio they are using more of their cash and equity and purchasing on long term growth you can tell by their growth rate which is really high way above industry average.
When it comes to profit margin they are starting to gain something and their return on assets are starting to make something.
The amazons ratios you can tell that amazon is trending up and is a company that is worth investing in because of their long term interest and the return that you will have on investment.
8
Actual growth rate in the last four years
Growth rate in the last four years
2017
Up 31%
$65,932,000
2016
Up 27%
$47,722,000
2015
Up 20%
$35,355,000
2014
Up 20%
26,236,000
This statistic shows the year-over-year revenue growth of Amazon from 2014 to 2017. In 2017, Amazon achieved 31 percent year-over-year net sales revenue growth.
Comparing the company's sustainable growth rate with its actual growth rate in sales
Actual growth in 2018 after the third quarter
29.33%
$56,576.00 millions
Revenue improvement of 29.33% year on year in the third quarter, to $ 56,576.00 millions, this is lower than Amazon Com Inc's recent average Revenue improvement of 32.4%.
Pros and Cons of equity financing
Pros of Equity Financing
Investor assumes all the risk
Without loans to pay back, you'll have more cash available to reinvest in your company.
Cons of Equity Financing
Share ownership and control of your company with your investors
To gain control of the company need to buy off investors
Raising equity capital is more complex than getting a loan
Pros of Equity financing
The biggest advantage of equity financing is that the investor assumes all the risk. If your business fails, you don't have to pay the money back.
Without loans to pay back, you'll have more cash available to reinvest in your company. Your company could grow faster than it would if it were saddled with debt.
Cons of Equity Financing
You must share ownership and control of your company with your investors. You'll have to share your company's profits with the investors. You won't have the freedom to make decisions regarding your business without the investors' approval. You may not agree with the way they want to run your company.
The only way to regain full control of your company is to buy out your investors, which will probably require you to pay them more than they originally gave you.
It takes a lot of time and effort to find the right investors for your company. Ideally, you should choose investors who share your business vision and goals and with whom you get along.
Raising equity capital is more complex than getting a loan. It requires compliance with numerous federal and state securities laws and regulations. You'll have to issue periodic reports to shareholders and schedule periodic meetings with them, which could add significantly to your overhead costs.
Pros and Cons of debt financing
Pros of debt financing
Retain full ownership and control of your business
Once the money is all paid off there is no further obligations to the lender
Interest on debt can be deducted from your business' taxes
Cons of debt financing
Debts must be repaid within a certain timeframe
Could be held personally responsible for repayment of the loan
Debt could make it difficult for your business to grow
High risk
Pros of debt financing
You retain full ownership and control of your business, since the lender does not claim equity in the company.
Once you repay the amount you borrowed plus interest, you have no further obligations to the lender, who has no claim on the future profits of your business. Therefore, if your company is highly profitable, you keep a larger portion of the earnings for yourself than you would if you had to share it with investors who have equity in your business.
Interest on debt can be deducted from your business' taxes, lowering the cost of the loan to your company.
Cons of debt financing
Since debts must be repaid within a certain timeframe, you could be in a difficult position if your company experiences cash flow problems or does not generate as much revenue as anticipated. If your company can't repay its debts on time, you may be forced to liquidate assets or shut down your business altogether.
You could be held personally responsible for repayment of the loan, even if the formation of an entity such as an LLC creates a legal separation between yourself and your company.
Debt could make it difficult for your business to grow, since you'll have to use part of the revenue to repay debt instead of reinvesting it in the company.
If you carry too much debt, your company will be viewed as high-risk, making it hard to attract equity investors.
References
Amazon INC (n.d.). In Zacks. Retrieved November 17, 2018, from https://www.zacks.com/stock/research/AMZN/industry-comparison
Amazon INC (n.d.). In Macrotrends. Retrieved November 17, 2018, from https://www.macrotrends.net/stocks/charts/AMZN/amazon/inventory-turnover
Amazon INC (n.d.). In Nasdaq. Retrieved November 17, 2018, from https://www.nasdaq.com/symbol/amzn/financials?query=ratios
AMZN Income Statement. (n.d.). Retrieved from https://www.nasdaq.com/symbol/amzn/financials?query=income-statement