Amazon Financial Analysis and Valuation Report
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Amazonfinancialstatementanalysis.docx
Amazon Finanicl Statement Analysis
Southern New Hampshire University
Jamie Amelio
November 18, 2018
Through providing an extensive line of products and services that offer convenience to both businesses and consumers, Amazon has become a powerhouse in the cloud computing industry as well as online retail industry. Operational cash and marketable securities generate the cash flow that is the principal source of liquidity for Amazon. The operational cash is obtained from customers, sellers, advertisement agreements and branded credit cards.
In 2017 Amazon had a 31.5% increase in current assets. This is primarily through its efforts towards growing the company through investing and issuing equity debt that they had not paid out dividends on. Instead, they reinvest all efforts in to expansion of the company. Their Current liability has also increased by 32.1%. This is due to increased sales resulting in a 13.7 billion dollar increase in accounts payable. Their accounts payable is made of purchase orders for products, the supplies and storage necessary for holding and shipping those products and digital medial content cost for their online streaming product. Although there has been this increase large increase in liability, their current ratio as of 2017 is 1.0. This has only fluctuated by .1 over the course of the past three years, which means that amazon has maintained having one dollar in assets for every dollar in liability due within one year.
Amazon’s price earnings ratio (P/E ratio) had a 392.6 drop in 2016 from its 2015 P/E Ratio. This is attributed to its lower revenue and increased interest expense. The increase in interest expense resulting from an increase in long-term debt while expanding the company’s operations. However in 2017 Amazon’s P/E ratio grew by 22.8% over 2016 due to a 6% corporate tax break, stock based compensation benefits and lower equity investments. With their focus on expanding the company Amazon has increased their Debt ratio by 2.6% in 2017. This is due to an increase of 221.6% in their long-term debt. With a 79% debt ratio Amazon has a high outgoing cash flow due to obligations in principal and interest. For every 1 dollar of assets Amazon has .79 cents of debt. Amazon’s Return on Equity (ROE) was 10.9% in 2017, which is an 11% decline from 2016. This shows investors how effective Amazon is in investing and budgeting and how much profit is being generated from investments. Amazon’s net profit margin has been consistent at an earning of less than 2% profit for every 1 dollar in sales for both 2016 and 2017.
With a high debt ratio, low net profit margin and Low ROE investors may not want to invest in Amazon regardless of their high market share and record breaking customer sales activities as there is a lot of liability. As Amazon is only making 1 dollar per 1 dollar of liability owed, Amazon does not have room for error. With lawsuits, pending due to patents tax law violations and a low room for error Amazon could be one lawsuit loss away from bankruptcy. This is all things investors will consider when making investments.
References
Bezos, J. (2018). US SEC Form 10-K [Ebook] (pp. 6,17-75). Seattle. Retrieved from http://www.mergentonline.com.ezproxy.snhu.edu/documents.php?pagetype=industryreport&compnumber=91098®ion%5B%5D=10&industry=5020&startmonth=1&startyear=2015&endmonth=12&endyear=2017&Submit=Search
Dave Gershgorn, A. G. (2017, August 20). What is Amazon, really? Retrieved November 18, 2018, from Quartz: https://qz.com/1051814/what-is-amazon-really/
Facts, A. (2018). Topic: Amazon. Retrieved from https://www.statista.com/topics/846/amazon/
Novet, J. (2018). Microsoft narrows Amazon's lead in cloud, but the gap remains large. Retrieved from https://www.cnbc.com/2018/04/27/microsoft-gains-cloud-market-share-in-q1-but-aws-still-dominates.html
(2018). Retrieved from https://www.nasdaq.com/symbol/amzn/financials?query=balance-sheet
