Sept 2022 Week Four

Financial Outlook

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Financial Outlook

Discussion 1

The internal strengths and weaknesses of the organization are reflective of Amazon’s financial health and performance. In the last 5 years the company has witnessed a continuous increase in revenues. The revenue for the year $2019 was 280.522B, which also depicted a20% increase from the year 2018. The revenue in 2020 was $386.064B, and this indicates an increase of 37% from the year 2019. The revenue for the year 2021 was $469.822B, indicating an increase of 21.7% increase in revenues from the year 2020. The revenue for 12 months considered for this analysis ending in 2022 June was $485.902B, which reflects a percentage increase of 7.1% (Macrotrends. (nd). Based on the posted revenues, it is clear that Amazon has witnessed an increase in the level of sales for the recent years. This could be attributed to the shift in and increase in online business activities due the pandemic. During the COVID-19 pandemic, most consumers relied on online shopping to buy groceries and other household items (Baboolal-Frank, 2021). The shift can explain the increase in the company’s revenues as indicated by the figures. Amazon has wide product range, and this ensured that it tapped the available sales opportunities that were brought by the lockdown due to the pandemic.

The figures are also indicative of an increase in gross profit ratio. The company’s gross profit ratio increased from an average of 37.1% in 2017 to 42.6% in 2022 (Macrotrends. (nd). The profitability of the company increased within the time of the five years. The internal factors considered for the analysis are clear indication of these changes. The company has a strong brand in the online markets that is backed with brand loyalty from the customers. These factors automatically translate to higher sales as compared to its competitors (Baboolal-Frank, 2021). The factors also reflective of the organization’s culture that ensures employees and give their maximum output. However, these factors are also indicative of the company’s weaknesses. In as much as, Amazon recorded more sales, revenues, and net profits. The cost of operations is eating into the difference between the cost of goods sold and the gross profit. This could be attributed to promotions such as free shipping services offered by the organization, high cost of training due to employee attrition, and low returns from newly developed products (Baboolal-Frank, 2021).

Discussion 2

Amazon presents a positive financial outlook that is not only a reflection of good performance but can also be used by potential investors who would like to venture into the organization. Other than increase in revenues and sales, the organization has recorded an increase in the total value of assets in the 5 years. The financial ratios of the organization also indicate that the analysis done of both external and internal factors truly reflect the actual situation in the organization. The net margin profit ratio for the organization has increased constantly for the last 5 years indicative of improvement in the level of profits. An increase in profitability also reflects an improvement in operational efficiency. The operating margin ratio for the company was low in 2016 and 2017 but increased in the years from 2018 to 2022. An increase in operating margin indicates increase levels in efficiency and thus increase levels in profitability. However, a comparison of the operating margin ratio in 2020 at 5.93% and 2021 at 5.30%, it is evident that Amazon was more efficient in terms of operations in 2020 than in 2021 (Ivory Research, 2021).

The other ratio considered for this analysis is the current ratio, which reflects the ability of an organization to pay its short-term debts. It is an indication of how liquid a business is in terms of raising cash to pay its liabilities. Amazon’s current ratio has been relatively low for the chosen 5 years of the analysis. The ratio is averagely at 1.06%. A favorable high figure of 2.00 would be okay. Apart from current ratio, price-earnings ratio is another indicator of the financial condition of the organization. The PE ratio of the company was high between the years 2016, 2017, and 2018 averaging at 173. However, the ratio declined to 58.81 in 2021 (Ivory Research, 2021). Amazon’s stock price is highly valued due to its good performance and the high pricing could be a good reason to avoid stock dilution.

year	2016	2017	2018	2019	2020	2021
Ratio
Net Margin	1.74%	1.71%	4.33%	4.13%	5.53%	7.10%
Operating Margin	3.08%	2.31%	5.33%	5.18%	5.93%	5.30%
Gross Margin	35.09%	37.07%	40.25%	40.99%	39.57%	42.03%
Current Ratio	1.08%	1.06%	1.06%	1.09%	1.08%	1.05%
PE Ratio	153.03%	166.96%	182.28%	74.32%	93.15%	58.81%

References

Baboolal-Frank, R. (2021). Analysis of amazon: Customer centric approach. Academy of Strategic Management Journal, 20, 1-16.

Macrotrends. (nd). Amazon financial statement 2009-2022/AMZN. Retrieved from https://www.macrotrends.net/stocks/charts/AMZN/amazon/financial-statements

Ivory Research. (2021). Amazon Financial Analysis. Retrieved from https://www.ivoryresearch.com/samples/amazon-financial-analysis/