Weighted Average Cost of Capital

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Amazon Financial Performance

Introduction

Amazon is one of the biggest online retailing companies that provide Cloud Services and production of electronic gadgets.

It operates in different market segments which include media, Electronics and Gadget Merchandise, and Cloud.

Amazon operates under a monopolistic competition industry and it has rivals that offers substitute products.

Amazon is one of the largest online retailing companies who deals with manufacture of electronic gadgets, and offer cloud services. The company has a product mix as it deals with diversified products and market segments.

The company operates in three major market segments; Cloud, Electronics & Gadgets, Media,

Its posses the characteristics of a monopolistic competition market. It faces stiff competition from EBay, Alibaba Group Holdings, Apple, and AutoZone among others.

2

Selection of comparable groups of companies

The comparable group of companies was selected on the following basis;

Market Segment

Consistent financial performance trend.

Market share

The four companies include EBay, AutoZone, Best Buy, and Wal-Mart Stores, Inc.

The logic used to determine the comparable groups of companies revolved three factors.

Market segment – amazon operates in three different market segment which include Media, Electronics and Gadgets, and Cloud services.

All the four companies have been selected from the three market segments.

Wal-Mart stores, Inc. – Retail and wholesale business

eBay – Media

Best Buy Co, Inc. – Electronics and Gadgets.

AutoZone, Inc.- Online retailing.

3

Amazon’s competitors

The four major rivals include

eBay

AutoZone, Inc.

Best Buy Co, Inc.

Wal-Mart Stores, Inc.

The above four companies shares common market features and goals. Some of the characteristics include establishment of new outlets, maximizing sales, and pricing and competition strategies.

eBay, Inc. operates as a commerce leader company including Marketplace, StubHub, and Classifieds platforms. It deals with in the provision of acquisitions and investments to help enable commerce on platforms for buyers and sellers online or on mobile devices. It includes marketing services, including classifieds, and advertising.

AutoZone, Inc. engages in the provision of retail and a distribution of automotive replacement parts and accessories.

Best Buy Co., Inc. provides consumer electronics, home office products, entertainment products, appliances and related services.

Wal-Mart Stores, Inc. deals in retail and wholesale business

4

Data extraction strategy, process and methodology

The following procedure was utilized in data gathering and methodology.

Internet search on financial databases.

Importation of data to the excel working sheet

Editing

Analysis

Data extraction, process and methodology took four procedures. First, as a team we conducted an internet search on financial databases to gather data for the four companies. We used Yahoo Finance to gather the data for all the companies. Next, we imported data to excel where selection of ratios was done. Analysis followed where the average of all the ratios from the four companies were averaged.

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Share %

Ratio Analysis

We selected the following ratios to construct a comparative analysis statement for the four companies.

Profitability Ratios Debt Management Ratios Liquidity ratios

Profit Margin Total debt to total equity Cash Ratio

Return on Assets Total debt to total Assets Quick Ratio

Return on Equity Long-term debt to Equity Current Ratio

The following ratios were selected due the following reasons

Profitability ratios

a) Profit margin measures the amount of net income earned with respect to net sales.

b)Return on assets shows how profitable a company’s assets can earn income.

c)Return on equity measures the amount of profit a company generates from shareholder’s equity.

Debt management Ratios

a) Total debt to total equity - determines the company leverage.

b) Total debt to total assets – indicates the percentages of assess funded by liabilities.

c) Long-term debt to equity – Measures the financial leverage.

Liquidity Ratios

a) Cash ratio – measures the amount of cash, invested funds or cash equivalents present in current assets to cover up current liabilities.

b) Quick ratio – indicates the ability of a company to meet its short term financial liabilities.

c) Current ratio – measures the ability of a business to meet its short-term and long-term needs.

6

Ratio analysis continuation

Asset Management ratios

Receiver turnover

Total Asset turnover

Revenue/Employer

Value creation ratios

P/E current

Price to Book ratio

Price to sale ratio.

Asset Management ratios

a) Receiver turn over – determines the company’s to efficiently issue credit to its customers and collect funds from them in a timely manner.

b)Total Asset turnover - indicates how a business efficiently utilize its assets to generate sales.

c) Revenue/ Employee – Measures how a company utilizes its employees.

Value creation ratios

a) P/E current – It measures the value of the company by measuring its current price relative to per-share earnings

b) Price to book ratio – It compares a stock’s market value with its book value.

c) Price to sale ratios – It is a valuation of metrics of stock.

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The above analysis has been extracted from excel. Its is clear that, Amazon is not the leading company in the media, electronics and gadgets, and Cloud industry. However, its has an outstanding performance compared to some of the companies in the industry.

8

The analysis above shows the performance of Amazon compared to averaged performance of its rivals. It can be served that, averaged performance of its rivals is higher than that of amazon. It means that if the four companies merge, amazon market share will reduce significantly.

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References

Best Buy Co. Inc. (n.d.). Retrieved March 18, 2017, from http://www.marketwatch.com/investing/stock/bby/profile

Market watch ( 2017). Alibaba Group Holding Ltd. ADR. Retrieved March 18, 2017, from http://www.marketwatch.com/investing/stock/baba/profile

EBay Inc. (n.d.). Retrieved March 18, 2017, from http://www.marketwatch.com/investing/stock/ebay/profile

AMZN Key Statistics | Amazon.com, Inc. Stock - Yahoo Finance. (n.d.). Retrieved March 12, 2017, from https://finance.yahoo.com/quote/AMZN/key-statistics?p=AMZN

Financial Ratios Analysis

Amazon, Inc.Wal-Mart Stores, Inc.EbayAutoZone, IncBest Buy Co.IncAveraged ratios

PROFITABILITY

Net Margin1.742.8181.1311.674.6125.055

Return on Assets3.086.853514.868.8216.3825

Return on Equity14.5217.2385.13026.5732.2325

DEBT MANAGEMENT

Total debt to total Equity105.8359.0585.02028.9943.265

Total debt to total assets23.7323.137.5757.789.8532.075

Long-term debt to Equity78.8954.0171.25154.7828.0577.0225

LIQUIDITY

Current Ratio1.040.862.310.91.481.3875

Quick Ratio0.780.222.310.130.790.8625

Cash Ratio0.590.11.860.040.550.6375

ASSET MANAGEMENT

Receivable turnover18.4284.814.8339.7231.4142.69

Total Asset turnover1.772.440.431.272.881.755

Revenue/employee398,3220712,619126,615.000209808.5

VALUE CREATION

P/E Current173.9415.965.3117.9612.0112.81

Price to Book Ratio18.5503.06000.765

Price to Sales Ratio2.670.433.782.160.361.6825

Comparative ratios

Financial Ratios Analysis
Amazon, Inc. Wal-Mart Stores, Inc. Ebay AutoZone, Inc Best Buy Co.Inc Averaged ratios Amazon, Inc. Average ratios
PROFITABILITY PROFITABILITY
Net Margin 1.74 2.81 81.13 11.67 4.61 25.055 Net Margin 1.74 25.055
Return on Assets 3.08 6.85 35 14.86 8.82 16.3825 Return on Assets 3.08 16.3825
Return on Equity 14.52 17.23 85.13 0 26.57 32.2325 Return on Equity 14.52 32.2325
0
0
DEBT MANAGEMENT DEBT MANAGEMENT 0
Total debt to total Equity 105.83 59.05 85.02 0 28.99 43.265 Total debt to total Equity 105.83 43.265
Total debt to total assets 23.73 23.1 37.57 57.78 9.85 32.075 Total debt to total assets 23.73 32.075
Long-term debt to Equity 78.89 54.01 71.25 154.78 28.05 77.0225 Long-term debt to Equity 78.89 77.0225
0
LIQUIDITY LIQUIDITY 0
Current Ratio 1.04 0.86 2.31 0.9 1.48 1.3875 Current Ratio 1.04 1.3875
Quick Ratio 0.78 0.22 2.31 0.13 0.79 0.8625 Quick Ratio 0.78 0.8625
Cash Ratio 0.59 0.1 1.86 0.04 0.55 0.6375 Cash Ratio 0.59 0.6375
0
ASSET MANAGEMENT ASSET MANAGEMENT 0
Receivable turnover 18.42 84.8 14.83 39.72 31.41 42.69 Receiver turnover 18.42 42.69
Total Asset turnover 1.77 2.44 0.43 1.27 2.88 1.755 Total Asset turnover 1.77 1.755
Revenue/employee 398,322 0 712,619 126,615.00 0 209808.5 Revenue/employee 398,322 209808.5
0
VALUE CREATION VALUE CREATION 0
P/E Current 173.94 15.96 5.31 17.96 12.01 12.81 P/E Current 173.94 12.81
Price to Book Ratio 18.55 0 3.06 0 0 0.765 Price to Book Ratio 18.55 0.765
Price to Sales Ratio 2.67 0.43 3.78 2.16 0.36 1.6825 Price to Sales Ratio 2.67 1.6825

Amazon, Inc.Average ratios

PROFITABILITY

Net Margin1.7425.055

Return on Assets3.0816.3825

Return on Equity14.5232.2325

0

0

DEBT MANAGEMENT0

Total debt to total Equity105.8343.265

Total debt to total assets23.7332.075

Long-term debt to Equity78.8977.0225

0

LIQUIDITY0

Current Ratio1.041.3875

Quick Ratio0.780.8625

Cash Ratio0.590.6375

0

ASSET MANAGEMENT0

Receiver turnover18.4242.69

Total Asset turnover1.771.755

Revenue/employee398,322209808.5

0

VALUE CREATION0

P/E Current173.9412.81

Price to Book Ratio18.550.765

Price to Sales Ratio2.671.6825

Comparative ratios

Financial Ratios Analysis
Amazon, Inc. Wal-Mart Stores, Inc. Ebay AutoZone, Inc Best Buy Co.Inc Averaged ratios Amazon, Inc. Average ratios
PROFITABILITY PROFITABILITY
Net Margin 1.74 2.81 81.13 11.67 4.61 25.055 Net Margin 1.74 25.055
Return on Assets 3.08 6.85 35 14.86 8.82 16.3825 Return on Assets 3.08 16.3825
Return on Equity 14.52 17.23 85.13 0 26.57 32.2325 Return on Equity 14.52 32.2325
0
0
DEBT MANAGEMENT DEBT MANAGEMENT 0
Total debt to total Equity 105.83 59.05 85.02 0 28.99 43.265 Total debt to total Equity 105.83 43.265
Total debt to total assets 23.73 23.1 37.57 57.78 9.85 32.075 Total debt to total assets 23.73 32.075
Long-term debt to Equity 78.89 54.01 71.25 154.78 28.05 77.0225 Long-term debt to Equity 78.89 77.0225
0
LIQUIDITY LIQUIDITY 0
Current Ratio 1.04 0.86 2.31 0.9 1.48 1.3875 Current Ratio 1.04 1.3875
Quick Ratio 0.78 0.22 2.31 0.13 0.79 0.8625 Quick Ratio 0.78 0.8625
Cash Ratio 0.59 0.1 1.86 0.04 0.55 0.6375 Cash Ratio 0.59 0.6375
0
ASSET MANAGEMENT ASSET MANAGEMENT 0
Receivable turnover 18.42 84.8 14.83 39.72 31.41 42.69 Receiver turnover 18.42 42.69
Total Asset turnover 1.77 2.44 0.43 1.27 2.88 1.755 Total Asset turnover 1.77 1.755
Revenue/employee 398,322 0 712,619 126,615.00 0 209808.5 Revenue/employee 398,322 209808.5
0
VALUE CREATION VALUE CREATION 0
P/E Current 173.94 15.96 5.31 17.96 12.01 12.81 P/E Current 173.94 12.81
Price to Book Ratio 18.55 0 3.06 0 0 0.765 Price to Book Ratio 18.55 0.765
Price to Sales Ratio 2.67 0.43 3.78 2.16 0.36 1.6825 Price to Sales Ratio 2.67 1.6825