Financial Analysis of Amazon

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Amazon was founded in 1994 to operate in the internet industry where it has diversified to many other industries (Reuters). The company’s growth strategy is one of diversification and intensive growth. The company’s financial performance is desirable with revenue and income growth being on the top as well as its shares in the NASDAQ hitting a high of 1663.54 in December 2018 (Yahoo). Amazon is selected for this analysis due to its high growth rate seen in revenues, net income and assets.

Amazon Synopsis

Amazon is one of the fastest growing electronic and cloud computing companies in the world (Price 4). Through its high level of diversification, Amazon has entered into different markets some of them being technology, retail electronics and lastly cloud computing. Amazon is the biggest internet retailer in terms of revenue and market capitalization. This information is true as seen from the company’s financial statement where it had revenue of $177,866,000 in 2017 and assets of 131,310,000 as shown in appendix 3 and 4.

Ratios

The profitability ratios of the company show an increase in profitability over the last four years as seen in the gross profit and net profit, ROA and ROE also show the company is profitable and generating sales from its assets and shareholder’s equity. The efficiency of Amazon in using its assets is also increasing although its ability to collect receivables many times is decreasing as shown in Appendix 1. The liquidity ratios show the company is able to meet its current liabilities using current assets evident from current ratios of higher than one. The quick ratios, however, are lower than one. Amazon’s solvency is not very desirable although it has adequate assets to meet its liabilities if need be. The time's interest earned ratio shows the company is able to pay its interest four times using its earnings before interest and tax.

Cash Flow Analysis

The cash flow of Amazon shows that most of the company’s cash come from cash flow from operation. However, it is also notable that the company has high depreciation expense which is due to its high level of total assets. The company purchased more inventories in 2017 compared to the previous years which is more than double that of 2016 as shown in appendix 2. In investing activities, Amazon increased its capital expenditure which is through additional purchase of property, plant and equipment. Amazon did no issue any dividends despite its high level of profits.

Risk Factors Facing Amazon

Amazon has invested in cloud computing which is a new market and which is facing many threats the major one being data loss and security breaches. Cyber hacking is a problem faced by all corporations operating through the internet and which can lead to loss of millions of funds and even ruin the reputation of a corporation (Trautman 7). Another risk factor of Amazon is stiff competition in all its markets especially retail coming from Walmart, Alibaba and eBay.

Recent Financial Event and why the company did it

The recent financial event of Amazon was the debt funding which it took in 2017. In 2016, the debt level of Amazon was 64,117,000 which was an increase from 51,363,000 in 2015. However, the debt increased by 61% to 103,601,000 as seen in appendix 3. The high increase in debt was because the company was looking to fund its purchase of property, plant and equipment which is seen to increase by 67.7%.

Financial Statements

The analysis of financial statement is important to Amazon because it helps internal and external users of the financial information. Amazon has prepared its financial statements using GAAP and it has consolidated all its financial reports. In addition to financial statements, Amazon has issued notes to financial statements thus giving the reader a better understanding of how it performed in the last financial years.

Works Cited

Price III, Richard A. "Cash flows at Amazon. com." Issues in Accounting Education Teaching

 Notes 28.2 (2013): 23-38.

Reuters, Reuters. "Amazon Stock Overview Quote| Reuters.com." U.S, 2018, www.reuters.com/finance/stocks/overview/AMZN.OQ. Accessed Dec. 2018.

Trautman, Lawrence J. "E-Commerce, cyber, and electronic payment system risks: lessons from

 PayPal." UC Davis Bus. LJ 16 (2015): 261.

Yahoo Finance. "AMZN : Summary for Amazon.com, Inc. - Yahoo Finance." Yahoo Finance - Business Finance, Stock Market, Quotes, News, 2018, finance.yahoo.com/quote/AMZN/. Accessed 13 Dec. 2018.

Appendix

Appendix 1.

Appendix 2. Cash flow statement

Appendix 3. Balance sheet

Appendix 4. Income Statement

August 18, 2023
Category:

Business Economics

Subcategory:

Corporations Finance

Subject area:

Company

Number of pages

3

Number of words

723

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