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4/10/2016
SOLVENCY
Amazon has the most desirable Time Interest Earned Ratio of the two
companies. The Time Interest Earned Ratio is a ratio used to measure a
companys ability to meet their debt obligations. Throughout the five year
analysis, both companies were under the benchmark, but Overstock was
consistently in the negative; meaning the company has not earned enough to
pay toward all of their debt. Amazon, although also under the benchmark,
held positive through the years, meaning that they are earning enough to pay
their debtors and sustain their earnings. As you can see by the chart below,
Amazon has consistently stayed up with the benchmark for four of the last
five years. This shows that they are not only capable of paying toward all
their debt, but they are leveraging their debt and not paying it off too quickly
with money that could be used for other projects to help grow the company.
1
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With Overstock being in the negative, not only does that show they cant even
pay the interest owed on their debt, it shows that they arent making enough
profit to invest into their own company.
Amazon
Overstock
15.37
-6.86
6.91
-17.73
4.59
-143.60
.47
-337.72
4.42
-21.29
PROFITABILITY
Amazon consistently had the strongest increase in the annual sales from
2011-2015. Although Overstock also had their sales increase, they were more
volatile. Sales increase can directly correlate with return on equity. Return
on equity measures how much profit the company generates with the money
shareholders have invested into them. Although Amazon and Overstock are
both under the benchmark, Amazon consistently stays in the positive while
Overstock stays within the negative. This means that Amazon is generating a
profit from the money investors put into them, while Overstock is not; they
are generating a loss. Also contributing to their profitability, Amazons
Return on Assets is in the positive and Overstocks is in the negatives. The
Return on Assets shows how efficient management is at using assets to
generate income. In other words, Amazons management is effectively using
their assets and equity to produce income, while Overstocks management is
less proficient than Amazons.
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Sales/Revenue
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
%-2011 to
2012
%-2012 to
2013
%-2013 to
2014
%-2014 to
2015
Overstock
4.76%
18.18%
15.38%
10.67%
Amazon
27.06%
21.87%
19.53%
20.25%
Amazon
Overstock
0.02
-0.11
0.08
-1.47
0.00
-0.08
0.00
-0.47
0.01
-0.28
0.03
-0.72
0.00
-0.02
-0.02
-0.07
0.01
-0.01
0.04
-0.02
MARKET VALUE
The market clearly agrees that Amazon is the better investment based on the
price earnings ratio and the earnings per share. The price earnings ratio tells
us the dollar amount a person can expect to invest into a company in order to
receive $1 of the companys earnings. So if we look at Amazon and
Overstocks 2-15 price earnings ratio, a person is willing to invest $534.13 in
order to receive $1 of the companys earnings, whereas a person investing
into Overstock is only willing to invest $9.70. What this means is that
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Price History
$2,500.00
$800.00
$600.00
$500.00
$1,500.00
$400.00
$1,000.00
$300.00
$200.00
$500.00
$700.00
$2,000.00
$100.00
$-
$-
Years
Market Close
OverStock Close
Amazon Close
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1.00
0.00
1
-1.00
-2.00
-3.00
-4.00
Amazon
Overstock
Linear (Amazon)
Linear (Overstock)
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the extra amount of return that is made above the risk-free return. The S&P
500 excess monthly mean return was 0.008, Amazons was 0.017 and
Overstocks was 0.007. Again, this shows the value of investing into Amazon
rather than Overstock, where Amazon has a higher excess return than the
market benchmark and Overstock is not.
Summary Table
S&P 500
Overstock
Amazon
T-Bond
Return
Monthly Return
Mean
Min
Max
Excess Monthly Return
Mean
Min
Max
CAPM Estimated Return
0.010
-0.082
0.108
0.015
-0.316
0.688
0.025
-0.132
0.258
0.008
-0.085
0.106
0.007
-0.278
0.672
0.012
0.017
-0.719
0.417
0.014
0.038
0.165
1.290
11.029
0.045
N/A
0.002
0.001
0.003
N/A
N/A
N/A
N/A
N/A
3.995
0.198
0.196
1.629 N/A
3.450
0.088
RISK
Although Amazon shows greater return values in the market, the investor
also needs to be aware of the risk involved in investing into the company. We
ran a risk analysis on Amazon and Overstock, comparing their Standard
Deviation and Coefficient of Variation.
The Standard Deviation tells the volatility of a company; the higher the
standard deviation, the more volatile the stock is. S&P 500 standard
deviation is 0.038, Amazons is 0.196 and Overstocks is 0.165. As you can see,
Amazon has the highest risk when investing, however, with a higher risk
there is a higher chance of greater return to investor.
0.000
0.240
0.000
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The Coefficient of Variation helps us to determine how much risk the investor
can assume compared to the amount of return they can expect from an
investment. The lower the ratio, the better risk-return trade-off. S&P 500
was 3.995, Amazons 3.450 and Overstocks was 11.029. So essentially what
we are seeing here is that Amazon, although it may be the riskier
investment, is overall the better trade-off for the risk the investor assumes.
CONCLUSION
Amazon is the better investment between Amazon and Overstock because
they strategically manage their debt and sustain their profits, they produce
more revenue than Overstock, and they are more valuable in the market than
Overstock is. We believe that Amazon is not just a fad company, but will be in
the e-commerce industry for many years, while continuing to grow. However,
with any investment, there are risks. For example, the trend line chart for
earnings per share suggests that Amazon isnt interested in paying dividends
at this present time; their main focus is reinvesting back into their company
to become leaders of the e-commerce sales industry. For an investor looking
for immediate high dividend payouts, Amazon may not be the first choice, but
would be a good choice for a long term investment.
4/10/2016
Citations
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<http://www.marketwatch.com/investing/stock/OSTK/financials/Income Statement>.
"Overstock.com Inc." OSTK Annual Balance Sheet. Web. 16 Feb. 2016.
<http://www.marketwatch.com/investing/stock/ostk/financials/balance-sheet>.
"OSTK- Yahoo! Finance." OSTK- Yahoo! Finance- Price Share Historical. Web. 20 Feb. 2016.
<http://finance.yahoo.com/q/hp?a=04&b=16&c=2010&d=01&e=27&f=2016&g=m&s=
OSTK&ql=1>.
"Overstock.com Shares Outstanding:." Overstock.com Shares Outstanding (OSTK). Web. 16
Feb. 2016. <https://ycharts.com/companies/OSTK/shares_outstanding>.
"AMZN Annual Income Sheet." Market Watch - Amazon.com Inc. Web. 20 Feb. 2016.
<http://www.marketwatch.com/investing/stock/AMZN/financials/Income Statement>.
"Amazon.com Inc." AMZN Annual Balance Sheet. Web. 16 Feb. 2016.
<http://www.marketwatch.com/investing/stock/amzn/financials/balance-sheet>.
"AMZN Yahoo! Finance." AMZN- Yahoo! Finance- Price Share Historical. Web. 20 Feb. 2016.
<http://finance.yahoo.com/q/hp?a=04&b=16&c=2010&d=01&e=27&f=2016&g=m&s=
AMZN&ql=1>.
"Overstock.com Shares Outstanding:." Overstock.com Shares Outstanding (OSTK). Web. 16
Feb. 2016. <https://ycharts.com/companies/AMZN/shares_outstanding>.
"Industry Detail Amazon.com, Inc." MergentIntellect. Web. 23 Feb. 2016.
<http://www.mergentintellect.com.libproxy.dixie.edu/index.php/search/companyIndus
try/884745530>.