Cameron Fisher

Accounting 1120
4/14/18
Paige Paulsen

Amazon Financial Analyze Report

With a great idea you can change the world forever. Founder and CEO of Amazon,

Jefferey Bezos, changed the world in July 1995. Diligently working on Wallstreet, he came

across the new idea of the internet. This innovation sparked something brilliant in his mind.

Jefferey Bezos
Amazon Financial Ratios and Industry Average Ratios
began to list
2012 2011 Industry average
multiple products Gross Profit Margin 24% 22% 33.55%

that he could Net Profit Margin -.6% 1.31% 2.87%

Return on Common SE -.49% 8.63% 11.39%

manufacture
Return on Assets -.12% 2.5% 4.76%
cheaper than Av. A/R Collection Period 17.7days 15.8 days 36.11 days

Inventory turnover 8.3 times 9.1 times 4.8 times

obtaining at any
Days Sales in Inv. 43.98 days 40.1 days 75.42 days
store in the United
Asset Turnover 1.87 times 1.90 times 1.66 times

States. He started a A/R Turnover 18.16 times 18.70 times 10.11 times

Current Ratio 1.12 1.17 1.54:1

company,
Acid Test Ratio .78 .82 1.82
Amazon.com, in his
Debt to Total Assets 75% 69% 34%

garage, invested by Debt to Equity 37% 51% 52%

Times Interest Earned 5.23times 15.18times 5.33times

his parent’s
Book Value Per Share 18.04 17.05 10.54
savings. Now Price/Earnings -2,854.7 131.37 47.17

Amazon is the Working Capital 2294 2524

world’s largest online retail store, making an affordable and accessible way to shop. This

Financial Analyst report will go over multiple profitable and risk ratios and equations to report

the financial health of this company and to add enlightenment toward the future of Amazon.

PAY CURRENT LIABILITIES

A big part of any company, large or small, is to pay off current liabilities. Liabilities in

this case are financial obligations that a company has agreed to pay back in the future. Another

word for it is debt. In most cases you want to have the least amount of liabilities as possible. This

is because it creates a high risk for many shareholders or business partners. Most people want to

make money with the least amount of risk. Current Liabilities are liabilities that need to be payed

off in less than one year or accounting period. Accountants use many kinds of formulas to

calculate ratios to see how the company is doing. The Current Ratio is the current assets divided

by the current liabilities, which shows how good the company can pay off its current liabilities

with its current assets. All the Ratios and answers are in the diagram above. Amazon’s current

ratio is below the industries average, but still looks healthy. You don’t want to be below one. If

you are it means your current liabilities are higher than your current assets. In other words,

drowning in debt. Two other ratios used by accountants are the Acid Test Ratio, measured by

cash plus A/R plus short-term investments divided by current liabilities. This shows if they

would be able to pay off their current liabilities if due immediately. Amazon has a lower Acid

Test Ratio than most investors would want. This means they would have to use almost all the

cash and A/R and short-term investments to pay off the liabilities. This would be terrifying in the

case of a crisis because they would lose almost all assets. Many large companies have large

amounts of liabilities to grow bigger faster. The company’s working capital is in a positive state

which is good for investors and net cash is also a positive number after paying off all the
company’s expenses. Cash is also growing from year to year which is a good thing. It started

around five thousand in 2011 and eight thousand in 2012. Overall, I think there are some changes

that Amazon is going to have to make to have more current assets and less liabilities and to get

above the industry average.

SELL MERCHANDISE AND COLLECT ACCOUNTS RECEIVABLES

What is a business’s core fuel? It is the company’s ability to sell merchandise inventory

and collect receivables. Merchandise inventory is all the products that your company sells and

when a customer purchases a company’s products with credit. The company must send the

customer an invoice with the amount due. Companies or credit card companies must track down

the customers to make sure they pay for the product they bought from the company to secure the

company’s revenues. The Account Receivables is cash that the company is going to receive from

customers soon. Amazon has had no problem with selling merchandise since it opened. The first

year of business they made twenty-five thousand dollars in revenue and now they are making

somewhere around 60 billion dollars in revenue each year. Even though we see a lot of products

in the world made by big companies, it is important that we look at different ratios to see where

companies compete in selling merchandise in the industry. Ratios that test how well a company

is at selling and collecting are the inventory turnover ratio (how many times do they sell and

replace inventory in a year), days sales in inventory (how many days it takes to sell and replace

inventory in a year), gross profit percentage ( how much of the revenue do they make a profit out

of after all the costs to sell the product), receivables turnover ( how affective a firm is using the

assets it receives), days sales in receivables ( the average amount of days it takes to collect on

accounts receivable). There are many ratios, but Amazon’s inventory turnover is almost double

that of the industry average which means they sell and replace their inventory quickly. Almost all
of Amazon’s ratios in this section are exceeding the industry average by almost fifty percent and

the only ratio that is a little below is the gross profit margin. This could mean that Amazon is

selling inventory for less and their product costs are a little too high which would cause a lower

gross profit margin. I would suggest they investigate cheaper options for manufacturing or other

similar product costs.

PAY LONG-TERM DEBT

Has anyone ever owed you some money for rent and they never paid? That is bad news,

that means no money for you! This next section is going to talk about Amazon’s ability to pay

off long term liabilities. These are kind of like rent, meaning Amazon owes some company

payments every month for over one year. The best way to figure out if Amazon is able to pay off

these long-term liabilities are by the following ratios, debt to total assets ( total amount of debt

compared to total assets), debt to equity ( is the amount of debt and equity used to finance a

company’s assets), times-interest-earned ( how many times operating income can cover interest

expense). Amazon’s amount of debt to equity is lower than the industry average which is good.

This means they are financing their assets with equity or stock and bonds rather than loans and

long-term liabilities. The other side of the picture is that Amazon has a fifteen percent higher

debt to total assets than the industry average which isn’t necessarily good. They have a lot more

debt than these other companies do. Times-interest-earned is also going up from 2011 to 2012.

Overall, Amazon has some debt and a lot of their assets are financed with equity. This is good

because they are now in a good place to pay off interest.

PROFITABILITY
 What does green mean in Islam? It means wealth or luck. No wonder most companies in

the world strive to create profitability. Profitability is the ability to make more money out of

something. Accountants especially look to find ways they might cut time or expenses where they

aren’t needed. They do this to create even more profit in a company. The profitability ratios

examine the ability to be more profitable or to get more out of your dollar. These ratios are:

Profit Margin ( the amount of revenue that exceeds the cost in a company), Return on Assets (

the amount of profit a company earns in comparison to its resources), Asset turnover ( value of a

companies sells relative to the value of a companies assets), Return on Common Stockholders

Equity ( how much it is getting and how much it gives away in dividends), Earning per share (

the amount of money that goes to each share it serves as a measure of how profitable a company

is). Looking at the industry’s average in between all the profitability ratios, Amazon has a lot to

make up, meaning they have a low profit margin percentage and a low asset turnover and return

on common stockholder’s equity. This can be strengthened by finding cheaper suppliers or even

creating most of your products by hand instead of buying them through wholesalers. You can

look to see what the biggest waste of time in the company is. For example, you could see if the

employees aren’t working fast enough, or if we are wasting too much of our products that are

broken. There are many different things they can look at.

EVALUATING INVESTMENTS

Warren Buffet, one of the richest men in the world, is an investor that says look for

places to put your money with high return and low risk, that is the key. This section of the

financial analyzing paper is very important for stock shareholders and investors. They want to

find the best ways to put their money away earning as much interest and dividends as possible to

become rich. This section is important to the investors, letting them know the average dividend
return they will see every year and earnings for every share they own. Some ratios to help

investors are the price-earnings (the price per share of stock in comparison with the earnings per

share of stock), dividend yield (dividend percentage compared to the shares), dividend payout

(number of dividends that a stockholder is going to receive compared to the net income of a

given year). The industry average for price-earnings is higher than Amazon. Amazon being very

low in the negatives. This isn’t good for investors because they are paying more than what they

are earning. The net income for Amazon in 2012 dropped into a loss in the negative thirties. This

means they held the dividends for 2012. Looking at the future, I hope that Amazon can find a

way to raise their investments and make a better experience for investors. As of 2018 Amazon’s

stock is at a -1.22%.

As you can see, Amazon is growing more rapidly than most companies in the United

States. Their ability to sell merchandise and collect accounts receivable is almost double the

industry’s average due to many of Amazon’s innovative thinkers. They make a better customer

experience every year. But on the negative side, for stock holders and investors, I would add a

statement of caution due to the fallen stock hold rates of return. The prices for Amazon’s stock is

very high and the dividends (or earnings per share) are very low or non-existent. Overall, the

amount of assets Amazon contains is higher than their liabilities. Because the stock market

fluctuates excessively each year, I recommend watching Amazon explode into new horizons in

the future.