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ACG 6315
Executive Summary
The purpose of this paper is to analyze Amazon’s financials, calculate the key
ratios, analyze the trend and the stock price chart for fiscal year 2016, and conclude with
the primary product line was books at first, the company rapidly diversified into a host of
other product categories. The growth of the e-commerce industry with consumers
increasingly buying products online has proved to be favorable for the company. While
the big brands may build their own online stores over time, a platform like Amazon
allows multiple new buyers and sellers. Smaller players are far more dependent on
Amazon since they don’t have the resources that Amazon does to invest in technology
and fulfillment to generate the kind of reach that Amazon can deliver. Moreover, the
so the company’s high growth rates are likely to be sustained over the next few years.
Amazon's competitive advantage is its lowest price and excellent delivery network.
Earnings per share (EPS) measures the amount of profit a company is making. When the
company meets or surpasses the expected EPS, the share prices are likely to increase.
Overall, Amazon.com Inc. met its expected earnings per share (EPS) shown in Exhibit 2
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from year 2014 to 2016. Amazon is highly likely to meet the estimated EPS in future
even though it did not meet the estimated EPS twice in 2014 and once in 2015 and once
in 2016. Amazon outperformed its expectations in the second quarter of 2016; the
expected EPS was $1.11 but the actual was $1.78. In the last quarter of 2015, Amazon
failed to meet its expected EPS by -35.89%, which led to a more than 22% drop in the
Amazon was able to meet 8 quarterly expected EPS out of 12. We can see that the
Trends
The income statement in (Exhibit 1) provides investors the information regarding the
revenue and the profit number of the company and helps evaluate the growth of the
company. The income statement of Amazon in 2015 shows the revenue of $107,006
million and a phenomenal increase of 21% in 2016 with the revenue of 135,987 million.
Amazon's Net income (exhibit 1) has increased tremendously compared to 2014 when
net income was -$241 million to 2016 when the net income was $2371 million. On the
negative side, the investment losses have increased exponentially from -22 million in
2015 to -96 Million in 2016. The evaluation of the revenue and net income shows the
Amazon has a strong balance sheet with an increase in cash from $15890 million
in 2015 to $19334 million in 2016 and increasing short-term investments from $3918
straight-line method over the estimated lives of the assets. The allowance for the doubtful
accounts was 189 million in 2015 which increased to 237 million in 2016. Amazon uses
First-in- first-out ("FIFO") method which gives a better understanding of the value of
Ratio Analysis
Exhibit 5 shows the ratio calculations. The first and most commonly used ratio is current
ratio to measure short-term debt solvency. It is also a way to measure the short-term risk.
High current ratio signifies the greater liquidity of the assets. Which is easier to be able to
pay short-term debt. According to the balance sheet in Exhibit 4, the total current assets
in 2015 were $36474 million and the current liability is $33899 million with a current
ratio of 1.08. In 2016, while current assets increased to $45781 million, the current
liability of $43816 Million decreased the current ratio to 1.04. The current ratio of
Amazon is too low. However, Amazon is an online retail giant and products are sold
every second which means the company is using the money for investing rather than
Quick Ratio shows the company's ability to pay all current liabilities. The quick
ratio of Amazon in 2016 was 0.78 which was slightly higher than 2015. A higher ratio
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signifies that the company is doing better financially and is more likely to be able to pay
Inventory turnover ratio is a very important analysis for a company like Amazon.
It determines the company's financial status and their ability to sell the inventory and
collect the receivables in any given period. Inventory turnover in 2016 was 8.13 which is
almost 5% more than 2015. This shows that Amazon is getting better at selling their
Auditor’s Report
Ernst & Young LLP Independent registered public accounting firm audited Amazon.com
Inc.'s financial reporting as of December 31, 2016. In its opinion, Amazon maintained its
Commission (COSO). Amazon has pledged assets of $418 Million in 2015 and 715
million in 2016 as collateral for standby and trade letters of credit. The auditor has also
The above chart shows the one-year Amazon stock performance. The chart shows a
10.95% overall increase from Jan 1 2016 at 675.89 to Dec 31, 2016 at 749.87. The graph
also shows a massive dip of about 28% in the beginning of February 2016. The one year
stock price chart show a steady growth and overall upwards trend. Looking at the trend,
one year moving average and other indicators, the stock price of Amazon would likely
continue to grow.
Conclusion
Amazon.com Inc. has the EPS of $1.54 in the last quarter of 2016, which is well above
the estimated EPS. Revenues have increased more than 34% since 2014, with the net
income increase of over 110% in 2016 compared to 2014. Cash and short-term
investments have increased. In 2016, Amazon's sales were $135.9 billion and profit
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totaled $2.3 billion. The stock prices have shown a tremendous rise in past 2 years.
After analyzing all the financial aspects of Amazon, it is safe to say that Amazon is a
2014
Operating expenses
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Basic -0.52 1.28 5.01
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Interest income 0.07% 0.05%
Source: https://www.stock-analysis-on.net
BALANCE SHEET
Assets
Sagar Gogia
ACG 6315
Current assets
Cash
Non-current assets
Intangible assets
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Total assets 65444 83402
Liabilities
Current liabilities
Non-current liabilities
Stockholders' equity
Common stock 5 5
Exhibit 5
Assets
Current assets
Cash
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Cash and cash equivalents 15890 24.28% 19334 23.18%
Non-current assets
Intangible assets
Liabilities
Current liabilities
Non-current liabilities
Stockholders' equity
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Total liabilities and stockholders'
65444 100.00% 83402 100.00%
equity
1192
Net cash provided by (used for) financing activities 4432 -3763 -2911
1455
1455 1589
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1192
Amazon financial report 2016. (n.d.). Retrieved October 23, 2017, from
https://secsearch.sec.gov/search?affiliate=secsearch&query=amazon%2Bfinancial%2Bre
port%2B2016
http://www.nasdaq.com/symbol/amzn/financials?query=income-statement
AMZN: summary for amazon.com, Inc. (2017, October 21). Retrieved October 23, 2017,
from https://finance.yahoo.com/quote/AMZN?p=AMZN
Amazon financial report 2016. (n.d.). Retrieved October 23, 2017, from
https://secsearch.sec.gov/search?affiliate=secsearch&query=amazon%2Bfinancial%2Bre
port%2B2016
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