Chapter 1

Introduction
1. Introduction
2. Need for the study
3. Objective of the study
4. Scope of the study
5. Research Methodology
6. Limitation of the study

1
Introduction

Risk Ratio Analysis

Financial risk ratios assess a company's capital structure and current risk level in
relation to the company's debt level. These ratios are used by investors when
they are considering investing in a company. Whether a firm can manage its
outstanding debt is critical to the company's financial soundness and operating
ability. Debt levels and debt management also significantly impact a company's
profitability, since funds required to service debt reduce the net profit margin
and cannot be invested in growth.

Some of the financial ratios that are most commonly used by investors and
analysts to assess a company's financial risk level and overall financial health
include the debt-to-capital ratio, the debt-to-equity ratio, the interest coverage
ratio, and the degree of combined leverage.

Financial risk ratios assess a company's debt levels, which are an indicator of a
company's financial health. Investors use the ratios to decide whether they want
to invest in a company. The most common ratios used by investors to measure a
company's level of risk are the interest coverage ratio, the degree of combined
leverage, the debt-to-capital ratio, and the debt-to-equity ratio.

Debt-to-Capital Ratio
The debt-to-capital ratio is a measure of leverage that provides a basic picture of
a company's financial structure in terms of how it is capitalizing its operations.
The debt-to-capital ratio is an indicator of a firm's financial soundness. This
ratio is simply a comparison of a company's total short-term debt and long-term
debt obligations with its total capital provided by both shareholders' equity and
debt financing. Lower debt-to-capital ratios are preferred as they indicate a
higher proportion of equity financing to debt financing.

A higher debt-to-equity ratio may make it harder for a company to obtain

financing in the future.

2
Debt-to-Equity Ratio
The debt-to-equity ratio (D/E) is a key financial ratio that provides a more direct
comparison of debt financing to equity financing. This ratio is also an indicator
of a company's ability to meet outstanding debt obligations. Again, a lower ratio
value is preferred as this indicates the company is financing operations through
its own resources rather than taking on debt. Companies with stronger equity
positions are typically better equipped to weather temporary downturns in
revenue or unexpected needs for additional capital investment. Higher D/E
ratios may negatively impact a company's ability to secure additional financing
when needed.

Interest Coverage Ratio

The interest coverage ratio is a basic measure of a company's ability to handle
its short-term financing costs. The ratio value reveals the number of times that a
company can make the required annual interest payments on its outstanding
debt with its current earnings before taxes and interest. A relatively lower
coverage ratio indicates a greater debt service burden on the company and a
correspondingly higher risk of default or financial insolvency.

A lower ratio value means a lesser amount of earnings available to make

financing payments, and it also means the company is less able to handle any
increase in interest rates. Generally, an interest coverage ratio of 1.5 or lower is
considered indicative of potential financial problems related to debt service.
However, an excessively high ratio can indicate the company is failing to take
advantage of its available financial leverage.

3
Need for the study
 Gain information regarding investment decision making in the company.
 Understand the risk associated with the investments by the investors.
 Better understanding over the financial situation of the company and its
financial performance.
 Provides the debt level of the company and the financial health of the
company.
 Risk associated with the investment could be identified by the investor
and calculations for safety on investment could be planned.
 Analyse the current position of financial analysis of the company

Objective of the study

 To understand how to calculate risk in financial investment in a company.
 To analyse the financial statements of the company based on past, present
and forecast the future conditions of the company for investing.
 Providing information about the cash position company is holding and
how much debt the company has in relation to equity.
 For investors to know if the company can provide security on the money
invested by the investors and returns the invested amount with better
returns.
 To understand company performance in the overall market.

Scope of the study

The study contains data regarding the financial ratios of the company, to
analyse the risk of investment associated during investment in the company and
allow the readers gain idea over financial health of the company in the market.

4
Research Methodology
1. Data collection

Data which is collected from the internet that is published for the last 5 years
till 2019. All sources of data is secondary data.

2. Sources of Data

Internet Sources

3. Tools for analysis

Limitation of the study

1. No information regarding the new financial plan of the company or
financial strategies which the company is yet to execute is published in
this project.
2. Study cover only one company.
3. Has no information regarding the internal financial record of the
company.
4. Study only consists of data calculated from the time period starting from
2015-2019.

5
 Chapter 2
Review of Literature

1. Review of Literature

6
Theoretical review

Its common knowledge that the firm value cannot be maximized in the long run
unless it survives the short run. Every company have to maximise the utilization
of their financial assets in order to grow. This makes the companies to
productively use the financial assets and take precautions while decision making
process of the company. Financial management comes to become very vital for
the growth of every company which request companies to give more concern
over the proper investment related decision making. With the Financial
management comes the need to study risk management associated with the
investment funds which the investors supply. From the process of procurement
of funds to the company and until the investment is returned to the investor the
company have to manage the risk of the amount of money as investment made
by the investor into the company.

Risk Analysis is a process that helps you identify and manage potential
problems that could undermine key business initiatives or projects.

To carry out a Risk Analysis, you must first identify the possible threats that
you face, and then estimate the likelihood that these threats will materialize.

Risk Analysis can be complex, as you'll need to draw on detailed information

such as project plans, financial data, security protocols, marketing forecasts, and
other relevant information. However, it's an essential planning tool, and one that
could save time, money, and reputations.

In the financial world, risk management is the process of identification, analysis

and acceptance or mitigation of uncertainty in investment decisions. Essentially,
risk management occurs when an investor or fund manager analyses and
attempts to quantify the potential for losses in an investment, such as a moral
hazard, and then takes the appropriate action (or inaction) given his investment
objectives and risk tolerance.

7
Risk Analysis
Risk Analysis is a process that helps you identify and manage potential
problems that could undermine key business initiatives or projects.

To carry out a Risk Analysis, you must first identify the possible threats that
you face, and then estimate the likelihood that these threats will materialize.

Risk Analysis can be complex, as you'll need to draw on detailed information

such as project plans, financial data, security protocols, marketing forecasts, and
other relevant information. However, it's an essential planning tool, and one that
could save time, money, and reputations.

When to Use Risk Analysis?

Risk analysis is useful in many situations:

 When you're planning projects, to help you anticipate and neutralize

possible problems.
 When you're deciding whether or not to move forward with a project.
 When you're improving safety and managing potential risks in the
workplace.
 When you're preparing for events such as equipment or technology
failure, theft, staff sickness, or natural disasters.
 When you're planning for changes in your environment, such as new
competitors coming into the market, or changes to government policy.

8
 Chapter 3

1.Industry Profile
2.Company Profile

9
Amazon has grown to become one of the largest companies in the world, both
in terms of sales and market capitalization. But, with such great size, comes a
set of unique risks. The biggest risks of investing in Amazon.com, Inc.
(NASDAQ: AMZN) stock are increasing competition, profit potential
uncertainty, revenue growth uncertainty, speculative valuation and share price
volatility. Amazon has indeed delivered high revenue growth since going public
in 1997, making investors optimistic about future performance. This growth has
also caused investors to overlook the company’s unwillingness to generate
sustained net profits

What Is Valuation?

Valuation is the analytical process of determining the current (or projected)

worth of an asset or a company. There are many techniques used for doing a
valuation. An analyst placing a value on a company looks at the business's
management, the composition of its capital structure, the prospect of future
earnings, and the market value of its assets, among other metrics.

Fundamental analysis is often employed in valuation, although several other

methods may be employed such as the capital asset pricing model (CAPM) or
the dividend discount model (DDM).

A valuation can be useful when trying to determine the fair value of a security,
which is determined by what a buyer is willing to pay a seller, assuming both
parties enter the transaction willingly. When a security trades on an exchange,
buyers and sellers determine the market value of a stock or bond.

The concept of intrinsic value, however, refers to the perceived value of a

security based on future earnings or some other company attribute unrelated to
the market price of a security. That's where valuation comes into play. Analysts
do a valuation to determine whether a company or asset is overvalued or
undervalued by the market.

The Two Main Categories of Valuation Methods

Absolute valuation models attempt to find the intrinsic or "true" value of an

investment based only on fundamentals. Looking at fundamentals simply means
you would only focus on such things as dividends, cash flow, and the growth
rate for a single company, and not worry about any other companies. Valuation
models that fall into this category include the dividend discount model,
discounted cash flow model, residual income model, and asset-based model.
10
Relative valuation models, in contrast, operate by comparing the company in
question to other similar companies. These methods involve calculating
multiples and ratios, such as the price-to-earnings multiple, and comparing them
to the multiples of similar companies.

For example, if the P/E of a company is lower than the P/E multiple of a
comparable company, the original company might be considered undervalued.
Typically, the relative valuation model is a lot easier and quicker to calculate
than the absolute valuation model, which is why many investors and analysts
begin their analysis with this model.

How Earnings Affect Valuation

The earnings per share (EPS) formula is stated as earnings available to common
shareholders divided by the number of common stock shares outstanding. EPS
is an indicator of company profit because the more earnings a company can
generate per share, the more valuable each share is to investors.

Analysts also use the price-to-earnings (P/E) ratio for stock valuation, which is
calculated as market price per share divided by EPS. The P/E ratio calculates
how expensive a stock price is relative to the earnings produced per share.

For example, if the P/E ratio of a stock is 20 times earnings, an analyst

compares that P/E ratio with other companies in the same industry and with the
ratio for the broader market. In equity analysis, using ratios like the P/E to value
a company is called a multiples-based, or multiples approach, valuation. Other
multiples, such as EV/EBITDA, are compared with similar companies and
historical multiples to calculate intrinsic value.

Valuation Methods

There are various ways to do a valuation. The discounted cash flow analysis
mentioned above is one method, which calculates the value of a business or
asset based on its earnings potential. Other methods include looking at past and
similar transactions of company or asset purchases, or comparing a company
with similar businesses and their valuations.

The comparable company analysis is a method that looks at similar companies,

in size and industry, and how they trade to determine a fair value for a company
or asset. The past transaction method looks at past transactions of similar
companies to determine an appropriate value. There's also the asset-based

11
valuation method, which adds up all the company's asset values, assuming they
were sold at fair market value, and to get the intrinsic value.

Sometimes doing all of these and then weighing each is appropriate to calculate
intrinsic value. Meanwhile, some methods are more appropriate for certain
industries and not others. For example, you wouldn't use an asset-based
valuation approach to valuing a consulting company that has few assets; instead,
an earnings-based approach like the DCF would be more appropriate.

Discounted Cash Flow Valuation

Analysts also place a value on an asset or investment using the cash inflows and
outflows generated by the asset, called a discounted cash flow (DCF) analysis.
These cash flows are discounted into a current value using a discount rate,
which is an assumption about interest rates or a minimum rate of return
assumed by the investor.

If a company is buying a piece of machinery, the firm analyzes the cash outflow
for the purchase and the additional cash inflows generated by the new asset. All
the cash flows are discounted to a present value, and the business determines the
net present value (NPV). If the NPV is a positive number, the company should
make the investment and buy the asset.

Limitations of Valuation

When deciding which valuation method to use to value a stock for the first time,
it's easy to become overwhelmed by the number of valuation techniques
available to investors. There are valuation methods that are fairly
straightforward while others are more involved and complicated.

Unfortunately, there's no one method that's best suited for every situation. Each
stock is different, and each industry or sector has unique characteristics that
may require multiple valuation methods. At the same time, different valuation
methods will produce different values for the same underlying asset or company
which may lead analysts to employ the technique that provides the most
favorable output.

Company's Share Price

Generally speaking, the stock market is driven by supply and demand, much
like any market. When a stock is sold, a buyer and seller exchange money for

12
share ownership. The price for which the stock is purchased becomes the new
market price. When a second share is sold, this price becomes the newest
market price, etc.

The more demand for a stock, the higher it drives the price and vice versa. The
more supply of a stock, the lower it drives the price and vice versa. So while in
theory, a stock's initial public offering (IPO) is at a price equal to the value of its
expected future dividend payments, the stock's price fluctuates based on supply
and demand. Many market forces contribute to supply and demand, and thus to
a company's stock price.

Company Value and Company Share Price

Understanding the law of supply and demand is easy; understanding demand

can be hard. The price movement of a stock indicates what investors feel a
company is worth—but how do they determine what it's worth? One factor,
certainly, is its current earnings: how much profit it makes. But investors often
look beyond the numbers. That is to say, the price of a stock doesn't only reflect
a company's current value—it also reflects the prospects for a company, the
growth that investors expect of it in the future.

Predicting a Company's Share Price

There are quantitative techniques and formulas used to predict the price of a
company's shares. Called dividend discount models (DDMs), they are based on
the concept that a stock's current price equals the sum total of all its future
dividend payments when discounted back to their present value. By determining
a company's share by the sum total of its expected future dividends, dividend
discount models use the theory of the time value of money (TVM).

The Gordon Growth Model

Several different types of dividend discount models exist. One of the most
popular, due to its straightforwardness, is the Gordon growth model. Developed
in the 1960s by U.S. economist Myron Gordon, the equation for the Gordon
growth model is represented by the following:

Present value of stock = (dividend per share) / (discount rate - growth rate)

13
Competition

Competition is the most salient operational risk faced by Amazon. The general
merchandise retail industry is highly competitive and includes formidable
competitors such as Wal-Mart Stores, Inc., Costco Wholesale Corporation and
Target Corporation. Specialty retailers such as Staples, Inc., Best Buy Co., Inc.,
Home Depot, Inc. and Bed Bath & Beyond, Inc. have gained traction as
physical showrooms and category specialists. All of these major retailers have
invested heavily in online sales channels in response to evolving consumer
tastes. The build-out of well-regarded retail e-commerce sites threatens to
challenge Amazon’s supremacy in the market. These developments remain
mere threats, however, as Amazon still holds more than 40% of the highly
fragmented online retail market as of 2019

Operational risk summarizes the uncertainties and hazards a company faces

when it attempts to do its day-to-day business activities within a given field or
industry. A type of business risk, it can result from breakdowns in internal
procedures, people and systems—as opposed to problems incurred from
external forces, such as political or economic events, or inherent to the entire
market or market segment, known as systematic risk

Understanding Operational Risk

Operational risk focuses on how things are accomplished within an organization

and not necessarily what is produced or inherent within an industry. These risks
are often associated with active decisions relating to how the organization
functions and what it prioritizes. While the risks are not guaranteed to result in
failure, lower production, or higher overall costs, they are seen as higher or
lower depending on various internal management decisions.

Because it reflects man-made procedures and thinking processes, operational

risk can be summarized as a human risk; it is the risk of business operations
failing due to human error. It changes from industry to industry and is an
important consideration to make when looking at potential investment
decisions. Industries with lower human interaction are likely to have lower
operational risk.

One area that may involve operational risk is the maintenance of necessary
systems and equipment. If two maintenance activities are required, but it is
determined that only one can be afforded at the time, making the choice to

14
perform one over the other alters the operational risk depending on which
system is left in disrepair. If a system fails, the negative impact is associated
directly with the operational risk.

Other areas that qualify as operational risk tend to involve the personal element
within the organization. If a sales-oriented business chooses to maintain a
subpar sales staff, due to its lower salary costs or any other factor, this behavior
is considered an operational risk. The same can be said for failing to properly
maintain a staff to avoid certain risks. In a manufacturing company, for
example, choosing not to have a qualified mechanic on staff, and having to rely
on third parties for that work, can be classified as an operational risk. Not only
does this impact the smooth functioning of a system, but it also involves
additional time delays.

The willing participation of employees in fraudulent activity may also be seen

as operational risk. In this case, the risk involves the possibility of repercussions
if the activity is uncovered. Since individuals make an active decision to
commit fraud, it is considered a risk relating to how the business operates.

Operational Risk vs. Financial Risk

In a corporate context, financial risk refers to the possibility that a company's

cash flow will prove inadequate to meet its obligations—that is, its loan
repayments and other debts. Although this inability could relate to or result
from decisions made by management (especially company finance
professionals), as well as the performance of the company products, financial
risk is considered distinct from operational risk. It is most often related to the
company's use of financial leverage and debt financing, rather than the day-to-
day efforts of making the company a profitable enterprise.

Amazon’s rapid ascent has prompted other retailers to forge strategies

specifically crafted to combat the online giant’s influence. Staples and Best Buy
occasionally offer promotions and price matching explicitly matching or beating
Amazon’s prices and promotions. Competitive pricing not only erodes
Amazon’s advantage in the market, but it also leads to narrower margins across
the board for market participants. ShopRunner offers an alternative to Amazon
Prime, and many retailers have partnered with the shipping service. Services of

15
this type cause Amazon’s economic moat to narrow, threatening pricing power
and volumes.

Competitive Pricing

Competitive pricing is the process of selecting strategic price points to best take
advantage of a product or service based market relative to competition. This
pricing method is used more often by businesses selling similar products since
services can vary from business to business, while the attributes of a product
remain similar. This type of pricing strategy is generally used once a price for a
product or service has reached a level of equilibrium, which occurs when a
product has been on the market for a long time and there are many substitutes
for the product.

In 2006, the company launched its lucrative Amazon Web Services, a cloud
computing platform, which has generated 13-15% of total revenues in 2019The
company’s participation in this market represents a major strategic
diversification and a potential future growth category. Cloud infrastructure as a
service is a highly commoditized market in which most competitive
differentiation is achieved through aggressive pricing, and many of the largest
technology firms have established themselves in the space. Amazon’s largest
competitors in cloud storage include Hewlett-Packard Company, Google, Inc.,
AT&T, Inc., IBM and Microsoft Corporation. These competitors each carve out
a different niche within the wider market, and some even offer infrastructure as
a service as a value-added service or loss leader.

Profit Uncertainty

Amazon operates with very narrow profit margins and was not able to sustained
net profits during the early to mid 2010s, where it posted net losses in FY 2012
and FY 2014. Prior to 2019, the highest full-year net margin reported by the
company was 3.7%, which was achieved back in 2009. Competitive pricing
ensures Amazon’s gross margins stay within a only small range of modest
values.Amazon’s management is committed to infrastructure expansion and
growing investments in research and development, necessitating high operating
expenses. For 2019, Amazon's profit margin rose to a record high, of just over
6%.

Investors have been comfortable eschewing profits to fuel future growth, but
bearish observers are skeptical the company has the pricing power to generate

16
the returns necessary to justify the ongoing investments in expansion. For some
investors, these concerns are validated by Amazon’s past investments in failed
projects such as an abandoned foray into the smartphone market. For Amazon
to be an attractive investment opportunity, the company must return to
profitability and grow rapidly in the midst of an increasingly competitive
market. This is a significant risk to the bull thesis.

Slowing Revenue Growth

Amazon has delivered strong growth performance over the past decade, with
annualized revenue growth metrics rarely falling below 20% and sometimes
approaching 40%. This achievement has stoked bullish investor sentiment and
aggressive analyst estimates. Nonetheless, growth has decelerated on average
over the 2010s, with Amazon's revenue for the twelve months ending
September 30, 2019 posting a 20.14% increase year-over-year. Several factors
have contributed to this trend. Rapid growth is typically difficult to sustain as
the base level rises each year, meaning a larger nominal expansion is required to
drive a constant growth rate.

Intensifying price competition in both retail and Web services also has an
impact on sales growth rates. Despite a substantial shift to online sales channels,
e-commerce still makes just around 11% of the total retail market. This may
indicate a natural ceiling to the amount of business that can be done without
brick and mortar locations, and this impairs Amazon’s potential upside. The
entire bull narrative for Amazon is based on the assumption the company will
continue delivering rapid growth. If revenue growth slows too much, then the
investments that have driven high operating expense levels will prove fruitless.
If revenue and earnings do not exhibit sustained high rates of expansion in the
future, Amazon’s valuation will prove to be unjustified. Slowing revenue
growth is a risk that investors should monitor.

Highly Speculative Valuation

The valuation of Amazon shares poses investment risk. At nearly $1,900 a share
as of January, 2020, Amazon is a highly speculative investment with a market
cap approaching $1 trillion and a trailing P/E ratio of 84x earnings.. If a person
were to assume Amazon will meet the highest analyst estimates two years from
now and then grow 28% each year over a five-year period, the market price still
implies nearly 10% annual growth over the long-term. This is not an impossible
outcome, but investors are assuming very favorable performance over a long,
17
difficult-to-forecast interval. There are likely and plausible outcomes that
involve less-stellar results. Speculation is common for unprofitable growth
companies with an uncertain medium term, but this fact does not reduce the risk
of unmet expectations.

High share price volatility is a consequence of this speculation. Amazon’s beta

of 1.51 indicates share prices are positively correlated to the wider equity
market and move up and down at a higher magnitude than the market.
Shareholders are therefore subject to increased market risk, as a wide-spread
downturn disproportionately impacts high beta stocks such as Amazon.

Amazon's Key Financial Ratios

Amazon.com, Inc. (AMZN) is one of the most valuable megacap companies on

the Nasdaq exchange. The firm commands a high premium valuation because of
its demonstrated record of consistent sales growth. However, it almost always
appears grossly overvalued when using earnings-based valuation methods

Amazon pursued a strategy of reinvesting most of its profits into the business.
This strategy allowed the company to expand faster, and it also minimized
taxes. As a result, traditional measurements of value often fail when applied to
Amazon. Thus, several valuation metrics deserve close examination to
accurately gauge the difference between market valuation and Amazon's
business fundamentals.

Sales Growth Rate

According to the company's annual report, Amazon's yearly sales growth rate
was 31% in 2018. This figure is near the recent average of 30%. The company
continues to make many capital investments each year, mostly using cash flow
from operations. That leaves little cash for anything else, and all eyes are on
growth. Besides being at the forefront of ecommerce retailing, Amazon also
runs a publishing platform for authors and publishers. The company takes a
sales cut from every book it helps to sell. The firm began as an online
bookseller, and Amazon is still growing its book business.

However, Amazon Web Services (AWS) is an increasingly important business

for Amazon. AWS is an Internet cloud infrastructure built by Amazon.
Developers and enterprises can run their online operations on Amazon Web
Services for a monthly fee. Amazon's experience running one of the top sites on
the Internet allowed it to start AWS long before most competitors arrived. AWS
18
is actually the fastest-growing source of revenue for Amazon, and sales grew
47% in 2018. Given the continued transition to cloud computing, AWS appears
to have strong growth prospects for the foreseeable future.

Profit Margin

Most companies focus on their bottom-line earnings and profits. At Amazon, it

was all about the top-line revenue story. The company believes that by
increasing market share, it can eventually leverage economies of scale to lower
cost. Once it has a high market share, Amazon can also exercise some pricing
power over customers. Critics claim that the company must eventually start
showing more profits and eventually pay dividends. Amazon may not be able to
sustain its sales exuberance forever.

The company's price-to-earnings ratio was 80.38 in November 2019. That is the
highest number for the company in over ten years. As recently as 2014,
Amazon's operating margin was actually negative. Part of the increase in the
operating margin is due to the rapid growth of Amazon Web Services. Web
services are generally a much higher margin business than retail, so we might
expect higher profit margins going forward. The other explanation is that
Amazon is running out of areas to reinvest profits.

Traditional Valuation Metrics

Because the market has been valuing Amazon stock solely on its growth
potential, conventional valuation metrics for Amazon often looks absurdly high.
The company's price-to-earnings ratio was 80.38 in November 2019. As a
standard of comparison, Apple (AAPL) had a price-to-earnings ratio of 21.58.
Amazon's high price-to-earnings ratio does not mean the stock is going to crash,
but it does make shares more volatile.

19
 Chapter 4
1.Data Analysis

20
1.1 EVERYDAY RETURN -

(Today’s Close Price – Yesterday’s Close Price) ÷ (Yesterday’s Close Price)

1.2 ANNUALIZED RETURN -

(Sum Of All Returns In Percentage) X (No.Of Days Stock Trading Has

Occurred)

ANALYSIS -
ANALYSIS OF AMAZON LTD STOCK IN FINANCIAL INDUSTRY
(DAY RETURN OF AXIS LTD STOCK)

Adj
Date Open High Low Close Close Volume Return Return(%)

1-04- 19 2010.00 2275.95 2008.25 2031.65 2031.65 2095740 0.00614 1.50%

29-09-19 2304.6 2325 2294 2316 2316 2105927 -0.00203 0%

28-03-19 2298.8 2325 2287.85 2320.7 2320.7 1991298 0.009241 1%

27-03-19 2318.55 2328.05 2279.05 2299.45 2299.45 3471325 -0.00515 -1%

26-03-19 2275.9 2315 2272.6 2311.35 2311.35 2946712 -0.01317 1%

Calculation of Everyday Return -

(TODAY’S CLOSE PRICE- YESTERDAY’S CLOSE PRICE) /

(YESTERDAY’S CLOSE PRICE)

(2316-2320.7)/ (2320.7) = -0.00203

21
Amazon.com Inc.

1.3 Monthly rates of return

  Amazon.com Inc. (AMZN) Standard & Poor’s 500 (S&P
500)
N Date Price(AMZN, Dividend(AM R(AMZN, t) Price(S&P R(S&P 500, t)
o t) ZN, t) 500, t)
  Jan 31, 2015 354.53     1,994.99  
1 Feb 28, 2015 380.16   7.23% 2,104.50 5.49%
2 Mar 31, 2015 372.10   -2.12% 2,067.89 -1.74%
3 Apr 30, 2015 421.78   13.35% 2,085.51 0.85%
4 May 31, 2015 429.23   1.77% 2,107.39 1.05%
5 Jun 30, 2015 434.09   1.13% 2,063.11 -2.10%
6 Jul 31, 2015 536.15   23.51% 2,103.84 1.97%
7 Aug 31, 2015 512.89   -4.34% 1,972.18 -6.26%
8 Sep 30, 2015 511.89   -0.19% 1,920.03 -2.64%
9 Oct 31, 2015 625.90   22.27% 2,079.36 8.30%
1 Nov 30, 2015 664.80   6.22% 2,080.41 0.05%
0
1 Dec 31, 2015 675.89   1.67% 2,043.94 -1.75%
1
1 Jan 31, 2016 587.00   -13.15% 1,940.24 -5.07%
2
1 Feb 29, 2016 552.52   -5.87% 1,932.23 -0.41%
3
1 Mar 31, 2016 593.64   7.44% 2,059.74 6.60%
4
1 Apr 30, 2016 659.59   11.11% 2,065.30 0.27%
5
1 May 31, 2016 722.79   9.58% 2,096.95 1.53%
6
1 Jun 30, 2016 715.62   -0.99% 2,098.86 0.09%
7
1 Jul 31, 2016 758.81   6.04% 2,173.60 3.56%
8
1 Aug 31, 2016 769.16   1.36% 2,170.95 -0.12%
9
2 Sep 30, 2016 837.31   8.86% 2,168.27 -0.12%
0
2 Oct 31, 2016 789.82   -5.67% 2,126.15 -1.94%
1
2 Nov 30, 2016 750.57   -4.97% 2,198.81 3.42%
2
2 Dec 31, 2016 749.87   -0.09% 2,238.83 1.82%
3
2 Jan 31, 2017 823.48   9.82% 2,278.87 1.79%
4
2 Feb 28, 2017 845.04   2.62% 2,363.64 3.72%
5
2 Mar 31, 2017 886.54   4.91% 2,362.72 -0.04%
6
2 Apr 30, 2017 924.99   4.34% 2,384.20 0.91%
7

22
2 May 31, 2017 994.62   7.53% 2,411.80 1.16%
8
2 Jun 30, 2017 968.00   -2.68% 2,423.41 0.48%
9
3 Jul 31, 2017 987.78   2.04% 2,470.30 1.93%
0
3 Aug 31, 2017 980.60   -0.73% 2,471.65 0.05%
1
3 Sep 30, 2017 961.35   -1.96% 2,519.36 1.93%
2
3 Oct 31, 2017 1,105.28   14.97% 2,575.26 2.22%
3
3 Nov 30, 2017 1,176.75   6.47% 2,647.58 2.81%
4
3 Dec 31, 2017 1,169.47   -0.62% 2,673.61 0.98%
5
3 Jan 31, 2018 1,450.89   24.06% 2,823.81 5.62%
6
3 Feb 28, 2018 1,512.45   4.24% 2,713.83 -3.89%
7
3 Mar 31, 2018 1,447.34   -4.30% 2,640.87 -2.69%
8
3 Apr 30, 2018 1,566.13   8.21% 2,648.05 0.27%
9
4 May 31, 2018 1,629.62   4.05% 2,705.27 2.16%
0
4 Jun 30, 2018 1,699.80   4.31% 2,718.37 0.48%
1
4 Jul 31, 2018 1,777.44   4.57% 2,816.29 3.60%
2
4 Aug 31, 2018 2,012.71   13.24% 2,901.52 3.03%
3
4 Sep 30, 2018 2,003.00   -0.48% 2,913.98 0.43%
4
4 Oct 31, 2018 1,598.01   -20.22% 2,711.74 -6.94%
5
4 Nov 30, 2018 1,690.17   5.77% 2,760.17 1.79%
6
4 Dec 31, 2018 1,501.97   -11.13% 2,506.85 -9.18%
7
4 Jan 31, 2019 1,718.73   14.43% 2,704.10 7.87%
8
4 Feb 28, 2019 1,639.83   -4.59% 2,784.49 2.97%
9
5 Mar 31, 2019 1,780.75   8.59% 2,834.40 1.79%
0
5 Apr 30, 2019 1,926.52   8.19% 2,945.83 3.93%
1
5 May 31, 2019 1,775.07   -7.86% 2,752.06 -6.58%
2
5 Jun 30, 2019 1,893.63   6.68% 2,941.76 6.89%
3
5 Jul 31, 2019 1,866.78   -1.42% 2,980.38 1.31%
4
5 Aug 31, 2019 1,776.29   -4.85% 2,926.46 -1.81%
5
5 Sep 30, 2019 1,735.91   -2.27% 2,976.74 1.72%
6
5 Oct 31, 2019 1,776.66   2.35% 3,037.56 2.04%

23
7
5 Nov 30, 2019 1,800.80   1.36% 3,140.98 3.40%
8
5 Dec 31, 2019 1,847.84   2.61% 3,230.78 2.86%
9
Average: 3.16%   0.88%
Standard deviation: 8.20%   3.45%

Systematic Risk Estimation

Variance AMZN 67.23

Variance S&P 500 11.88

Covariance AMZN, S&P500 19.03

Correlation Coefficient AMZN, S&P. 500 0.67

β AMZN 2 1.60

α AMZN 3 1.75

Calculations

1. Correlation coefficient AMZN S&P 500

= Covariance AMZN, S&P500 /( Standard Deviation AMZN x Standard

Deviation S&P 500)

=19.03 / (8.20 x 3.45)

=0.67

2. β AMZN

=Covariance AMZN, S&P500 / Variance S&P 500

=19.03 /11.888

=1.60

3. α AMZN

24
 =Average AMZN - β AMZN x Average S&P 500
= 3.16 -1.60 x 0.88
= 1.75

Amazon.com Inc.
1.4 Expected rate of return

Assumptions
Rate of return on LT Treasury Composite R(F) 1.93%
Expected rate of return on market portfolio E[R(M)] 11.17%
Systematic risk (β) of Amazon.com Inc.’s common stock β(AMZN) 1.60

Expected rate of return on Amazon.com Inc.’s common stock E[R(AMZN)] 16.73%

Calculations

25
 1. E(R AMZN) = RF + β AMZN (E(RM)-RF)
= 1.93% + 1.60 (11.17% - 1.93%)
=16.73%

Amazon.com Inc.
1.5 ROIC calculation

  Dec 31, 2019 Dec 31, 2018 Dec 31, Dec 31, Dec 31,
2017 2016 2015
Selected Financial Data (US$ in
millions)
Net operating profit after taxes (NOPAT) 16,097 13,690 4,698 4,480 2,340
Invested capital 1,27,845 1,03,096 79,125 43,073 33,425

Performance Ratio
ROIC 12.59% 13.28% 5.94% 10.40% 7.00%

Calculations

26
 1. 2019 calculation

ROIC = 100 x NOPAT / Invested capital

= 100 x 16.097 / 127,845= 12.59%

Amazon.com Inc.

1.6 Allowance for Doubtful Accounts Receivable

  Dec 31, Dec 31, Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
2019 2018

Selected Financial Data (US$ in millions)

Allowance for doubtful accounts 718 495 348 237 189
Accounts receivable, gross 18,381 13,805 10,040 6,798 4,589

27
 Financial Ratio
Allowance as a percentage of accounts
receivable, gross 3.91% 3.59% 3.47% 3.49% 4.12%

Calculation

Allowance as a percentage of accounts receivable, gross = 100 x Allowance for

doubtful accounts / Accounts receivable, gross

= 100x 718 / 18,381

= 3.91%

28
Amazon.com Inc.

1.7 Debt to equity, long-term trends, calculation

  Debt to equity = Long-term debt, ÷ Stockholders’

excluding equity
current portion
Dec 31, 2019 0.38 23,414 62,060
Dec 31, 2018 0.54 23,495 43,549
Dec 31, 2017 0.89 24,743 27,709
Dec 31, 2016 0.40 7,694 19,285
Dec 31, 2015 0.62 8,235 13,384
Dec 31, 2014 0.77 8,265 10,741
Dec 31, 2013 0.33 3,191 9,746
Dec 31, 2012 0.38 3,084 8,192
Dec 31, 2011 0.03 255 7,757
Dec 31, 2010 0.03 184 6,864
Dec 31, 2009 0.02 109 5,257
Dec 31, 2008 0.15 409 2,672
Dec 31, 2007 1.07 1,282 1,197
Dec 31, 2006 2.89 1,247 431
Dec 31, 2005 6.18 1,521 246

29
 Amazon.com Inc

1.8 Debt to equity, long-term trends, comparison to competitors

  Amazon.com Costco Home Depot Lowe’s Cos. Target Corp. TJX Cos. Walmart
Inc. Wholesale Inc. Inc. Inc. Inc.
Corp.
Dec 31, 2019 0.38 0.45 — 4.45 1.00 0.44 0.80
Dec 31, 2018 0.54 0.51 18.59 2.89 0.99 0.43 0.60
Dec 31, 2017 0.89 0.62 5.45 2.44 1.16 0.49 0.59
Dec 31, 2016 0.40 0.43 3.37 1.65 0.98 0.38 0.62
Dec 31, 2015 0.62 0.58 1.84 1.14 0.91 0.38 0.62
Dec 31, 2014 0.77 0.41 1.18 0.89 0.85 0.30 0.74
Dec 31, 2013 0.33 0.46 0.61 0.66 1.07 0.21 0.71
Dec 31, 2012 0.38 0.11 0.60 0.46 1.11 0.25 0.75
Dec 31, 2011 0.03 0.18 0.52 0.36 1.02 0.25 0.73
Dec 31, 2010 0.03 0.20 0.50 0.27 1.10 0.27 0.58
Dec 31, 2009 0.02 0.23 0.64 0.34 1.37 0.36 0.65
Dec 31, 2008 0.15 0.26 0.76 0.41 1.12 0.40 0.69
Dec 31, 2007 1.07 0.26 0.47 0.28 0.64 0.35 0.63
Dec 31, 2006 2.89 0.06 0.15 0.25 0.69 0.43 0.73
Dec 31, 2005 6.18 0.09 0.09 0.32 0.73 0.42 0.64

30
Findings

1. With the years going forward Amazon have grown immensely with
the increase of the investments from investors.
2. Risk Involved with investments are more subjected to the international
market and less associated with the domestic market of America, this
is due to the inflexibility in the FOREX Market for value of currency
alone.
3. With the increase in growth the company also have huge accounts
receivables which is a current asset; still the increase over the few
years are in huge amount which is a risk the company needs to
manage and avoid.
4. The Rate of invested capital during 2018 and the Rate of Invested
capital during 2019 was found be lowered by .69%.

31
Suggestions
These suggestions are based on ratio analysis and this through company may improve their financial
stability, liquidity position, operating efficiency and may restructure finance

1. Gross profit ratio thus reflects the margin of profit that a concern is able to earn on its
trading and manufacturing activity. Amazon companies should have to maintain this ratio at
high level as it’s indicates operating efficiency. Moreover companies should have to make
the plan about inventory or try to reduce cost of goods sold and increase the sales.
2. Companies should have to maintain interest coverage ratio at higher level because it
indicates greater ability of the company to handle fixed charge liabilities. Also try to obtain
funds at low interest or less use of external funds.
3. Companies should try to sustain total assets turnover ratio at highest level as it’s indicates
well-organized use of funds.
4. The management should try to adopt cost reduction techniques in their companies to get
over this critical situation. At the same way, to reduce power and fuel Cost Company should
find out other alternative for this.
5. The quantum of sales generated should be improved impressively in order better to enjoy
better per of the assets and capital employed.
6. The management should try to utilize their production capacity fully in order to reduce
factory overheads and to utilize their fixed assets properly.
7. To strengthen the financial efficiency, long-term funds have to be used to finance core
current assets and a part of temporary current assets. It is better if the companies can
reduce the oversized short- term loans and advances eliminates the risk arranging finance
regularly

32
Conclusion

33