FIN302 Investment Analysis
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FIN 302
Investment Analysis
Professor: Ahmad Rawish
February 22, 2021
As a potential investor, my choice for an investment is Amazom.com, Inc. (AMZN). My reasoning is based on its retail popularity and its amazing online sales. Amazon is a highly speculative investment with a market cap over $1 trillion. Since COVID-19, Amazon made major stives, and demonstrated great efforts to combat the pandemic. With many people working from home and more businesses computerizing their operations, the company has become a clear leader with the cloud computing services. Also, Amazon launched a pharmacy which will grow the stock for years. And since many consumers are purchasing online, Amazon’s advertising revenue is set to flourish. The PE ratio is a simple
way to calculate whether the stock is over or under valued, Amazon PE ratio as of February 19, 2021 is 77.81. As of today, the company is trading at a price of $3,249. I am not considered at all; the high value lets me know that the company is projected perform well in the future. Like with any company there are many risks associated with the return of the investment. Amazon’s major risk is its competition. Wal-Mart stores Inc. and Target Corporation are known to be the two high competitors in the merchandise retail industry. Competitive pricing is a key example of threats that can change Amazons stock market. If more companies decided to price match Amazon, then it potentially lowers the number of purchases made through Amazon. But the potential profits the company have are associated with the robust ecosystem that continues to attract new customers and sellers to its platform. The company is investing heavily in future growth areas like third-party seller services subscription and services that are likely to double digits soon.
Five financial ratios: liquidity, solvency, profitability, efficiency, and coverage Liquidity: Current Ratio = Current Assets / Current Liabilities
2019: 96,334 / 87,812 = 1.097
2020: 132,733 / 126,385 = 1.050
Solvency: Debt to Equity ratio = Total Liabilities / Total Equity
2019: (225,248 - 62,060) / 62,060 = 163,188 / 62,060 = 2.6295
2020: (321,195 - 93,404) / 93,404 = 2.43877
Above are the Current Ratios for two years. The ratios are greater than 1, which means they have more Current Assets than Current Liabilities, so liquid enough to meet all short-term obligations. The Solvency ratios look at how much the company is using debt and one common one is the Debt-to-
Equity ratio. So here our Liabilities (debt) is over 2 times bigger than our Equity, so that is a fair amount of debt. It is best to have more equity than debt, however, some debt is fine but too much makes a company riskier.
A risk-averse investor, an aggressive investor, a broker is all great candidate to invest in Amazon. This investment is a solid choice for aggressive investor because it allows higher returns for taking big risks. A aggressive investor in Amazon is willing to accept phases of severe market volatility.
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