Amazon Financial Final P.

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Amazon Financial statement analysis Addriann Huie Southern New Hampshire University Dr. Weiss February 8, 2023

Executive Summary Amazon has become a dominant force in the e-commerce marketplace and exists in over 50 countries worldwide. There are hundreds of Amazon warehouses in other countries worldwide, with Amazon goods waiting to be shipped. It is estimated that approximately 2.7 billion people shop on Amazon. It is reported that shoppers have largely upped their shopping on Amazon in recent years due to the pandemic. Amazon is one of the biggest retailers of food, e-Commerce, electronics, and clothing retailers, Home and Garden, and shoes to name a few. In this market of e-commerce division, some of Amazon's competitors are Target, Walmart, Home improvement stores, Clothing retailers, and Grocery stores, as well as many others. However, recent trends show that Amazon has lost momentum due to more people wanting to shop in-store after being home for so long. Another factor that is starting to affect amazon is inflation. People need more room in their budget for luxury or random purchases as they once did, showing a slower revenue stream than in previous quarters on their financial statements. As we analyze Amazon's financial statements, we should keep these factors that are taking place in the economy in mind. Because of this, the financial statements are limited in showing these changes in the economy. A financial statement can give the investor or analyst an idea of the past and the present and can help to project what the company will do in the future. Using these statements can determine if the company has enough liquidity, how efficiently it manages its cash, and what its assets and liabilities are. Amazon has shown that it is a safe stock for investors due to its substantial returns. Analysis Approach In starting the analysis of this company, the first breakdown was vertical and horizontal analysis. Horizontal analysis can help you compare a company's current financial status to its past, while vertical analysis can help you compare one company's financial status to another. After this, we looked at the company's ratio, and equity helps to build a better financial picture. Finally, we can look

at the company's liquidity. A company needs to be able to pay any loans that come with dew. Knowing the company's liquidity and ratio will help you project if they can pay these if they come due. Key Ratios Evaluating a company's assets can help an individual or company decide. These decisions can be made based on the company's financial data. One would need to look at the company's financial statements for this information. To know how the company is doing, finding specific ratios will help you determine the health of the company. Factoring in components such as debt, liquidity, profitability, and cash flow will help answer several questions for investors. This information will be based on past and present financial statements (balance, cash flow, and income). A company needs to make a profit to continue running. Having profit ensures they can pay their debt as the debt comes due. Profitability evaluates how a company can generate revenue beyond its expenses. Financial analysts use specific ratios to determine how the company's profits are doing. They use profit margin, return on asset, and return on equity to look at the percentages and determine if the company should make changes or if you should invest. Amazon's profit ratios for the past three years have all been positive and growing. If the trend stays the same, it will continue to rise. Liquidity shows the company's ability to pay its debt. The higher the ratio, the larger the safety net the company must cover its short-term debt. Under liquidity, you calculate the current ratio and quick ratio. Amazon's current ratio is over a one, but its quick ratio is at 0.91, showing that it may not have enough liquidity to pay off its debt if the short-term liabilities come due. As of 2021, amazon was 48,744,000 in debt. This is a 52% percent increase from 2020, when they only had 31,816,000 in debt, a 36% increase from the year before. This show that Amazon has more than doubled its debt from 2019, when it sat 23,414,000. Long-term debt equity tells the analyst how much loans finance a company's assets. To calculate, divide long-term by equity, giving Amazon 0.35.

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This means that amazons EBIT can cover its payments. Amazon's total equity is also the same. However, Amazon's interest coverage has increased over the years, having a significant range from 6 to 18%. I would change management procedures to slow down the amount of debt the company is taking on. As amazon operates, it must determine its asset turnover to determine the ratio to how fast the company assets are turning over and how they are distributing its resources. Amazon's asset turnover ratio is 1.2, which is lower than its previous years on average. But because the ratio is over one, we know the company can bring in revenue. Because Amazon is an e-commerce company, Cathey must follow the demand of what people need. Their inventory turnover rate is right within industry standard guidelines. Cash flow ratios isolate how cash flow is used to increase or generate income and profit for the company. However, Amazon does not pay out a dividend, so this ratio isn't used for the company. Amazon chooses to use this cash to invest back into the company. Price book value looks at a company's stock price. Some investors will use this to determine if the company's stock is accurately valued. If the stock price is in the range, it shows that it is valued in line with the company price. Amazon's book value is above what the industry views as favorable. I would wait to purchase this stock as the stock price continues to fall. Amazon's price-to-sales ratio is above one, which shows that the industry is willing to pay. However, this ratio doesn't show whether the company has made or will ever profit. Vertical and Horizontal Analysis As an analyst, you must review the financial statements of the company. In this deep dive, we will primarily review the balance and income statements. The income statement shows the company, analyst, shareholder, or everyday investor at home what the company has brought and what they spent. By looking at the revenue expenses and the business's profitability, you can break down the profit and

loss during a given period. And how the business is doing with selling a given product over the past year(s). Looking at the balance sheet, we will assess the company's expenditure. We can see how the company is doing by looking at the liabilities, assets, and equity. The balance sheet can help others assess if the company can pay its bills and borrowing capabilities and evaluate its assets. As we look at these statements, we will use horizontal and vertical analysis to project what may happen in the future. To do this, we will look back on the past three years to understand what is happening with the company's financials. By doing so, we can tell if the company is in good health and if you should consider investing. Looking at the vertical analysis of the income statement, what jumps out to me about the last three years of Amazon's financial is that only 10.29% of operating income comes from net sales. However, in the prior year, we see that 10.61% of operating income came from net sales. We also see that the cost of operation and expenses is over the total net. We can see that the operating cost has been higher for all three years. When looking at the balance statement with the vertical analysis, inventories take up a large percentage of cash. Following, we can see that the company purchased or acquired a company giving a large percentage to goodwill. This is a long-term asset; its total value won't count for the financial year. I believe that amazon's yearly revenue has also continued to increase. From 2019 to 2020, we can see a sharp rise once the pandemic hits. The company was able to continue revenue growth in the next twelve months. However, they could only lower the cost with their rise in sales. Its net profit margin is at 7%, while its operating profit margin is at 5.3. Looking at Amazon's horizontal analysis on the income statement, we can see that Amazon's revenue was 469,822, a rise of 21 .7% from 2020. The rise in revenue for amazon is a great thing. This allows Amazon to maintain its growing marketing budget. As amazon continues to ramp up its marketing expenses, they have risen by 16594000. This is a 28% rise in customer acquisition. Currently, Amazon is financing its operation by external liabilities that have risen over 53%, causing the business to be heavy in liabilities.

Amazon's quick ratio is .90, which compares its ability to pay its debt as they come due. The higher the quick ratio, the bigger the safety net the company must cover short-term liabilities. Looking at years prior, the ratio was .83 year over year. Noting that the industry standard states that anything under one means the company can only partially pay back its debt because of its lack of liquidity. However, even though the company hasn't met the standard, they are closer than prior years since revenue has increased from prior years. The current ratio measures the ability to pay current liabilities with current assets. Amazon's current ratio is 1.13; this is found by subtracting current assets from inventory divided by current liabilities. This number reflects a better possibility that amazon will pay its debt. On the income statements, total net sales have increased over the past three years, starting in 2019. In contrast, there has also been an increase in the cost of sales and operating expenses. However, income from operating decreased from 10.61% to 10.29. Amazon's finances are up and down. This is due to the balancing out of the aftereffects of the pandemic. People are spending less due to inflation, and Amazon is spending more to acquire them. They have steadily been adding more liabilities, and if these short-term liabilities come due, they may need help to pay them. However, they have made billions, and the current ratio shows they are in a good position. Potential company investors want to look over amazon's financials with vertical and horizontal analysis. Stockholders' equity on the balance sheet shows that the company has increased its equity for the past three years from 29% up to 33% from 2020 to 2021. A return of over 30% is in the stockholder's favor. As an investor looking at Amazon as a potential investor, I deem amazon as a moderate risk at this point. If they continue to add on debt and slow earnings, it will get more challenging for them to pay their liabilities' making potential investors weary. Also, looking at amazon's stock, I see that it has steadily been falling over the past year. From a high of 168 to the low of today at 97 dollars. With Amazon moving into many other areas, this may be a great time to purchase stocks at a lower-than-normal price. Benchmarking

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Benchmarking is primarily a ratio analysis of one company compared to the same ratios to one or more other companies. This is held against an industry standard. Evaluating your company's performance against a similar company can help you reflect on what the company needs to keep the same or change due to low performance. As a company grows, knowing where the industry standard is can help a company know when to adjust if they are falling below profit standards. Benchmarking can improve a company's ability to correct issues with customer satisfaction and internal progress as it is ranked against its competitors. By comparing a company's financial balance sheet, you can assess the wins and losses on a quarterly or annual basis. When analyzing the balance sheet, you can gather the company's assets, liquidity, and equity. This snapshot, however, cannot tell you about the growth over time. I would use this in conjunction with the company's income statement. To be able to implement a standard of analyzing sales. However, keep in mind that the number gives a company a partial picture of how the company is getting these results and what the culture is. Amazon has many competitors because it has many ways to bring in income to its company, from e-commerce that covers various products. Amazon also has brick and motor stores that put them in direct competition with other leading brands. Because of this, Amazon's competitors are Target, Walmart, Best Buy, Netflix, etc. These companies have both online and brick motor businesses. For amazon to be able to figure out how it's doing against others, it would have to compare its competitor's financial statements. By doing so, they can see where they may be losing acquisitions of customers, add more products and close the gap where they may need to catch up. Walmart is one of Amazon's leading competitors. Looking at Walmart's income statement, balance statements, and ratios can help amazon gauge whether any of Walmart's improvements have been reflected in their financial statements leading Amazon to make similar or better changes. Comparing Walmart and Amazon from the most recent balance statement (Oct 2022 and Sep 2022) Amazon has more total assets than Walmart. But Walmart has less Total debt than Amazon (65 to 144). The income statement had total revenue of 469 B, and Walmart's total revenue was 572 B. Walmart and Amazon have a quick ratio of 0.2266 and 0.6755. Amazon is closer to the industry standard in the

ability to liquidate. The current ratio for both also falls below the industry standard (0.8646 and 0.6755) of 1. Walmart has had an increase in ROI since 2020. In contrast, amazon's ROI has decreased by over 5% during the same time. This may be due to rising interest rates and inflation leveling its ROI. Overall, benchmarking gives you a clear picture of both companies. Seeing where one company is financing its operation with more than the other and that one business doesn't have as much liquidity as the other can draw a financial picture that one company is leveraging more than the other. However, Amazon has made many steps with its leveraging to step into other sectors that could help. Because both Amazon and Walmart are openly traded companies on the stock market, they are bound by GAAP (Generally Accepted Account Principals) and SOX (Sarbanes Oxley Act) to follow certain practices to ensure consistent reports across all sectors of financial reporting. These companies are being forthright with their earnings. These earnings can be substantiated to ensure that the reporting is credible. Being ethical in running and reporting the business will ensure stakeholders and consumers can trust the company, building a solid relationship based on ethical behaviors. As Amazon and Walmart continue to be forthright in their reporting, they must report wrongdoing that they have found, any cases against them, and any liabilities that are due. Being ethical and open will maintain trust within the industry and with consumers. Conclusion Looking at Amazon as a broad company, they have an excellent foundation that investors can trust. Because Amazon built slowly, learning the foundation of an e-commerce company, they have been able to lock in their core audience of who they see as their core consumer base. Looking at the company over several years of growth, they have steadily invested in it, which has allowed growth in many sectors. As their performance fluctuates, they have shown they can adjust. As Amazon continues to have good returns on operating cost margins, gross profit margins, and ROI, I would say amazon is a secure investment. Their ability to liquidate assets to pay short-term liabilities

can be met, and they substantially increase revenue yearly. As Amazon continues, they need to follow ethical and legal standards to ensure that the company doesn't violate industry standards. In 2003 Amazon was sued for making inflationary statements to inflate their stock price. The company wasn't fined and never admitted guilt. However, they have had this issue since then. Amazon's financial statement meets industry standards. They have made all their financial statements public because of this. Investors can conclude whether they should invest in the company based on the financial reports. However, many don't. Overall, as Amazon make changes some corrective actions, they should consider are workplace treatment. This sector will continue to lose Amazon money due to a high turnover rate. As Amazon continues to stretch their workforce thin, they continue to develop ethical issues with treatment versus productivity in the workplace. If Amazon can't treat their workforce ethically and deliver on their two- day shipping, that will begin to damage the footing that they once had.

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Reference: Amazon. (n.d.). Mergentonline.com. Retrieved January 12, 2023, from https://mergentonline.com/ Block, S. B., Hirt, G. A., & Danielsen, B. R. (2019). Foundations of Financial Management . McGraw- Hill Education. Ouchi, M. S. (2005, March 11). Amazon settles securities lawsuit for $27. 5 million . The Seattle Times. Retrieved February 15, 2023, from Walmart (n.d.). Mergentonline.com. Retrieved January 12, 2023, from https://mergentonline.com/