Kelsey Delgado

ACCT 1120-400
Financial Analysis Part II
Financial Analysis Amazon
The purpose of this financial analysis is to evaluate Amazons business
value based on the following five criteria: profitability, efficiency in their use
of assets, their ability to pay current liabilities, their ability to pay long-term
debt, and the value of their stock as an investment. This analysis takes into
account the financial statements for both 2011 and 2012 and compares
these against the online retail sales industry averages.
Profitability:
Ratio

Ratio Description

Amazo
n 2012

Amazo
n 2011

Profit Margin
Ratio

How much net income is

earned on every dollar of
net sales
The success a company has
in using its assets to earn
income
The relationship between
net income available to
common stockholders and
their average common
equity invested in the
company
Amount of a companys net
income (loss) for each
share of its outstanding
stock
The profitability of each
sales dollar above the cost
of goods sold

-0.06%

1.31%

Industr
y
Average
2.87%

0.18%

3.16%

4.76%

-0.49%

8.63%

11.39%

-0.09

1.39

Not
Available

24%

22%

33.55%

Rate of
Return on
Total Assets
Rate of
Return on
Common
Stockholders
Equity
Earnings Per
Share

Gross Profit
Percentage

When comparing Amazons profitability for both 2011 and 2012 the
numbers come in well below the industry averages. Amazons profit margin
for 2011 was 1.31% and then dropped down to -0.06% in 2012 meaning that
in 2012 Amazon was losing money overall on their sales whereas the
industry average was a profit of 2.87%. In regards to Amazons ability to earn
income using their assets, they had a success rate of 3.16% in 2011 which
then fell to 0.18% in 2012, which tells us that Amazon was not very efficient
at producing income using their assets. The rate of return to stockholders
also fell from 2011 to 2012 with the returns being 8.63% and -0.49%
respectively. Indicating that stockholders were losing money in the year
2012. This conclusion is also supported by the looking at Amazons earnings
per share for these years. In 2011 stockholders were earning $1.39 per share
then in 2012 they began losing $0.09 per share. Gross profit however, did
experience and increase from 2011 to 2012 going from 22% up to 24%.
Though these percentages are still well below the industry average of
33.55% this does indicate some improvement in regards to Amazons overall
profitability.
Efficiency in use of Assets:
Ratio

Ratio Description

Amazo
n 2012

Amazo
n 2011

Asset
Turnover
Ratio
Inventory
Turnover
Ratio

How efficiently a business

uses its average total
assets to generate sales
The number of times a
company sells its average
level of merchandise

2.11
Times

2.18
Times

Industr
y
Average
1.66
Times

8.34
Times

9.10
Times

4.8
Times

Days Sales
in Inventory
Accounts
Receivable
Turnover
Ratio
Days Sales
in
Receivables

inventory during a period

The average number of
days that inventory is held
by a company
The number of times the
company collects the
average receivables
balance in a year
The number of days sales
it takes to collect the
average level of receivables

43.76
Days

40.11
Days

75.42
Days

20.59
Times

23.13
Times

10.11
Times

17.7
Days

15.8
Days

36.11
Days

To determine Amazons efficiency in their use of assets we compare 5

ratios: the asset turnover ratio which tells us how efficiently a business uses
its assets to generate sales, the inventory turnover ratio with tells us the
number of times a company sells its inventory during a set period, the days
sales in inventory which tells us the average number of days that inventory
is held by the company, the account receivable turnover ratio which tells us
the number of times a company is able to collect their average receivables in
a year, and finally the days sales in receivables which tells us the number of
days sales it takes to collect the average level of receivables. Amazon
comes in very strong in all five of these categories. Amazon turns over their
assets and inventory nearly twice as much as the industry averages, which is
supported by the fact that they hold their inventory for nearly half the
amount of time as the industry average. Amazon is also able to collect their
receivables at a rate over double the industry average.
Ability to Pay Current Liabilities:
Ratio

Ratio Description

Amazo
n 2012

Amazo
n 2011

Industr
y

Working
Capital
Current Ratio

Cash Ratio

Acid Test
Ratio

A businesss ability to meet

its short-term obligations
with its current assets
The companys ability to
pay current liabilities from
current assets
The companys ability to
pay current liabilities from
cash and cash equivalents
The companys ability to
pay all its current liabilities
if they came due
immediately

2294

2594

Average
Not
Available

1.12:1

1.17:1

1.54:1

42.5%

35.4%

Not
Available

0.78

0.82

1:82

Based on the ratios above we can determine that Amazon does have a
strong ability to pay their current liabilities. Amazon is close to the industry
averages provided for their ability to pay current liabilities from current
assets as well their ability to pay all the current liabilities if they came due
immediately. In addition Amazons working capital and the cash ratio (which
determines the companys ability to pay current liabilities from cash and
cash equivalents) suggest a strong ability to pay those current liabilities
throughout 2011 and 2012.
Ability to Pay Long-Term Debt:
Ratio

Ratio Description

Amazo
n 2012

Amazo
n 2011

Debt Ratio

The proportion of assets

financed with debt
The proportion of total
liabilities relative to total
equity
A businesss ability to pay
interest expense

74.8%

69.3%

Industr
y
Average
34%

297%

226%

52%

5.23
Times

15.18
Times

5.33
Times

Debt to
Equity Ratio
Times
Interest

Earned Ratio
When evaluating Amazons ability to pay their long-term debts we
compare 3 criteria: their debt ratio or the proportion of their assets which
have been financed with debt, their debt to equity ratio which gives us the
percentage of debts (or liabilities) in comparison to their equity, and finally
the times-interest-earned ratio which tells us the ability a business has to
pay their interest expense. When looking at these numbers for Amazon we
see a large percentage of assets financed with debt: 69.3% in 2011 then up
to 74.8% in 2012 both of which are more than double the industry average of
34%. Amazons percentage of debt in comparison to their equity is nearly 4
times the industry average with 226% in 2011 and 297% in 2012. We did
however, see improvement with Amazons ability to pay their interest
expenses from 2011 or 2012. Having earned interest 15.18 times in 2011
and only 5.23 times in 2012 which actually fell below the industry average of
5.33.
Stock as an Investment:
Ratio

Ratio Description

Amazo
n 2012

Amazo
n 2011

Price/Earning
s Ratio

The value the stock market

places on $1 of a
companys earnings
The percentage of a stocks
market value that is
returned annually as
dividends to stockholders
Ratio of dividends declared
per common share relative

-0.56

3.60

N/A

N/A

Not
Available

N/A

N/A

Not
Available

Dividend
Yield

Dividend
Payout

Industr
y
Average
47.17

to the earning per share of

the company
As far as Amazons stock in terms of an investment goes, their stock
would not hold much if any returns for the investor. The stock market values
given to each dollar of Amazons earning in 2011 and 2012 were 3.60 and
-0.56 dramatically lower than the industry average of 47.17. As for the return
to the investor, Amazon neither declared nor paid dividends in 2011 or 2012
which tells us that there was no return on investment. These facts into
account, Amazon stock does not appear to be a profitable investment.
In conclusion Amazons financial statements reflect weakness in
regards to profitability, their ability to pay long-term liabilities, as well as in
regards to their stock as an investment for 2011 and 2012. However, their
financial statements reflect strength in regards to their efficiency in use of
assets and their abilities to pay current liabilities for 2011 and 2012.