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Kaley Gill
ACCT 1120
Dec. 9 2016
Financial Statement Analysis: Amazon.com
Introduction:
Below is the financial Analysis of Amazon.com comparing the year 2012 with past years.
We analyzed Amazons ability to pay current asses, efficiently use assets, ability to pay long term
debt, profitability, and evaluating stock as an investment.
Ability to pay current Liabilities:
The first analysis was Amazon's ability to pay current Liabilities. This is determined
using Working capital, Current Ratio, Cash Ratio and Acid-test ratio. The ratios for Amazon.com
and the industry average are shown in Table 1.1. Working capital measures a companies ability to
meet short-term obligations, Amazon has a positive working capital which shows the company
has more assets than liabilities. The three additional ratios determine how well the company can
pay off its liabilities.
To start off, we will address Amazon's Current Ratio. The Current ratio measures a
company's ability to pay current liabilities from current assets. Amazon has a current ratio of
1.12 for 2012 and 1.17 for 2016. If you compare this to the industry average of 1.54, Amazon is
below average. Amazon has a weak current Ratio which shows the company is not liquid enough
and not using its assets effectively.
The second ratio used is the Cash ratio. The Cash Ratio measures a company's ability to
pay current liabilities from cash and cash equivalents. Amazon had a Cash Ratio of 0.42 for 2012
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and 0.35 for 2011. These ratios signify that company is using its cash effectively since it is not
above 1.0 and that it is not significantly low.
The third ratio used is the Acid-Test Ratio. The Acid-test ratio determines if a company
can pay its current liabilities is they came due immediately. Amazon had an acid-test reatio of
0.78 for 2012 and 0.82 for 2011. Amazon's Acid-test ratio decreased during 2012 and is below
the average. This shows Amazons capability of paying debt is decreasing and is lower than their
competitors.
Table 1.1
Current Ratio
Acid Test
Working Capital
Cash Ratio
2012
1.12
0.78
2,294m
0.42
2011
1.17
0.82
2594m
0.35
Industry Average
1.54
1:82
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sales in inventory ratio. Amazon only holds its inventory for 44 days compared to the industry
average of 75 days. Which means it is able to sell its inventory quicker than its competitors.
The Third Ratio used is Gross Profit Percentage. This ratio measures the profitability of
each net sales dollar above the cost of goods sold. It reflects a businesses ability to earn a profit
on Merchandise inventory. The increase in the gross profit percentage is a good sign but it is still
lower than the industry average. This shows that Amazon needs to lower its cost of inventory and
increase its selling price.
The fourth ratio used is Accounts receivable turnover ratio. The AR Turnover ratio
measures the number of times the company collects the average receivables in a year. The higher
the ratio, the faster the company collects cash. Although Amazons ratio has decreased, it is
double the amount of the industry average. Amazon AR turnover ratio of 20.59 times a year
indicates that Amazon's credit is too high and can cause a loss of sales.
The fifth Ratio used is Days' Sales in Receivables. The Days' sales in receivables
determines how many days it takes to collect the average level of receivables. Amazon has a
ratio of 17.7 in 2012 and 15.8 in 2011. This is significantly lower than the industry average. This
ratio indicates that Amazon takes less time to collect receivables than its competitors.
Overall Amazon performs better than its competitors in this category. On average,
Amazon only holds its inventory for 44 days and collects its receivables quite quickly compared
to to the industry average of 75 days. Despite this ability, Amazon does have a lower Gross profit
Percentage which indicates that Amazon makes less gross profit than its competitors do, which
contributes to the higher AR turnover ratio of 20.59 times.
Table 2.1
Inventory turnover
Days' Sales in Inventory
Gross Profit Percentage
2012
8.3
43.98
24%
2011
9.1
40.11
22%
Industry Average
4.8
75.42
33.55%
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Accounts Receivable Turnover Ratio
Days' Sales in Receivables
20.59 times
17.7
23.13 Times
15.8
10.11 Times
36.11 Days
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Table 3.1
Debt Ratio
Times-Interest-Earned Ratio
Debt to Equity Ratio
2012
75%
5.23
297%
2011
69%
15.18
226%
Industry Average
34%
5.33 times
52%
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The final two ratios are Rate of return on Common Stockholders equity (Return on
equity) and Earnings per share. Return on equity shows how much income is earned for each
dollar invested by common shareholders. Amazons decrease to 0.49% indicated that the
difference between borrowing money and investing the money is too extreme. They are losing a
profit and doing worse than the industry average. This shows the company is earning less income
on borrowed money than its competitors.
Earnings per share, on the other hand, reports the amount of net income (Loss) for each
share of Amazon's outstanding Common stock. As shown in Table 4.1, this has significantly
dropped since 2011. The ratio of 0.09 indicates that Amazon needs to increase its net income so
it can remain competitive.
Currently Amazon is losing money on outstanding common stock. They are below
average with earning a profit. This can be from too many expenses .. Despite this, Amazon does
have a high Asset Turnover ratio, which shows the company has no problem earning more
revenue from assets.
Table 4.1
2012
2011
Industry
Average
2.87%
4.76%
1.66 Times
11.39%
-0.06%
0.45%
2.11 Times
-0.49%
1.31%
3.16%
2.18 Times
8.63%
Equity
Earnings per Share
Evaluating Stock as an Investment:
-0.09
1.39
The Final Analysis is Evaluating Amazon's Stock as an Investment. This is done by using
by using the Price/Earnings Ratio, Dividend yield, and Dividend Payout. Although Amazon has a
negative Price-earnings ratio due to a net loss, Investors are still willing to pay more for
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Amazon's stock. Which means they see hope hop in Amazon that the company will succeed.
There is no Dividend yield or Divended payout ratios because the did not pay dividends.
Table 5.1
Price/Earning Ratio
Dividend Yield
Dividend Payout
Conclusion:
2012
2011
-2854.70
N/A
N/A
131.37
N/A
N/A
Industry Average
47.17
Comparing Amazon with the industry average and previous year we can see they sell plenty of
inventory and is capable of making plenty of revenue but they struggle with expenses and debt.
Amazon has too much debt and not enough income to cover its expenses. Despite these struggles
and the net loss in 2012, Investors still invest in the company. Therefore increasing revenue. All
Amazon needs to do is manage its expenses and needs to manage its inventory to bring in a
profit.
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Works Cited
LLC, A. S. (1996-2014). Annual Reports and Proxies. Retrieved December 5, 2016, from
Amazon.com: http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsAnnual
Tracie Nobles, B. M. (2016). Horngren's Accounting: The Financial Chapters (Common ed.).
New Jersey: Pearson Education, Inc