Introduction
The paper is being written with the objective of conducting the financial analysis of Amazon Inc. of past three years using the tool of ratio analysis. For this very purpose, the participants will be using the financial statements of the company for the year 2011, 2012 and 2013, while the report will be concluded with the critical analysis of the trend in the ratios observed. They are sure that by the end of this report, we will be having comprehensive overview of the financial performance of the company. Today it is the largest internet based company in the United States.
About the company
Amazon Inc. is the US based e-commerce company and is headquartered in Seattle, Washington. The company initiated their operations in 1994 as an online book retailer but soon diversified its offerings to DVD/Cd’s, Software, Video Games, Apparels and a lot more. At present the company, the company offers more than 30 Million Products on its website.
Summary of operations
Below summarized are the line items of the income statement of Amazon Inc. for past three years
a)Net revenue:
b)Gross Profit:
c)Operating Margin:
d)Earnings before tax:
e) Net Income:
f)Brief interpretation of the summary of operations:
Referring to the above financial numbers, the participants can infer that over the years, the financial performance of the company has been on declining trend. Undoubtedly, the revenue figures and the gross margins of the company are increasing steadily but courtesy increased financing costs and operating expenses, the profit margins are substantially low than what they were in 2011. For Instance, during 2011, the net income of the company was $631 Million that reduced significantly to $274 Million during 2013, while a loss of $39 Million was reported during 2012.
Summary of Financial Position
a)Working Capital
2011: ($17490000-14896000)= $2594000
2012: ($21296000-19002000)= $2294000
2013: ($24625000-22980000)= $1645000
b)Net Property, Plant and Equipment
c) Total Assets
d) Total Non-Current Assets
e)Shareholder Equity
f) Brief interpretation of Financial Position
Noted from the above financial numbers, the participants can infer that while the working capital position of the company is significantly reducing year-by-year indicating towards liquidity concerns for the company(to be detailed in the liquidity ratio analysis), the asset base of the company is turning out to be bigger with total asset base of $4059 Million as of 2013. Interestingly, the proportion of equity in the capital structure of the company is also increasing indicating towards higher dilution of ownership, the effects of which will be detailed in the profitability ratio analysis.
Ratio Analysis
In this section, the participants, in order to unearth the financial position of the company, will calculate the ratios of the company for past three financial years. Since it is not appropriate to lay our decision on just one set of ratios, we will perform the analysis using the following set of ratios:
- Liquidity Ratios
- Profitability Ratios
- Efficiency Ratios
- Leverage Ratios
a)Liquidity Ratios(refer to excel sheet for calculations)
i)Current Ratio: Current Asset/ Current Liabilities
ii)Quick Ratio: (Cash +Receivables)/ Current liabilities
b)Profitability Ratios(refer to excel sheet for calculations)
i)Net Profit margin: Net Income/ Revenue
ii) Return on Equity: Net Income/ Total Shareholder Equity
c)Efficiency Ratios(refer to excel sheet for calculations)
i)Inventory Turnover Ratio: COGS/ Average Inventory
d)Leverage Analysis(refer to excel sheet for calculations)
i)Debt-Equity Ratio: Debt/ Equity
ii)Interest Coverage Ratio: Operating Income/ Interest Expenses
3-Year Trend Analysis
a) Comparison with Competitors
i)Liquidity Comparison
-Current Ratio
-Quick Ratio
ii)Profitability Comparison
-Net Margin Ratio
-Return on Equity
iii)Leverage Comparison
-Debt-Equity Ratio
-Interest Coverage Ratio
b) Trend Analysis
Noted from the above ratios, participants can infer that Amazon Inc. although had improved performance in comparison to 2012, but overall the financial performance has not been very encouraging as compared to 2011. For Instance, consistent decline in the liquidity ratios of the company indicates that the company will soon have to consider its working capital position else be ready for some unwanted situations.
As for Profitability, they witnessed that the net margins of the company improved from -0.06% in 2012 to 0.37% in 2013. However, this was not at all encouraging considering profit percentage of 1.31 in 2011. Even the shareholders of the company will not be happy to witness consistent decline in ROE multiple from 8.63% in 2011 to 3.06% in 2013.
Another major concern comes from Leverage and Efficiency Analysis. As for Debt-Equity Ratio, over the years the company has significantly increased their reliance on debt financing with ratio multiple increasing from 0.032 in 2011 to 0.327 in 2013. However, in the environment of high debt financing , the declining interest coverage ratio from 13.26 in 2011 to 5.28 in 2013, surely raises the concerns of the participants. Similar trend was witnessed in inventory turnover ratio, where the declining ratio multiple indicates that it takes more time for the company to process and sell their inventory and hence, capital is tied up for a long period of time.
Works Cited
Amazon Inc. (2013). Annaul Report 2013. Seatttle: Amazon Inc.
Amazon Inc- Balance Sheet. (n.d.). Retrieved November 23, 2014, from Yahoo Finance: https://in.finance.yahoo.com/q/bs?s=AMZN&annual
Amazon Inc- Income Statement. (n.d.). Retrieved November 23, 2014, from Yahoo Finance: https://in.finance.yahoo.com/q/is?s=AMZN&annual
Autozone Inc. (n.d.). Retrieved November 23, 2014, from Morningstar: http://financials.morningstar.com/ratios/r.html?t=AZO®ion=usa&culture=en-US
EBAY Inc. (n.d.). Retrieved November 23, 2014, from Morningstar: http://financials.morningstar.com/ratios/r.html?t=EBAY®ion=usa&culture=en-US
Appendix:
Amazon Inc Income Statement
Amazon Inc. Balance Sheet
Ebay Inc Income Statement
Autozone Income Statement
