Company Analysis – Amazon.com Inc

Company’s Background

An international technology business headquartered in Seattle, Washington, is Amazon.com Inc., or simply Amazon. Amazon is one of the world’s most prominent and influential businesses, it engages in various commercial activities, including e-commerce, cloud computing, digital streaming, artificial intelligence, and other areas. In 1994, Jeff Bezos created the business, which operated as an online bookstore (Sandeep & Pohutezhini, 2019). Since then, Amazon has grown remarkably and entered several new markets, altering the retail environment and transforming consumer experiences.

On July 5, 1994, Amazon.com made its debut as an online book retailer. Former Wall Street hedge fund executive Jeff Bezos saw the promise of the Internet and saw a chance to create a company that could sell a variety of goods online (Noe & Weber, 2019). Books were the first product category Bezos picked because of their widespread appeal and affordable delivery. Amazon encountered several difficulties in its early years, such as intense rivalry and doubts about the future of online shopping. However, the business persisted because it concentrated on client pleasure, used technology, and consistently increased its product range. Amazon swiftly expanded beyond books by adding music, electronics, and other consumer products to its inventory.

Amazon launched an ambitious growth plan as it gained popularity and solidified its reputation as a reliable online store. In order to provide clients with greater convenience, choice, and value, the firm took advantage of new e-commerce prospects and continuously improved its platform. Amazon created its cloud computing subsidiary, Amazon Web Services (AWS), in 2002 (Sandeep & Pohutezhini, 2019). When it started offering scalable computing power, storage, and other services to people, companies, and governments worldwide, AWS soon established itself as a substantial income generator for the corporation. Amazon is now a pioneer in the cloud computing sector because of AWS’s success.

Additionally, Amazon has made wise investments and acquisitions to support its expansion and diversify its line of business. Some notable acquisitions include the 2009 purchases of the online shoe shop Zappos, the 2014 purchase of Twitch video game streaming service, and the 2017 acquisition of the upscale supermarket chain Whole Foods Market (Wells, Danskin & Ellsworth, 2018). These purchases increased Amazon’s market reach and allowed it to use its infrastructure and logistics expertise to improve consumer experiences.

Recent Company Performance

Over the years, Amazon’s financial success has been excellent. The business has continually seen a tremendous increase in its revenue. Amazon announced net revenues of $386 billion in 2020, a considerable improvement over the prior year. Because more people turned to online purchasing during the COVID-19 epidemic, there was a rise in demand for e-commerce services, leading to this boom. Although Amazon has generally prioritized investing in growth possibilities more than maximizing short-term earnings, the company’s operating income has also exhibited encouraging patterns (Noe & Weber, 2019). In order to increase profitability, the firm has made large expenditures in technological development, acquisitions, and infrastructure expansion for fulfillment.

In addition, with a sizable portion of all online retail sales worldwide, Amazon still dominates the e-commerce industry. The business’s broad product offering, affordable prices, and adequate delivery infrastructure have helped it to hold the top spot in the market. With the backing of programs like Amazon Prime, Amazon’s dedication to simplicity and the customer experience has helped it establish itself as the top option for online customers (Wells, Danskin & Ellsworth, 2018). Also, Amazon’s expansion has been significantly aided by AWS. The cloud computing segment constantly produces significant income and has a market share. Businesses, governments, and people may grow their operations and use cutting-edge computing resources with the help of AWS, which offers various cloud services. AWS’s growth has been spurred by the continued movement of organizations to the cloud and the rising demand for cloud computing.

Moreover, Amazon has continued to invest in several different sectors to diversify its company and enter new markets. The business has partnered with companies and undertaken acquisitions to increase its position in markets including entertainment (by purchasing MGM Studios), healthcare (by purchasing Pill Pack), and innovative home technologies (by purchasing Ring). By making these tactical choices, Amazon hopes to strengthen its ecosystem, increase consumer engagement, and capitalize on new trends.

Financial Analysis

Overall Financials

Despite variations in growth rates, operating cash flow has increased over time. It rose from $5.5 billion in 2013 to $46.6 billion in 2022. With significant gains in specific years (such as 2016 2020) and small drops in others (such as 2021), operating cash flow growth fluctuated. Operating cash flow shows how well the business can produce cash from its key activities. To support its commercial expansion, Amazon has constantly made significant capital investments in building up its infrastructure for fulfillment and developing new technology. The negative investing cash flow shows that Amazon has invested a substantial amount of cash.

Amazon has used debt as a source of funding, with varying amounts issued and repaid over time. The firm did not participate in any sizable share issue or buyback actions during the investigated period. The fact that Amazon has a positive net cash flow shows its solid financial position and the capacity to make money. However, there were a few years with negative net cash flow, mainly due to substantial investments in acquisitions and capital expenditures. The capacity to create cash after considering the requirement for capital expenditures is shown by Amazon’s free cash flow, which has been positive for the majority of years. Over time, free cash flow has increased, but with varying growth rates and sporadic declines.

Therefore, the financial data above shows that Amazon has significant cash production capabilities, supported by its core activities and investments. The corporation continually reinvests its cash flow into acquisitions, expansion initiatives, and capital projects. It is crucial to remember that the study is based on historical data and does not account for Amazon.com Inc.’s most recent financial results. Consult the company’s most recent financial reports and statements for an up-to-date and complete analysis.

Profitability Ratios

Over time, Amazon’s gross margin has typically increased, demonstrating the company’s capacity to profit from its sales after deducting the direct expenses of items sold. As a result of enhanced productivity and cost control, the gross margin climbed from 27.23% in 2013 to 43.81% in 2022. Over the years, Amazon’s operating margin has fluctuated, with varied growth rates and sporadic dips. The margin fluctuated between 2.09% in 2015 and 5.93% in 2020, demonstrating the company’s capacity to profit from its activities but with varying degrees of profitability.

The profit margin for Amazon has likewise fluctuated, with varied growth rates and sporadic declines. The margin fluctuated over time, going from -0.53% in 2022 to 7.10% in 2021, showing that the company’s net income as a proportion of revenue changed. Despite some swings, Amazon’s free cash flow margin consistently shows positive development, demonstrating the company’s capacity to create cash after considering its capital expenditure requirements. Over time, when tax requirements changed, so did Amazon’s effective tax rate. The rate, which represents the company’s tax payment as a proportion of pre-tax revenue, fluctuated from 10.62% in 2018 to 61.45% in 2015. The favorable growth trend and sporadic swings in Amazon’s EBITDA indicate the company’s potential to make operational profits. As profitability levels changed over time, so did the EBITDA margin. Over the years, Amazon’s EBIT has fluctuated, with varied growth rates and sporadic dips.

Growth Ratios

Over the years, Amazon has consistently increased its revenue, which reflects its growth and expanding market share. Compared to $232.89 billion in 2018, the company’s sales in 2022 were $513.98 billion. The pace of revenue growth has varied, with some years seeing more significant growth rates and others seeing relatively lower growth rates. In 2018, Amazon’s revenue grew by 30.93%; in 2019, it increased by 20.45%; in 2020, 37.62%; in 2021, 21.70%; and in 2022, 9.40%.Additionally, there has been a general upward trend in Amazon’s EPS, showing better profitability over time. The earnings per outstanding share of a company’s stock, or EPS, is calculated. Amazon’s EPS increased significantly from $1.01 in 2018 to $3.24 in 2021. The EPS for 2022, however, has a negative figure of -0.27, suggesting a drop. Additionally, except for the data point 2022, Amazon’s EPS growth has been positive. The company’s EPS increased significantly in several years, including the astounding 228.01% in 2018 and 81.58% in 2020. EPS growth is a crucial indicator to assess a business’s profitability and capacity to provide rising profits for shareholders.

Financial Health

A good liquidity position is demonstrated by the overall upward trend of Amazon’s cash and equivalents and short-term investments. From $12,447 million in 2013 to $70,026 million in 2022, the corporation had cash and equivalents. The cash growth has changed, with swings ranging from -27.09% to 53.39%. The general expansion of the company is reflected in the fact that Amazon’s receivables and inventories have risen over time. In 2022, the organization had $34,405 million in inventories and $42,360 million in receivables.

Amazon’s total assets have steadily increased, from $40,159 million in 2013 to $462,675 million in 2022. In comparison to assets, the company’s liabilities have also grown through time, although more slowly. In 2022, total liabilities were $316,632 million, representing modest debt and commitments. After their obligations, the remaining assets’ remaining value is subtracted, reflected in shareholders’ equity, which also shows the company’s net worth. Equity held by shareholders of Amazon has increased favorably, and as of 2022, it was valued at $146,043 million. With $140,118 million in long-term debt in 2022, the corporation has kept its debt steady.

The fact that Amazon typically has negative net cash shows that it has more debt than cash on hand. Despite changes in growth pace, the corporation has improved its net cash/debt throughout the years. Additionally, working capital has changed, showing positive and negative amounts, representing changes in short-term liquidity. The fact that Amazon’s book value per share has been rising over time shows that the company’s underlying worth and shareholders’ equity have risen.

Efficiency Ratios

Amazon’s DSO ranges from 19.81 days in 2016 to 26.72 days in 2022, remaining largely steady over time. A reduced DSO shows that the business is effective at getting payments from clients, which can benefit cash flow. Amazon’s Days Inventory is declining, which suggests that the corporation is managing its inventory well. The indicator of enhanced inventory turnover reduced from 35.38 days in 2013 to 27.41 days in 2022. Over the years, Amazon’s Days Payables have fluctuated, ranging from 64.46 days in 2019 to 68.39 days in 2021. A greater day’s Payables indicates that the business can control its payables, thus enhancing its cash flow.

Moreover, the overall decline in Amazon’s Receivables Turnover over time suggests a slightly slower pace of collection. From 18.31 in 2013 to 13.66 in 2022, the measure fell. The slight decline in Amazon’s inventory turnover over time suggests a slower pace of inventory turnover. From 10.32 in 2013 to 13.31 in 2022, the measure fell. The overall decline in Amazon’s fixed asset turnover over time suggests a slower rate of fixed asset utilization. From 8.27 in 2013 to 2.19 in 2022, the measure fell. Amazon’s overall asset turnover has declined, which suggests that its total assets are being used less quickly. From 2.05 in 2013 to 1.16 in 2022, the measure fell.

Recent Company Financial Decisions

Over the years, Amazon has consistently shown revenue growth. Revenue for the corporation climbed significantly from $232.89 billion in 2018 to $513.98 billion in 2022, a substantial growth rate. This increase reflects significant market expansion, robust consumer demand, and successful commercial methods employed by Amazon. Amazon’s profitability has fluctuated at times. The profit margin shrank from 7.10% in 2021 to -0.53% in 2022. This drop can be due to a number of things, including rising operational costs, investments in new businesses, or modifications in market dynamics. To thoroughly grasp the variables affecting profitability, it is critical to evaluate the company’s financial reports.

The free cash flow margin shows the company’s capacity to create cash after deducting operating and capital expenses. Amazon’s free cash flow margin has fluctuated somewhat, even turning negative. However, the business has produced positive free cash flow recently, indicating a sound financial position and the possibility for expansion and investment in the future. The amount of Amazon’s long-term debt has risen over time. This can mean that the business has taken on debt to pay for its expansion plans, to fund acquisitions, or to engage in capital-intensive projects. To analyze the risks involved, it is critical to review the company’s approach to managing its debt, interest rates, and ability to repay debt.

Investment Recommendations

Based on the analysis, before investing, investors should first examine the company’s performance, growth potential, and financial health. They should also consider elements including market position, debt levels, cash flow, profitability, and revenue growth. Additionally, they should consider market developments, the company’s competitive edge, and possible threats. Second, the investors are advised to analyze the general market situation and market trends and think about the market’s size, the competition, the legal and political climate, and the possibility for expansion or disruption. They may also assess the company’s potential for the future by being aware of market dynamics. Third, its essential hat an investor analyzes the investment’s risks, considering market turbulence, economic variables, and industry-specific and company-specific risks. Risk can be managed via diversification across several businesses or asset types. Fourthly, they should identify the investment’s inherent worth, and analyze the value of the business in light of its profits, cash flow, and growth possibilities. Consistently, in order to determine if an investment is priced correctly, they may compare the value to competitors in the industry and past performance. Fifthly, it is important for the investors to consider the company’s long-term prospects and capacity to adjust to the changing market trends and look for a solid management team, enduring competitive advantages, and innovative skills. Also, examining the company’s growth plan to see if it is obvious is important. Lastly, an investor should ensure their investment portfolio’s assets, markets, and regions are well-diversified. In the long run, diversification may increase profits and help spread risk.

References

Noe, C., & Weber, J. (2019). Amazon. Com, Inc.

Sandeep, V., & Pohutezhini, B. (2019). The e-commerce revolution of Amazon. com. Splint International Journal of Professionals, 6(4), 33-39.

Wells, J. R., Danskin, G., & Ellsworth, G. (2018). Amazon. Com, 2018. Harvard Business School Case Study, (716–402).

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Question

Find a public company listed on the NYSE or NASDAQ. The stock should have a closing price above $10 from the past year. You can get performance data from websites like ﬁnance.google.com, ﬁnance.yahoo.com, or morningstar.com. You can ignore any subscription request. The free data would suﬃce the project’s needs.

Company Analysis – Amazon.com Inc

Review and analyze the ﬁnancial indicators and ratios in the following categories. Focus on how the ﬁnancials change over time (for example, the last two or three years) and the underlying business decisions and activities that cause the changes.

Financials: Revenue, Net Income, Payout ratio %, Free cash ﬂow, Working capital
Key ratio -> Proﬁtability: Gross margin, Net Margin %, Asset turnover, return on Assets, Financial leverage, Return on Equity
Key ratio -> Growth: 3, 5, 10-year Revenue %, Operating Income %, Net Income %
Key ratio -> Cash Flow: Free cash ﬂow / Sales %, Free cash ﬂow/Net Income
Key ratio -> Financial health: Total Current Assets, Total assets, Long-term debt, Total stockholders’ Equity
Liquidity/Financial Health: Current ratio, Quick ratio, Financial Leverage, D/E ratio
Key ratio -> Eﬃciency Ratios: Receivables Turnover, Inventory Turnover, Fixed asset turnover, Asset turnover

Review at least two major ﬁnancial decisions (investment, ﬁnancing, dividend, or working capital management) by the company. Based on the above ratio analysis, explain

Why the investment decisions above are necessary

For example, introducing new products to raise the proﬁt margin and proﬁt. or how those investment decisions would improve ﬁnancial performance.

For example, cost-cutting decisions would increase the net proﬁt margin and improve the ﬁnancial proﬁle.

Explain whether the change in ﬁnancial ratios or the ﬁnancial decisions can explain the stock performance.

For example, a decreasing Return on Equity could cause negative stock returns.

Based on the above analysis, comment on the investment value of the stock. In particular, shall we invest in the stock?

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