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Amazon.com FINANCIAL RATIO ANALYSIS

FINA 5300

LEE |HENDERSON| FLORENCE| AMAZON.COM FINANCIAL RATION ANALYSIS 1

Contents INTRODUCTION————————————————————————————-2

TREND ANALYSIS————————————————————————————2

AMAZON RATIOS————————————————————————————3

AMAZON RATIO ANALYSIS————————————————————————3

LIQUIDITY RATIOS———————————————————————————-3

Current Ratio

Quick Rati0

ASSET MANAGEMENT——————————————————————————4

Average Collection Period

Inventory Turnover

Fixed Asset Turnover

Total Asset Turnover

FINANCIAL LEVERAGE MANAGEMENT———————————————————5

Debt Ratio

Debt to Equity

Times Interest Earned

Times Fixed Charges Earned

PROFITABILITY—————————————————————————————5

Gross Profit Margin

Net Profit Margin

Return on Investment

Return on Stockholders’ Equity

MARKET BASED————————————————————————————–6

Price to Earnings Ratio

Market to Book Ratio

EV-EBITDA Multiple

DIVIDEND POLICY———————————————————————————-6

Payout Ratio

Dividend Yield

E-COMMERCE INDUSTY RATIOS (2017)———————————————————7

NON-STORE RETAILER COMPARISON———————————————————-8

INDUSTRY ANALYSIS——————————————————————————-8

SYNOPSYS———————————————————————————————9

SWOT ANALYSIS————————————————————————————-9

Strengths

Weaknesses

Opportunities

Threats

PROFESSIONAL RECOMMENDATION———————————————————-10

LEE |HENDERSON| FLORENCE| AMAZON.COM FINANCIAL RATION ANALYSIS 2

Introduction

Amazon is an American electronic trade organization that has turned into a symbol of web

business. Jeff Bezos established the organization in 1994 and propelled it online in 1995 as an

online book shop. Like many business owners Benzos continuously thought of ways for Amazon

to dominate the industry, hence the name Amazon, after the largest river in the world. Be that as

it may, the logo before long ended up emblematic as they sold everything from a to z. Time

magazine names Bezos "1999 man of the year" and stated, "Bezos' vision of the internet retailing

universe was so total, his amazon.com webpage so rich and engaging that it progressed toward

becoming, from the very first moment the perspective for any individual who had anything to

offer on the web. Amazon was a pioneer providing services internationally in the UK and

Germany. Before we had Google “Street View” we had Amazon “Block View”. However,

amazon’s current success has not come easy. In 2001, amazon.com revealed a monetary

misfortune and over two or three years they laid off more than 1000 laborers. Be that as it may,

this set back did not demoralize Bezos, rather he thought of uniting with different retailers to

offer their items online through amazon.com. All the while staying true to its mission as “the

earths most customer centric company”, stated Bezos in a live interview. In this way, through

diligent work and assurance Bezos has possessed the capacity to divert the basic online book

shop from its initial beginnings into the worldwide marvel that is amazon.com.

This report provides a financial analysis of amazon.com year over year performance. We also

discuss its performance compared to the e-commerce industry as well as two specific

competitors, eBay and overstock.com. Amazon’s analysis is conducted by utilizing through ratio

analysis, regarding the profitability, liquidity and financial management from 2016 and 2017-

year end performance. In this report we discuss the meaning behind each analysis ratio and later

provide a synopsis in regards to the future performance of Amazon.com.

TREND ANALYSIS

Trend Analysis

2016 2017 Increase/Decrease Percent

Change

Current Ratio 1.04 1.04 No Change 0

Quick Ratio 0.78 0.76 Decrease 0.0

Average Collection Period 22.4 27.0 Increase 4.6

Debt Ratio 0.77 0.79 Increase 0.0

Debt to Equity 3.32 3.74 Increase 0.4

Gross Profit 0.35 0.37 Increase 0.0

Net Profit 0.02 0.02 No Change 0

Total Asset Turnover 1.63 1.35 Decrease 0.8

LEE |HENDERSON| FLORENCE| AMAZON.COM FINANCIAL RATION ANALYSIS 3

Return on Investment 0.03 0.02 Decrease 0.0

Return on Equity 0.12 0.11 Decrease 0.0

AMAZON RATIOS

LIQUIDITY 2016 2017

Current Ratio 1.04 1.04

Quick Ratio 0.78 0.76

ASSET MANAGEMENT

Average Collection Period 22.38 27.01

Inventory Turnover 3.85 2.03

Fixed Asset Turnover 4.67 3.64

Total Asset Turnover 1.63 1.35

FINANCIAL LEVERAGE MANAGEMENT

Debt Ratio 0.77 0.79

Debt to Equity 3.32 3.74

Times Interest Earned 0.84 4.49

Times Fixed Charges Earned N/A N/A

Profitability

Gross Profit Margin 0.35 0.37

Net Profit Margin 0.02 0.02

Return on Investment 2.84 23.10

Return on Stockholders Equity 0.12 0.11

MARKET BASED

Price to Earnings Ratio 166.49 228.06

Market to Book Ratio 18.83 20.40

EV-EBITDA Multiple 36.42 56.87

DIVIDEND POLICY

Payout Ratio N/A N/A

Dividend Yield N/A N/A

AMAZON RATIO ANALYSIS

LIQUIDITY RATIOS: these ratios analyze the short-term financial position of a company, and

indicates the ability of the firm to meet its short-term commitments.

o Current Ratio: The current ratio measures whether a company has the ability

to use its current assets to pay its short-term creditors. In 2016, the company's

current assets exceeded its current liabilities by 1.04 times. In 2017, the

company's current assets exceeded its current liabilities by 1.04 times. In both

years, the company has the ability to use it current assets to pay for its short-

LEE |HENDERSON| FLORENCE| AMAZON.COM FINANCIAL RATION ANALYSIS 4

term debt. The current ratio has stayed the same from 2016 to 2017. This

means the company is remaining constant and has more current assets in

relation to its current liabilities.

o Quick Ratio: The quick ratio measures whether a company has the ability to

use its current assets to pay its short-term creditors. In 2016, the company's

current assets are equal to 78% of its current liabilities. The dollar analogy

states, "for every one dollar the company owes, it has 78 cents in current

assets. In 2017, the company's current assets are equal to 76% of its current

liabilities. Or for every $1.00 the company owes, it has 76 cents in current

assets. The quick ratio has decreased from 2016 to 2017. This means the

company is becoming weaker and has fewer current assets in relation to its

current liabilities. Therefore, its ability to pay short-term creditors has

worsened.

ASSET MANAGEMENT: these ratios are also called efficiency ratios or turnover ratios. These

ratios show the relationship between sales and various assets of a firm.

o Average Collection Period: The average collection period ratio determines

the number of days, on average, it takes for a company to receive payment

from customers who buy products on credit. As you can see, the 2016 average

collection period is 22 days. This means, the company's customers, on

average, will wait 22 days before paying for products they purchase on credit.

In 2017, the company's customers waited an extra 5 days to pay for purchases

place on credit. The average collection period ratio has increased from 2016 to

2017. This means the company is financing the products they sell longer, and

as a result, the company's cash flow and interest charges are higher.

o Inventory Turnover: The inventory Turnover ratio provides an indication on

whether a company has an excessive or inadequate amount of product in

inventory. the company's inventory turnover ratios are 3.85 and 2.03 for 2016

and 2017 respectively. This means the company used up its inventory 3.85

times during 2016 and used up its inventory 2.03 times during 2017. In other

words, the company has more money tied up in financing its inventory in

2016 than it had in 2017. Furthermore, the company did not sell off its

inventory as fast in 2016 as it did in 2017.

o Fixed Asset Turnover: The Fixed Asset Turnover determines the amount

which a company is using existing property and equipment to obtain sales.

The asset fixed turnover for 2016 was 4.67% and higher compared to 3.64%

in 2017. The company has used less of their existing property and equipment

to acquire sales.

o Total Asset Turnover: The Total Asset Turnover determines how well a

company is using its resources to obtain sales. The Asset Turnover for 2016

LEE |HENDERSON| FLORENCE| AMAZON.COM FINANCIAL RATION ANALYSIS 5

was 1.63 and 1.35 in 2017. This means each dollar of asset produced 1.63 of

sales for 2016 and 1.35 of sales for 2017.

FINANCIAL LEVERAGE MANAGEMENT: these ratios measure the operating efficiency of

the company and its ability to ensure adequate return to its shareholders.

o Debt Ratio: The debt ratio measures the extent to which borrowed money has

been used to finance a company's operation. The debt ratio for 2016 is 0.77 or

in other words, 77% of the company's assets are financed by creditors. From a

dollar point of view, for every one dollar the company has in assets, it has 77

cents in debt. In 2017, the debt ratio is .79. This means, 79% of the company's

assets are financed by creditors. Or, for every one dollar the company has in

assets, it has 79 cents in debt. the company's debt ratio is increasing. This is an

indication that the company is becoming weaker, and closer to being

incapable of paying creditors.

o Debt to Equity: The debt-to-equity ratio compares the investments made by

creditors to the investments made by the company's owners or shareholders.

The debt-to-equity ratio for 2016 is 3.32. Furthermore, for every one dollar

the owners have invested into the company, creditors invested $3.32. In 2017,

the debt-to-equity ratio is 3.74. That is, for every $1.00 invested by the

company's owners, investors such as banks loaned $3.74.

o Times Interest Earned: The Times Interest Earned determines if a

company’s earning can pay interest owed. Amazon covered annual interest

8.04 times in 2016 and 4.49 times in 2017.

o Times Fixed Charges Earned: The times fixed charges earned is an

extension to the times interest earned ration. It measures the company’s ability

to pay fixed charges, such as rent, with income before interest and taxes.

Amazon has not reported any fixed charges.

PROFITABILIT RATIOS: a profitability ratio can arguably be the most important analysis

tool. Profits demonstrate how well its management is making investment and financial decisions.

If the company is unable to provide adequate returns in the form of dividend and share price

appreciation to investors. The firm may be unable to maintain or increase its asset base. As a

result, it exposes how well a firm is able to generate profits on sales, assets and stockholder’s

investments.

o Gross Profit Margin: The gross profit margin ratio provides an indication on

how well a company is setting its prices and controlling its production costs.

As you can see, the 2016 gross margin is .35 or 35%. This means, for every

one dollar generated in sales, 35 cents remain in the company to pay for its

operating expenses income taxes, dividends, etc. In 2017, the company gross

profit margin is .37 or 37%. This means, for every one dollar generated in

LEE |HENDERSON| FLORENCE| AMAZON.COM FINANCIAL RATION ANALYSIS 6

sales, 37 cents remain in the company to pay for its operating expenses

income taxes, dividends, etc. The gross profit margin has increased by 2 cents

over 2017. This means the company's management team is improving its price

setting policies, and reducing the company's production costs, or a

combination of both. A higher gross profit margin indicates the company is

making more from each sale.

o Net Profit Margin: The Net Profit Margin ratio assists a company in

determining whether their selling prices are too low or if expenses are too

high or both. As you can see, the 2016 net profit margin is 0.02 or 2%. This

means, for every one dollar generated in sales, 2 cents remain in the company

or is available to be distributed to the owners of the company or both. In 2017,

the company net profit margin is 0.0 or 2%. The net profit margin has

remained the same. This means the company's management team is remaining

constant in its price setting policies and/or reducing their production costs and

operating expenses.

o Return on Investment: The return on Investment “measures a firm’s net

income in relation to the asset investment”. In 2016 the Return on Investment

was 2.84 % compared to 23.10% in 2017.

o Return on Stockholders’ Equity: The return on equity ratio measures how

well a company is using its owner's investments to generate after tax profits.

As you can see, the company's 2016 return on equity is 0.12 or 12%. This

means, for every one dollar invested into the business by the owners, it

generated 12 cents in after tax profits for 2016. The after-tax profits may

remain in the company or may be distributed to the owners of the firm or a

combination of both. In 2017, the company net profit margin is 0.11 or 11%.

This means, for every one dollar invested by the owners, the company

generated 11 cents in after tax profits. The return on equity has decreased

from 2016. This means the company's owners earned less from their

investment in 2017.

MARKET BASED: Market based ratios are used to evaluate the current share price of a

publicly-held company's stock. These ratios are employed by current and potential investors to

determine whether a company's shares are over-priced or underpriced.

o Price to Earnings Ratio: This ratio shows analyst how much an investor, in

common stock, pays per dollar of current earning. The company’s P/E ratio

slightly increased from 2016 to 2017.

o Market to Book Ratio: this ratio is a comparison of what the company is worth compared to what the industry has portrayed it company to be. This ration will answer the question if the company over or undervalued as it takes into account the number of shares to assets. Amazon has increased its true value from 18.83 in 2016 to 20.40 in 2018.

LEE |HENDERSON| FLORENCE| AMAZON.COM FINANCIAL RATION ANALYSIS 7

o EV-EBITDA Multiple: this ration is used to measure the value of a

company. It is also used as a comparison between companies’ enterprise

value. It is calculated by taking the companies enterprise value divided by its

earnings before interest, taxes, depreciation, and amortization. Amazons

company value increased annually from 36.42 to 56.87 in 2017.

DIVIDEND POLICY: measure how much a company pays out in dividends relative to its

earnings and market value of its shares. These ratios provide insights into the dividend policy of

a company. They compare the dividends to the earnings to measure how much of its earnings a

company is paying out in dividends. They also compare the dividends to share prices to see how

much cash flow the investors get for their investments in the company’s shares.

o Payout Ratio & Dividend Yield: Because Amazon does not pay its

shareholders dividends we are unable to analysis at this time.

E-COMMERCE INDUSTRY RATIOS (2017)

LIQUIDITY Amazon Overstock eBay Industry Avg.

Current Ratio 1.04 1.24 2.19 *1.49

Quick Ratio 0.76 1.17 2.19 *1.37

ASSET MANAGEMENT

Average Collection Period 27.01 6.29 265.16 *99.49

Inventory Turnover 3.85 86.04 N/A N/A

Total Asset Turnover 1.35 4.02 0.37 2.51

FINANCIAL LEVERAGE MANAGEMENT

Debt Ratio 0.79 0.49 0.69 24.08

Debt to Equity 3.74 1.24 2.22 *2.40

Times Interest Earned N/A -15.25 N/A N/A

PROFITABILITY

Gross Profit Margin 0.37 0.20 0.77 *1.38

Return on Investment 0.02 -0.25 0.04 8.39

Return on Stockholders Equity 0.11 -0.63 0.13 12.00

MARKET BASED

Price to Earnings Ratio 20.40 32.96 1.15 18.71

EV-EBITDA Multiple 56.87 2.48 15.40 14.66

DIVIDEND POLICY

Payout Ratio N/A N/A N/A N/A

Dividend Yield N/A N/A N/A 1.76

*comparison between Amazon.com, Overstock.com & eBay only

LEE |HENDERSON| FLORENCE| AMAZON.COM FINANCIAL RATION ANALYSIS 8

NON-STORE RETAILER COMPARISON

INDUSTRY ANALYSIS

Due to Amazon’s wide range of goods it can easily be placed among a mass variety of

companies for comparison. Earlier we noted that amazon has evolved from the small garage

book store online to literally selling everything from A to Z. With that being said during our

research we discovered that Amazon not only belongs to the ecommerce industry but more

specifically into likeminded company groups. For example, the general retailer or consumer

services industry. None the less we have conducted an overall company analysis that coincides

with companies like, Overstock.com and eBay, that are on an even more personal level and

categorized as the “Non-store Retailer companies”. The Bloomberg terminal classified Amazon

in the “Non-store Retail” category along with 14 companies. Bloomberg also provided the

industry averages for the 15 Non-store Retailer companies as shown in the above graph.

After further review Amazon performed above the industry average in some areas and below in

others, however what has stood out is that Amazon has performed consistently close to the

industry average more than any other company. This alone plays a huge role in Amazon’s

continued success. For example, Amazon has outperformed its competitors eBay and

Overstock.com in the financial management aspect of a company. As stated above Amazons

investments made by the company's owners or shareholders reported $3.74. Again, this indicates

that, for every $1.00 invested by the company's owners, investors loaned $3.74 compared to the

$1.24 and $2.22. As a result, Amazon has money cash per dollar invested into the company that

contributes to it liquidity and assets.

0

1

2

3

4

5

6

Liquidity Asset Management Financial Leverage Profitability

Industry Analysis

Amazon Overstock eBay Industry AVG.

LEE |HENDERSON| FLORENCE| AMAZON.COM FINANCIAL RATION ANALYSIS 9

Coincidentally Amazon continues to perform above average as it decides to not pay out

dividends. As you can see by the above chart Amazon is not the only Non-store Retailer that has

chosen this method to not pay dividends, however the industry average dividend yield is 1.76.

also recently stated a company’s dividend yield are earnings a company is paying out in to its

investors. While this is a great thank you tool by not paying out dividends Amazon is able to

utilize the funds that would have been paid and reinvest them back into Amazon. As a result, this

again leads to more liquid cash, more assets, profits and so forth.

SYNOPSYS

The ratio analysis compares a company's previous year’s performance to its current year

performance and determines whether or not a company is improving or deteriorating. As

indicated above, Amazon has improved its overall performance and is becoming a stronger

company. compared to 2016, the company in 2017;

– has enough current assets to cover its short-term obligations;

– can rely less on its inventory to pay its short term debts;

– has slightly more debts; both short-term and long-term;

– is paying less in interest charges;

– is decreasing its equity base;

– making more from each product sold

– making more after production costs, operating expenses & taxes are considered;

– is using its assets more efficiently to generate profits.

SWOT ANALYSIS

SWOT is an acronym for strengths, weaknesses, opportunities and threats related to

organizations. The following table illustrates Amazon SWOT analysis:

Strengths

• Market authority on the worldwide scale

• Efficient and alluring administration by organizer Jeff Bezos

• Cost authority because of effective cost structure

• Efficient client relationship administration

Weaknesses

• Seasonality of the business

• Low overall revenues

• Lack of spotlight on particular item or administration classifications

• Damage to the brand because of tax evasion embarrassment in the UK

Opportunities

• Diversification of e-commerce business segment

• Increasing focus on own brand products and services

• Increasing physical presence of the brand

• Developing more local sites in international markets

• Engagement in strategic collaborations with companies in e-commerce and affiliated

industries

LEE |HENDERSON| FLORENCE| AMAZON.COM FINANCIAL RATION ANALYSIS 10

Threats

• Loss of benefit because of low net revenue

• Patent encroachment and different claims against the organization

• Weakening of industry section boundaries

• Threats to online security

PROFESSIONAL RECOMMENDATION

The following are proposed recommendations for Amazon to continue to meet some of these

challenges and continue to grow:

• Continue and accelerate web deals in international and developing markets, particularly

in Asia and Eastern Europe.

• Accelerate online innovation help and development to providers and shoppers of their

AWS and FBA products and services.

• Support free or sponsored web-access to purchasers with next to zero access to web,

particularly in developing nations to grow the web-based business experience to the

individuals who don't as of now have it.

• Push controls to permit computerized conveyances of small regular items

• Make or build up its restrictive online technology. This will grow its image and in

addition include high edge income streams.

• Expand its online item contributions to additionally extend its minimal effort

administration.

• Open physical destinations where clients can physically get the Amazon experience.

Tying these centers to existing distribution and delivery centers focuses will make them

significantly savvier than building unique physical structures. Have stations where

individuals with constrained access can come and request from Amazon.com and get

themselves at these stores.

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