Part 4 Executive Summary of Phased Company Analysis ProjectPrepare an executive summary integrating the observations and findings of the previous three detailed project reports (accounting analysis, ratio analysis, and credit analysis).Combine Executive Summary With the Three Previous Assignments:After the Executive Summary is completed, add the other three sections (Accounting Analysis, Ratio Analysis, and Credit Analysis) to complete the comprehensive report. Writing Instructions:The Executive Summary should be two to three pages in length, double spaced, and should employ APA style and format for reference citations. New material is not normally introduced in the Executive Summary.Completeness of analysis: The analysis must demonstrate understanding of the three previous reports including the accounting analysis, ratio analysis and the credit analysis. Organization: The Executive Summary should be well-organized and follow a traditional pattern of analysis and presentation Presentation: Papers should meet professional business standards and meet APA formatting requirements. Spelling, punctuation, and grammar: There should not be errors in grammar and punctuation. All sentences must be complete and well-structured.The three previous projects are attached.Running head: ACCOUNTING ANALYSIS OF AMAZON COMPANY
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ACCOUNTING ANALYSIS OF AMAZON COMPANY
2
Amazon Inc. Accounting Analysis
Introduction
This paper seeks to conduct an accounting analysis of Amazon’s financial statements as
publicly provided in its 10K forms for the last three years. Financial accounting involves the
analysis of a company’s financial statements for use by stakeholders, managements, state
agencies, debt and shareholders, investment professionals and students alike. In this paper, the
analysis involves analyzing Amazon Inc.’s balance sheet, statement of cash flow and the income
statement. The balance sheet, in Table 1, shows the financial resources owned by the company
and their sources i.e. shareholders and debt holders. Also, an analysis of Amazon’s consolidated
income statements, in Table 2, shows the products the company sold and profits made, if any is
analyzed. Finally, this paper concludes by an analysis of the company’s statements of cash flow,
in Table 3. The net income earned by Amazon is distributed to its shareholders through payment
of dividends or ploughed back for future investments, in Table 4.
Accounting Analysis
Liquidity
Ratios
Formula
Year
Ending
2015
Current Ratio = Current Assets/Current Liabilities
1.0759
609
Acid Test or Quick Ratio = (Current Assets – Inventories – Prepaid 1.0759
Year
Year
Ending Ending
2014
2013
1.1152
764
0.8198
Industry
5Yr. Avg.
Percentile
1.62
0.56
0.83
Expenses) / Current Liabilities
Assset
Managenet
Ratios
The cash ratio = Available Cash + Marketable
Security/Current Liabilities
Accounts Receivable Collection = 360 Days /
Accounts Receivable Turnover
0.5843
24
0.21
0.6200
29
0.35
0.43
Inventory Turnover = Cost Of Goods Sold/Average Inventory
5.45
5.74
3.88
9.12
ACCOUNTING ANALYSIS OF AMAZON COMPANY
Leverage
Ratios
Profitabilit
y Ratios
3
Days Held In Inventory = 360 Days/Inventory Turnover
Fixed Asset Turnover = Sales/Average Net Fixed Assets
Fixed Asset Turnover=Sales/Average Total Assets
Sales to Working capital = sales/ (current assets – current
liabilities)
Debt Ratio=Total Debt/Total Assets
66
0.95
16.35
41.56
63
1.87
1.63
27.48
93
2.15
1.85
23.22
3.60
3.48
5.40
Debt To Equity Ratio=Total Debt/Total Equity
Time Interest Earned=(Earnings Before Interest And
Taxes)/Interest
Gross Profit Or Margin= (Sales – Cost Of Goods Sold)/Sales
1.36
7.86
1.46
3.42
0.53
33.04
29.48
27.23
26.28
Operating Income Ratio=Operating Income/Sales
Return On Sales=Earnings After Taxes/ Sales
Return On Investments=Earnings After Taxes/Average Total
Assets
Return On Equity(ROE)=Earnings After Taxes/Average
Owners Equity
3.16
1.78
0.99
2.09
1.88
-0.51
0.2
2.05
0.75
3.08
0.98
1.97
4.94
-2.35
3.06
15.72
0.56
Liquidity Ratio
Ratio analysis is carried out to determine the performance of a company and to identify
measures needed to improve performance in case of poor results. Liquidity ratio measures the
relationship between the current assets and the current liabilities. It involves current ratio, acid
test ratio and the cash ratio. The current ratio measures the value of current assets that can be
able to pay for the company’s current liabilities (Schroeder, Clark & Cathey, 2011). For Amazon
Company, its current ratio were 1.07 and 1.12 for the financial years ending 31st December, 2015
and 2016 respectively. In retrospect, the Quick ratio (acid test ratio), measures the ability of
Amazon to meet its short term financial obligation without depending on inventory sales.
Inventories being the least liquid of a company’s current assets represents the book value of a
company’s asset, that, in case the company’s sells them, it gets less value in the process of
liquidation in order to pay for upcoming bills (Schroeder et al., 2011).Thus, the acid test is more
reliable in assessing the liquidity of a company then the current ration. For the case of Amazon,
ACCOUNTING ANALYSIS OF AMAZON COMPANY
4
its quick ratios were 1.08 and 0.82 for 2015 and 2014 respectively. Further analysis of the
company’s liquidity involved the cash ratio that measures the ability of Amazon Company to pay
its short term obligations using the available cash as well as its marketable securities. The cash
ratios for the two financial years ending 2015 and 2014 were 0.58 and 0.62 respectively. From
the numbers, Amazon is moderately is liquid and thus able to meet its short term financial
obligations. Further, the high liquidity of the company implies that it is less likely to encounter
financial distress. However, the relatively high liquidity of the firm represents a big trade off as
liquid assets generate less returns for investments.
Asset Management Ratios
Asset management ratios are essential tools in determining the efficiency in which a
company utilizes its asset and how the managers are able to manage the accounts payable. From
the ratios, stakeholders and managers can tell whether the firm is holding the right amount of
each category of assets and whether the assets are being maximized in increasing the volumes of
sales made (Schroeder et al., 2011). The fixed asset turnover ratio evaluates the amount of dollars
of sales made per dollar of net fixed assets while the sales to working capital measures the sales
made per net working capital. From the analysis, the high sales to working capital and the fixed
asset turnover for amazon were conspicuously high for 2015 compared to 2014. Usually, a high
the ratios the more the efficiency of the management of a company and are therefore a sign of
improved management at Amazon going forward as compared to the previous year. However, the
high fixed asset turn over that is at 16.35 for 2015 compared to 1.63 for 2014 indicates that the
company is nearing its maximum capacity. In the event of full capacity, the company would be
faced with problems of further growth through increasing the volumes of sales (Schroeder et al.,
ACCOUNTING ANALYSIS OF AMAZON COMPANY
5
2011). In fact, a high sale to working capital ratio and fixed asset turnover may indicate lack of
good management in part by the firm in allowing it to near maximum sales capacity prematurely
or otherwise prior to formulating measures to accommodate exponential growth.
Debt Management Ratios
Financial leverage ratios measures the level of use of debt relative to use of equity in
financing a company’s assets and how well the firm is able to meet its debt repayments
(Schroeder et al., 2011). The ratios evaluate if the company is financing its assets with the correct
amount of debt in relation to equity and whether it is acquiring sufficient returns to pay for its
debts in time.
Profitability Ratios
The analyzed asset management, debt management and liquidity management ratios
evaluates the financial position of a company in an isolated manner. However, the profitability
ratios evaluates the combined effects of debt, asset and liquidity aspects of the company’s
performance (Schroeder et al., 2011). For the case of Amazon, its gross profit margin was 33.04,
29.48 and 27.23 against an industry average of 26.28. Thus, Amazon is slightly more profitable
that the average company in the online retail business (Stone, 2014). Indeed, investors and
stakeholders watch closely this ratios and changes in profitability ratios determines the
company’s stock prices and valuation. In regard to stock prices, ROE is a measure of return to
the shareholder in regard to investments made to the company. ROE is affected in part, by the
amount of debt or leverage that a company uses as well as the net income. For the case of
Amazon Inc., the ROE was 4.94, -2.35 and 3.06 for 2015, 2014 and 2013 against a 5 year
ACCOUNTING ANALYSIS OF AMAZON COMPANY
6
industrial average of 15.78\%. Indeed, Amazon has a very low ROE in comparison to the industry
average. Therefore, it implies that the equity shareholders are not getting enough from their
investments in the company.
In summary, the methodology conducted above is based on the fact that companies with a
strong and attractive financial strength are characterized by healthy financial ratios. Therefore,
looking at the criteria used, the following inferences can be deduced in summary:
Current Ratio: Poor
A competitively strong company should have a current ratio that is either higher than or
same as the industry average. Amazon scores poorly as it has a current ratio of 1.08 and 1.11
against an industry average of 1.62 (UBS Global Research, 2015).
Return on Equity: Poor
Amazon has very low Return on Equity ratios, way below the industry average of
15.72\%. In any case, a high ROE ensures that a company is structurally flawless (Schroeder et
al., 2011).
Debt Equity Ratio: Poor
A good company should have a low Debt/Equity ratio that demonstrates that the firm has
a strong balance sheet (Schroeder et al., 2011). In essence, its Debt/Equity ratio should be less
than the industry average in which case Amazon fails in the criterion with a ratio of 1.36, 1.46
for 2015 and 2014 respectively against an industry average of 0.56 (Insider, July 20, 2015).
ACCOUNTING ANALYSIS OF AMAZON COMPANY
7
Conclusion
From the analysis, Amazon Company will not deliver reasonable economic benefits to its
shareholders anytime soon (Yahoo Finance, 2016).
ACCOUNTING ANALYSIS OF AMAZON COMPANY
References
Amazon.Com, Inc. (2016) Form 10K [Internet]. Retrieved from:
https://www.sec.gov/Archives/edgar/data/1018724/000101872416000172/amzn20151231x10k.htm#s1434763B09F480B7DDC8ABB24AC60644.Accessed >
Insider, M. (July 20, 2015). Why Steven Romick Is Staying Away From Amazon.com Inc
(AMZN), W Grainger Inc (GWW), and Fastenal Company (FAST). Insider
Monkey, 2015-7.
Schroeder, R. G., Clark, M., & Cathey, J. M. (2011). Financial accounting theory and
analysis: Text and cases. Hoboken, NJ: Wiley.
Stone, B. (2014). The Everything Store: Jeff Bezos and the Age of Amazon. MMR, (13).
69.
UBS Global Research (2015) Amazon.com: Trading Profits for Revenues (August 4,
2016) [Internet], Zurich, UBS AG. Retrieved from :<
https://www.thomsononeim.com/v-hom.asp>
Yahoo Finance (2016) Yahoo Finance – Business Finance, Stock Market, Quotes, News
[Internet], Sunnyvale, Yahoo! Inc. Available from:
8
ACCOUNTING ANALYSIS OF AMAZON COMPANY
9
Tables
Table 1
AMAZON.COM, INC.CONSOLIDATED BALANCE SHEETS (In millions,
except per share).
December 31,
2015
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Inventories
Accounts receivable, net and other
Total current assets
Property and equipment, net
Goodwill
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other
Unearned revenue
Total current liabilities
Long-term debt
Other long-term liabilities
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.01 par value:
Authorized shares — 500
Issued and outstanding shares — none
Common stock, $0.01 par value:
Authorized shares — 5,000
Issued shares — 494 and 488
Outstanding shares — 471 and 465
Treasury stock, at cost
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
2014
15,890
3,918
10,243
6,423
36,474
21,838
3,759
3,373
65,444
$
20,397
10,384
3,118
33,899
8,235
9,926
$
$
—
$
5
(1,837)
13,394
(723)
2,545
13,384
65,444
16,459
9,807
1,823
28,089
8,265
7,410
—
$
Source: https://www.sec.gov/Archives/edgar/data/1018724/000101872416000172/amzn20151231x10k.htm#s1434763B09F480B7DDC8ABB24AC60644
14,557
2,859
8,299
5,612
31,327
16,967
3,319
2,892
54,505
5
(1,837)
11,135
(511)
1,949
10,741
54,505
ACCOUNTING ANALYSIS OF AMAZON COMPANY
Table 2
10
Consolidated Income statement.
Year Ended December 31,
2015
2014
2013
2012
2011
(in millions, except per share data)
Statements of Operations:
Net sales
Income from operations
Net income (loss)
Basic earnings per share (1)
Diluted earnings per share (1)
Weighted-average shares used in computation of earnings per
share:
Basic
Diluted
Statements of Cash Flows:
Net cash provided by (used in) operating activities
$107,006
$ 2,233
$
596
$
1.28
$
1.25
467
477
$88,988
$ 178
$ (241)
$ (0.52)
$ (0.52)
462
462
$ 11,920 $ 6,842
$74,452
$ 745
$ 274
$ 0.60
$ 0.59
457
465
$61,093
$ 676
$ (39)
$ (0.09)
$ (0.09)
$48,077
$ 862
$ 631
$ 1.39
$ 1.37
453
453
453
461
$ 5,475 $ 4,180
$ 3,903
December 31,
2015
2014
2013
2012
2011
(in millions)
Balance Sheets:
Total assets
Total long-term obligations
$ 65,444 $54,505
$ 18,161 $15,675
$40,159 $32,555
$ 7,433 $ 5,361
$25,278
$ 2,625
Source:
https://www.sec.gov/Archives/edgar/data/1018724/000101872416000172/amzn20151231x10k.h
tm#s1434763B09F480B7DDC8ABB24AC60644
ACCOUNTING ANALYSIS OF AMAZON COMPANY
Table 3
11
Consolidated Statements of Cash flow
Year Ended December 31,
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
2015
2014
2013
$14,557
$ 8,658
$8,084
OPERATING ACTIVITIES:
Net income (loss)
596
(241)
274
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation of property and equipment, including internal-use software and website
development, and other amortization, including capitalized content costs
Stock-based compensation
Other operating expense (income), net
Losses (gains) on sales of marketable securities, net
6,281
4,746
3,253
2,119
1,497
1,134
155
129
114
5
Other expense (income), net
Deferred income taxes
(3)
1
245
62
166
81
(316)
(156)
(119)
(6)
(78)
Inventories
(2,187)
(1,193)
(1,410)
Accounts receivable, net and other
(1,755)
(1,039)
(846)
4,294
1,759
1,888
913
706
736
7,401
4,433
2,691
(6,109)
(3,692)
(2,292)
11,920
6,842
5,475
(4,589)
(4,893)
(3,444)
Excess tax benefits from stock-based compensation
Changes in operating assets and liabilities:
Accounts payable
Accrued expenses and other
Additions to unearned revenue
Amortization of previously unearned revenue
Net cash provided by (used in) operating activities
INVESTING ACTIVITIES:
Purchases of property and equipment, including internal-use software and website development,
net
Acquisitions, net of cash acquired, and other
(795)
Sales and maturities of marketable securities
Purchases of marketable securities
Net cash provided by (used in) investing activities
(979)
(312)
3,025
3,349
2,306
(4,091)
(2,542)
(2,826)
(6,450)
(5,065)
(4,276)
FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation
Proceeds from long-term debt and other
119
6
353
6,359
78
394
Repayments of long-term debt and other
(1,652)
(513)
(231)
Principal repayments of capital lease obligations
(2,462)
(1,285)
(775)
Principal repayments of finance lease obligations
(121)
Net cash provided by (used in) financing activities
Foreign-currency effect on cash and cash equivalents
(5)
4,432
(374)
Net increase (decrease) in cash and cash equivalents
CASH AND CASH EQUIVALENTS, END OF PERIOD
(135)
(3,763)
(539)
(310)
(86)
1,333
5,899
574
$15,890
$14,557
$8,658
$
$
$
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest on long-term debt
325
91
97
Cash paid for interest on capital and finance lease obligations
153
86
41
Cash paid for income taxes (net of refunds)
273
177
169
ACCOUNTING ANALYSIS OF AMAZON COMPANY
Property and equipment acquired under capital leases
Property and equipment acquired under build-to-suit leases
12
4,717
4,008
1,867
544
920
877
Source:
https://www.sec.gov/Archives/edgar/data/1018724/000101872416000172/amzn20151231x10k.h
tm#s1434763B09F480B7DDC8ABB24AC60644
ACCOUNTING ANALYSIS OF AMAZON COMPANY
Table 4
13
Statement of Shareholder Equity(in millions)
Common Stock
Shares
Balance as of January 1, 2013
Net income
Other comprehensive income (loss)
Exercise of common stock options
Excess tax benefits from stockbased compensation
Stock-based compensation and
issuance of employee benefit plan
stock
Balance as of December 31, 2013
Net loss
Other comprehensive income (loss)
Exercise of common stock options
Excess tax benefits from stockbased compensation
Stock-based compensation and
issuance of employee benefit plan
stock
Issuance of common stock for
acquisition activity
Balance as of December 31, 2014
Net income
Other comprehensive income (loss)
Exercise of common stock options
Excess tax benefits from stockbased compensation
Stock-based compensation and
issuance of employee benefit plan
stock
Issuance of common stock for
acquisition activity
Balance as of December 31, 2015
454 $
—
—
5
Amount
5
—
—
—
Treasury
Stock
Additional
Paid-In
Capital
$ (1,837) $ 8,347
—
—
—
—
—
4
$
Retained
Earnings
(239) $ 1,916
—
274
54
—
—
—
8,192
274
54
4
—
459
—
—
6
—
5
—
—
—
—
—
—
6
—
—
6
—
—
—
1,510
—
—
1,510
—
465
—
—
6
—
5
—
—
—
44
11,135
—
—
4
—
(511)
—
(212)
—
—
—
—
119
—
—
119
—
—
—
2,131
—
—
2,131
—
—
(723) $ 2,545
5
$ 13,384
—
5
—
(1,837)
—
—
—
73
—
(185)
—
(326)
—
1,149
9,573
—
—
2
—
5
$ (1,837) $ 13,394
$
—
$
—
—
(1,837)
—
—
—
—
Total
Stockholders’
Equity
—
—
471 $
—
Accumulated
Other
Comprehensive
Income (Loss)
—
2,190
(241)
—
—
—
1,949
596
—
—
73
1,149
9,746
(241)
(326)
2
44
10,741
596
(212)
4
Source:
https://www.sec.gov/Archives/edgar/data/1018724/000101872416000172/amzn20151231x10k.h
tm#s1434763B09F480B7DDC8ABB24AC60644
Amazon.com Inc. Ratio Analysis
The health of any company is very important. A company is a profit-making organization
and in that case, the financial health of the company is very important. To determine the current
financial situation of a company it is important that after the financial statements are prepared,
financial ratios are determined to assess and analyze the performance of the company. In this paper,
we will be looking at the financial ratios of Amazon.com. Inc. Our focus will be on appropriate
Solvency, Profitability, Activity, Capitalization, and Market Ratios.
To begin with, some of the solvency ratios are debt to equity, debt to asset, and interest coverage
ratio. These ratios are determined as follows;
Debt to equity = Total debt/ Total equity
Amazon’s debit to equity for the three years are:
2015: 8562/13384 = 0.6397
2014: 9881/10741 = 0.9199
2013: 9976/10176 = 0.9803
Debt to asset = Total Debt/ Total Assets
Amazon’s debt to asset for the past three years are:
2015: 8562/65444 = 0.1308
2014: 9881/54505 = 0.1813
2013: 9976/40159 = 0.2484
Interest Coverage Ratio = Operating Income/ Interest Expense
Amazon’s interest coverage ratio for the past three years are:
2015: 2027/459 = 4.4161
2014: 99/210 = 0.4714
2013: 547/141 = 3.8794
Another category of ratios that is important to take into consideration is the profitability
ratios. Some of the ratios under this category are gross margin, operating margin, return on assets
and return on equity.
Gross Margin = Gross profit/ net sales * 100
Amazon gross margin for the past three years are:
2015: 1568/ 107006 *100 = 1.4653\%
2014: 111/88988*100 = 0.1247\%
2013: 506/74452*100 = 0.6796\%
Operating Margin = Operating Profit/ Net sales*100
Amazon operating margin for the past three years are:
2015: 65/107006*100 = 0.6215\%
2014: 289/88988*100 = 0.3248\%
2013: 239/74452*100 = 0.3210\%
Return on Assets = Net Income/ Assets*100
Amazon return on assets for the past three years are:
2015: 516/65444*100 = 0.7885\%
2014: 241/54505*100 = 0.4422\%
2013: 274/40159*100 = 0.6823\%
Return on Equity = Net income/ Shareholder investment*100
Amazon return on equity for the past three years are:
2015: 516/13384*100 =3.8553\%
2014: 241/10741*100 =2.2437\%
2013: 274/9746*100 = 2.8114\%
The operations of the company can be analyzed by considering the activity ratios. These
ratios comprise of account receivable turnover ratio, inventory turnover and total assets turnover.
These ratios are determined as follows;
Account Receivable turnover ratio = Total Credit/ Average Account Receivable Balance
Amazon account receivable turnover ratio for the past three years are:
2015: 20397/6018 = 3.3893
2014: 16459/5189 = 3.1719
2013: 15133/5021 = 3.0139
Inventory Turnover = Cost of goods Sold/ Average inventory
Amazon inventory turnover for the past three years are:
2015: 71651/1690 = 42.397
2014: 62752/1302 = 48.1966
2013: 54181/ 1308 = 41.4228
Total Assets turnover = Total sales/ Total assets
Amazon total assets turnover for the past three years are:
2015: 107006/65444 = 1.6351
2014: 88988/54505 =1.6327
2013: 74452/40159 = 1.8539
The next category of ratios we will look at is the capitalization ratios. The ratios under this
category are debt equity ratio, long term debt to capitalization, total debt to capitalization. These
ratios are calculated as follows;
Debt equity ratio = Total debt/ shareholder equity
Amazon debt equity ratio for the past three years are:
2015: 8562/13384 = 0.6397
2014: 9888/10741 = 0.9205
2013: 9976/9746 = 1.0236
Long term debt to capitalization = Long term debt/ (Long term debt + Shareholder Equity)
Amazon long term debt to capitalization for the past three years are:
2015: 8235/21619 = 0.3809
2014: 8265/19006 = 0.4349
2013: 3191/12937 = 0.2467
Total debt to capitalization = Total debt/ (Total debt+ Shareholders’ Equity)
Amazon total debt to capitalization for the past three years are:
2015: 8562/21946 = 0.3901
2014: 9888/20629 = 0.4793
2013: 9976/19722 = 0.5058
Last but not the least, we will consider the market ratios. This category comprises of ratios
such as price to earnings and dividend yield. Under amazon Inc. however, we will be taking into
consideration the price to earnings ratio since dividends is not applicable. The determination of
price to earnings is;
Price to earnings = Market value per share/annual earnings per share
Amazon price to earnings for the past three years are:
2015: 0.01/ (0.12) = -0.0833
2014: 0.01/0.23 = 0.0435
2013: 0.01/ 0.20 = 0.05
(Kota, 2016)
Amazon Ratios
Category
Ratio
Industry
Solvency
Debt to equity
0.2
Debt to asset
0.1
Interest coverage ratio
7.6
Profitability
Gross margin
53.8
Operating margin
6.4
Return on assets
3.4
Return on equity
5.6
Activity ratio
Acc. Receivable turnover
9.9
Inventory Turnover
17.3
Total assets turnover
0.6
Market ratio
EPS Growth
N/A
Dividends
N/A
(Amazon.com, Inc. Common Stock (AMZN), 2016)
These financial ratios are an important tool in the analyzing and summarizing of the
company’s strength and weaknesses of the company. When it comes to profitability ratios these
are very important to the investors and the creditors alike. This is because they communicate the
success of the company on their investment. Amazon has a return on capital which is on average
0.6. This is a low return on capital which indicates that the company’s income is low. The return
is even lower than the industry average of 3.4. (AMZN: Amazon.com Inc. Top Competitors and
Peers, 2016)
When we turn our attention to the solvency ratios the company has interest coverage ratio of 4.3,
this ratio is below the industries 7.6. What this translates to is that the company is not able to
generate enough income to service its interest expense.
When it come to the activity ratios the company has a ratio of 3.1 in account receivable
turnover ratio. This ratio is very low which means Amazon has difficulties in paying its bills on
time. Still on the activity ratios, when we look at the turnover ratio we see that the company has a
ratio of 1.6. This low ratio means that the company is not maximizing the use of the assets at their
disposal. Amazon.com Inc. has two alternatives to correct this. It can either increase its sales or it
can dispose some of the assets (AMZN: Amazon.com Inc. Top Competitors and Peers, 2016).
References
Amazon.com, Inc. Common Stock (AMZN). (2016). NASDAQ.com. Retrieved 18 November
2016, from http://www.nasdaq.com/symbol/amzn
AMZN: Amazon.com Inc Top Competitors and Peers. (2016). Financials.morningstar.com.
Retrieved 18 November 2016, from http://financials.morningstar.com/competitors/industrypeer.action?t=AMZN®ion=usa&culture=en-US
Kota, A. (2016). AMAZON COM INC Annual Report Fri Jan 29, 2016: Last10K.com.
Last10k.com. Retrieved 18 November 2016, from https://www.last10k.com/secfilings/amzn/0001018724-16-000172.htm#toc-R7
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Amazon Inc. Credit Analysis
Key Facts on the recent reports on
Amazon.com Inc.
The industries that have been served by
Consumer electronics: Fire HD and Amazon
Amazon
kindle
Internet: Amazon video
Retails market places
Areas served Geographically
internationally
The CEO
Jeff Bezos
Current Revenue
US$ 107 Billion
Profit
Over $590 million
The major rivals
eBay, Apple Inc. and Alibaba Group
Number of Employees
230800 according to the New York
Newspaper in August 2016
Credit analysis of Amazon has been useful in the risk determination about the company’s
financial status. The organizations that fund the company are always interested in the business
financial report as it shows clear information of fund management. The analysis is based on the
character of Amazon, the capacity at which the cash is flowing in the company, the current
conditions of the company as well as capital required by the company to effectively carry out its
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activities. Additionally, collateral attribute of the company is very important as far as the credit
analysis is considered. The current sales by Amazon show the credit worthiness of Amazon.
Capacity of the Amazon Company for the last five years has been incredible. There has
been an efficient flow of cash in the company. The management with the leadership of the CEO
has done a great job of maintaining the capacity of the company. The expenses have been
supported effectively and the company is observed to clear their debts in timely deadlines.
Despite the complaints by the employees about the harsh working environment, the company
ensures that the salary payment is done in time. At least no worker reported this in the New
Yorker interview in August this year.
The lenders of Amazon have a full understanding of the company making the process
easier. For example, the Amazon options of lending include; Merchant Cashier Advances, the
peer-to –peer financing, Factoring and Credit Cards. Finally, the company has really benefited
from Kabbage Amazon Loans as well as Amazon Lending. All these organization have a better
knowledge of Amazon financial status and therefore, they are Amazon’s preferred option to
work with. The history of Amazon is an added advantage to the trust of the lenders. Amazon is
known to clear its debts in good time and efficiency in meeting the expenses. It is for this reason
that the organizations generously offer loans to the company to assist in developing the new
projects by the company (Sheppard, 2016).
Amazon Company has already built its character in the market and the ability to reach
customers all over the world. The traits displayed by the Amazon Company are very important as
they determine if the lenders will offer loans to the company. Both the guarantors and the
borrowers should manifest their integrity as well as the honesty to gain the trust of one another.
This has been easy to Amazon as the lenders are already familiar with the company. The
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managerial team lead by the CEO Jeff has showed skilled experience in internal and external
environments of the company.
The recruitment of educated personnel has also aided in building the background
information of the company. The credits of the company and the well-built history attributes to
its character. The loaners therefore fund the company without doubts and regrets. The only
delinquency that has been associated with Amazon is about pressurizing the workers, according
to the latest reports. However, this does not really count as the character is based on the
company’s external environment.
The condition of Amazon is of great important to the lenders because it is through it that
the progress of the loan is understood. The current condition of the Amazon has really improved
and the lenders are sure that the loans are used and managed effectively. The lenders have
information about the renovations and the project that have been put in place by Amazon.
Capital that has continually been injected in the company’s budget has had great impacts
on the company. The investments have been possible as a result. The company has contributed
some of its assets to the improvement of the financial status. The chances of default have been
reduced by the readiness of the company to take risks. Amazon is really dedicated to its project
and therefore there is always a budget of the upcoming activities that require capital. This is
contained in the company’s action plan.
Collateral of Amazon is based on the lenders examination of the value of the company’s
assets as the primary payment of the loans offered. The partners of the company who are often
the guarantors also get their assets assessed. This evaluation is meant for future preparation of
payment. In case the company fails to clear the debts, then the guarantor’s assets will be used as
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the secondary payment of the loans. This is a determining factor of the credit worthiness of
Amazon Company.
Assessment of Strengths and Weaknesses
Amazon is the biggest revenue contributor to the economy of the United States and is
rated among the best companies worldwide. This has been achieved by the company’s reduced
cost of structure. The company has a great number of retailers that act as sellers at third party
level. The company earned approximately $90 Billion out of the sales made online last year. By
2018 the company will have defeated their close competitor Wal-Mart by far in terms of
revenue(Karls, 2016).
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The company has also developed synergies that link the market to online services.
Amazon prime is also incorporated. There have been great benefits to the company’s output
through combination of market place, Amazon Prime and Amazon Web Services. This has
increased speed and capacity.
The only threat that is bringing weakness to Amazon Company is the stiff competition
from Wal-Mart. Wal-Mart has established a market in many regions internationally and offers as
many services as Amazon and at a lower price. This trick is used by Wal-Mart to draw more
customers to themselves hence defeating Amazon.
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References
Karls, J. (2016). Amazon SWOT Analysis 2016. Retrieved from Strategic Management Insight:
http://ww.strategicmanagementinsight.com
Sheppard, T. (2016). The 5 Cs of Credit. Retrieved from Liveoak: http://www.liveoakbar.com
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