Hello,

You helped me with my previous paper on Amazon, Inc. (attached). This paper is a continuation of that previous paper, and should now include a business analysis including the analyzation of the competitive environment, an industry analysis and a statement of Amazon's health within that environment. It should also include a SWOT analysis and conclusion stating whether or not you recommend buying, selling, or holding the stock.

Thank you!

Financial Analysis: Amazon.com, Inc. Steven Burr Accounting Applications for Management Professor Rosenboom Fall, 2017 Burr 2 Net Operating Profit After Tax The net operating profit after tax (NOPAT) measures the earnings prospective of the corporation if there were no debts. It provides a better look at the operating efficiency of the corporation. In other words, it calculates the after-tax profits that the company makes from its operations disregarding the interest payments. The operating income of Amazon.com, Inc. stood at $4,186 million during the year ended December 31, 2016. The effective interest rate during the year amounted to 36.61%. The tax on operating income is calculated at $1,533 million. To calculate the net operating profit after tax the tax is deducted from operating income. The NOPAT of Amazon.com, Inc. is $2,653 million which is calculated as under: Amazon.com, Inc. Net Operating Profit After Tax 2016 Operating Income $ Effective Tax Rate 4,186 36.61% Tax on Operating Income Net Operating Profit After Tax 1,533 $ 2,653 Thus, the NOPAT is higher than the net income which is $2,371 million. A higher NOPAT suggests that the company is paying a considerable portion of its income in form of interest on loans. The management of the company should focus at reducing its debt obligations to reduce the interest expense. Net Operating Assets Net operating assets are the assets that are directly related with the operations of the business. To calculate these assets the balance sheet of the corporation is reformatted and the operating assets and financing assets are bifurcated. These assets are useful to compare the net operating profit with net Burr 3 operating profit. It establishes a relationship among the income that is generated from the business operations and the assets that are used to earn than income. To calculate the net operating assets the operating liabilities are deducted from operating assets. For calculating operating assets, the cash and cash equivalents and marketable securities are deducted from the total assets. For calculating the operating liabilities, the long-term liabilities are deducted from the total liabilities. The net operating assets of Amazon.com, Inc. have shown an increasing trend as the net operating assets have increased from $9,000 million in the year 2014 to $11,052 million in the year 2015. It further increased to $13,605 million in the year 2016. The increase in the net operating assets of the company suggests that the company is becoming more efficient in using its assets. Amazon.com, Inc. Net Operating Assets 2016 2015 2014 Operating Assets Total Assets $ Less: Cash and Cash Equivalents Less: Marketable Securities Operating Assets (A) 83,402 $ 64,747 $ 54,505 19,334 15,890 14,557 6,647 3,918 2,859 $ 57,421 $ 44,939 $ 37,089 $ 64,117 $ 51,363 $ 43,764 Operating Liabilities Total Liabilities Long term debt Other long term liabilities 7,694 8,227 8,265 12,607 9,249 7,410 Operating Liabilities (B) $ 43,816 $ 33,887 $ 28,089 Net Operating Assets (A-B) $ 13,605 $ 11,052 $ 9,000 Financial Ratio Analysis Burr 4 Return on Equity The return on equity (ROE) calculates the efficiency of the management in using the wealth of its stockholders to earn net income. This ratio is calculated by dividing the net income by average stockholder's equity. The ROE of Amazon.com, Inc. was -2.35% in the year 2014 due to the net loss sustained by the company. But it improved in the year 2015 and was 4.94%. It further improved in the year 2016 and stood at 14.52%. The ratio of the company is increasing which indicates that the management is making more efficient utilization of the stockholder's wealth. A higher return on equity will have a positive impact on the potential stockholders and investors. Current Ratio The current ratio is a measure of liquidity and determines the ability of the corporation in making payment of its current liabilities from its current assets. The current assets are divided by current liabilities to calculate this ratio. It determines the dollar value of current assets that the company is having against each dollar of current liabilities. The ratio of Amazon.com, Inc. was 1.12 in the year 2014 which decreased to 1.05 and 1.04 in the years 2015 and 2016 respectively. It indicates a decline in the ability of the company to pay its short-term obligations from its current assets. The ratio is on border line and a further decrease in this ratio may create trouble for the company as the short-term creditors will hesitate in extending credit. Quick Ratio The quick ratio is a measure of liquidity and determines the ability of the corporation in making payment of its current liabilities from its quick assets. The quick assets are divided by current liabilities to calculate this ratio. It determines the dollar value of quick assets that the company is having against each dollar of current liabilities. The ratio of Amazon.com, Inc. was 0.82 in the year 2014 which decreased to 0.75 and 0.78 in the years 2015 and 2016 respectively. It indicates a decline in the ability of the company to pay its short-term obligations from its quick assets. The ratio is below one which suggests that the Burr 5 company will not be able to pay its short-term obligations from its quick assets. The impact of lower quick ratio is that the short-term creditors will hesitate in extending credits to the company. Interest Earned Ratio This ratio determines the ability of the corporation in paying its interest obligations on its debts. To calculate this ratio the earnings before interest and taxes is divided by interest expense. The ratio of company was merely 0.85 in the year 2014 which increased to 4.86 in 2015 and subsequently to 8.65 in the year 2016. The increasing trend in the ratio indicates that the ability of the company to pay its interest obligations is increasing. The effect of increasing interest earned ratio is that the creditors will have more confidence in the company and will extend more credit. Liabilities to Equity Ratio This ratio makes a comparison between the total liabilities and the stockholder's equity. It shows the percentage of financing the company gets from the investors and creditors. The ratio was 4.07 in 2014 which has shown a decreasing trend and stood at 3.84 and 3.32 for the years 2015 and 2016 respectively. It is good to have lower liabilities to equity ratio. The decreasing ratio indicates that the debts of the company are reducing and the owner's capital is increasing. The effect of this ratio is that the interest payments of the company will decrease and the investors will have more faith in investing in the company. Debts to Assets Ratio It is a leverage ratio that calculates the total assets that are funded by availing credit and the assets that are funded from owner's equity. The ratio has shown decreasing trend and it has reduced form 28.76% in 2014 to 24.34% in 2016. It indicates that the company has increased its own assets base and has reduced the assets financing. The effect of this ratio is that the interest expenses will decrease and the creditors will be willing to offer more credit. Burr 6 Receivable Turnover This ratio calculates the number of times the corporation has collected its accounts receivable or the credit sale. The ratio for the year 2014 was 17.15 which has shown increasing trend and stood at 19 and 19.40 for the fiscal years 2015 and 2016 respectively. The increasing ratio indicates a higher efficiency of the company in collecting its credit sales. The impact of this ratio is that the company can make more efficient use of its cash and could increase its net income by circulating the cash more number of times. Inventory Turnover The inventory turnover measures the number of times the business has converted its inventory into sale. More number of times the inventory is converted into sale more is the profit. The ratio for the year 2014 was 7.99 which increased in the year 2016 and stood at 8.13. It indicates that the company has become more efficient in converting its inventory into sale. The impact of improved inventory turnover is that the company can make more sales and could earn more profits. PPE Turnover The PPE turnover calculates the ability of the corporation in generating net sales from its property, plant and equipment. The ratio was higher at 6.38 in the year 2014 which decreased in the year 2015 and stood at 5.52. During the year 2016 the ratio decreased subsequently and stood at 5.34. It indicates a decline in the efficiency of the company to generate net sale from its fixed assets. The effect is that it indicates the inefficiency of the management of the company in utilizing the property, plant and equipment and as a result the confidence of the investors is decreased in investing in the company. Stock Performance The stock of Amazon has shown tremendous performance during last three years. During the month of January 2015, the stock was trading at the levels of $350. It gained smartly and touched the levels of $590 in the month of January 2016. The annual return on the stock was 65.57%. The growth in Burr 7 the market price of the stock continued and it reached to new highs in the month of January 2017 and touched the levels of $825. The annual return on the stock of the company was 40.29%. The increasing trend of the stock continued and it increased by 17.55% and touched the levels of $1,050 in the month of August 2017. At present the stock is trading at $967.99 (August 11, 2017). The three-year return on the stock stood at 39.77%. It indicates that the performance of the stock has been outstanding and it has contributed significantly in increasing the wealth of its stockholders. The analysts section of finance.yahoo.com shows the opinion of 44 analysts. The twelve analysts suggest a strong buy for the stock of Amazon.com, Inc. whereas 27 analysts suggest buying the stock and four suggest holding the stock. The analyst's project that the price of the stock will substantially increase in near future and can also touches the levels of $1,275. The average target price is of the stock is $1,140.39. Cohan, P. (2017) suggested that the stock has increased around 40% every year and with the same pace it could reach $2,000 per share by the year 2019. Conclusion The above analysis reveals a superior performance by amazon.com, Inc. during the last three years. The company has come out of the losses and is on the path of making high profits. The net operating assets of the company have increased substantially. The NOPAT has also shown positive figures which indicate higher operating profits of the company. Almost all the ratios reveal improvement in the performance of the company. The liquidity as well as solvency of the company has improved in the period of analysis. The stock has performed well in the past three years and is expected to reach new highs in the coming years. Thus, the company is in good financial health and is all set to touch new heights. References Analyst Views on the Stock of Amazon.com, Inc. Retrieved from: https://finance.yahoo.com/quote/AMZN/analysts?p=AMZN Burr 8 Cohan, P. (2017) 4 Reasons To Buy Amazon Before It Hits $2,000 In 2019. Retrieved from: https://www.forbes.com/sites/petercohan/2017/05/31/4-reasons-to-buy-amazon-before-it-hits2000-in-2019/#4cceb5ef4faa Form 10-K (2016) Amazon.com, Inc. Retrieved from: https://www.sec.gov/Archives/edgar/data/1018724/000101872417000011/amzn20161231x10k.htm Historical Price of Amazon.com, Inc. Stock. Retrieved from: https://finance.yahoo.com/quote/AMZN/history/ Amazon.com, Inc. Consolidated Statements Of Operations - USD ($) shares in Millions, $ in Millions Net product sales Net service sales Total net sales Operating expenses: Cost of sales Fulfillment Marketing Technology and content General and administrative Other operating expense, net Total operating expenses Operating income Interest income Interest expense Other income (expense), net Total non-operating income (expense) Income (loss) before income taxes Provision for income taxes Equity-method investment activity, net of tax Net income (loss) Basic earnings per share Diluted earnings per share Weighted-average shares used in computation of earnings per share: Basic Diluted 12 Months Ended Dec. 31, 2016 Dec. 31, 2015 $ 94,665 $ 79,268 41,322 27,738 135,987 107,006 $ $ 88,265 17,619 7,233 16,085 2,432 167 131,801 4,186 100 (484) 90 (294) 3,892 (1,425) (96) 2,371 5.01 $ 4.90 $ 474 484 71,651 13,410 5,254 12,540 1,747 171 104,773 2,233 50 (459) (256) (665) 1,568 (950) (22) 596 1.28 1.25 467 477 onths Ended Dec. 31, 2014 Dec. 31, 2013 $ 70,080 $ 60,903 18,908 13,549 88,988 74,452 $ $ 62,752 10,766 4,332 9,275 1,552 133 88,810 178 39 (210) (118) (289) (111) (167) 37 (241) (0.52) (0.52) 54,181 8,585 3,133 6,565 1,129 114 73,707 745 38 (141) (136) (239) 506 (161) (71) 274 0.60 0.59 462 462 457 465 Amazon.com, Inc. Consolidated Balance Sheets - USD ($) $ in Millions Dec. 31, 2016 Dec. 31, 2015 Current assets: Cash and cash equivalents $ 19,334 $ 15,890 Marketable securities 6,647 3,918 Inventories 11,461 10,243 Accounts receivable, net and other 8,339 5,654 Total current assets 45,781 35,705 Property and equipment, net 29,114 21,838 Goodwill 3,784 3,759 Other assets 4,723 3,445 Total assets 83,402 64,747 Current liabilities: Accounts payable 25,309 20,397 Accrued expenses and other 13,739 10,372 Unearned revenue 4,768 3,118 Total current liabilities 43,816 33,887 Long-term debt 7,694 8,227 Other long-term liabilities 12,607 9,249 Total Liabilities 64,117 51,363 Commitments and contingencies (Note 7) Stockholders' equity: Preferred stock, $0.01 par value: Authorized shares - 500 Issued and outsta Common stock, $0.01 par value: Authorized shares - 5,000 Issued shares 5 5 Treasury stock, at cost (1,837) (1,837) Additional paid-in capital 17,186 13,394 Accumulated other comprehensive loss (985) (723) Retained earnings 4,916 2,545 Total stockholders' equity 19,285 13,384 Total liabilities and stockholders' equity $83,402 $64,747 Dec. 31, 2014 Dec. 31, 2013 $ 14,557 $ 2,859 8,299 5,612 31,327 16,967 3,319 2,892 54,505 8,658 3,789 7,411 4,767 24,625 10,949 2,655 1,930 40,159 16,459 9,807 1,823 28,089 8,265 7,410 43,764 15,133 6,688 1,159 22,980 3,191 4,242 30,413 5 (1,837) 11,135 (511) 1,949 10,741 $54,505 5 (1,837) 9,573 (185) 2,190 9,746 $40,159 Amazon.com, Inc. Financial Ratio Analysis Name of Ratio Formula Return on Equity Net Income/Average Stockholder's Equity Current Ratio Current Assets/Current Liabilities 1.04 Quick Ratio Quick Assets/Current Liabilities 0.78 Interest Earned Ratio EBIT/Interest Expnese 8.65 Liabilities-to-Equity Ratio Total Liabilities/Total Equity 3.32 Debt to Assets Ratio Total Debts/Total Assets Receivables Turnover Net Credit Sale/Average Accounts Receivable Inventory Turnover Cost of goods Sold/Average Inventory 8.13 PPE Turnover Net Sales/Average total PPE 5.34 2016 14.52% 24.34% 19.44 2015 2014 4.94% -2.35% 1.05 1.12 0.75 0.82 4.86 0.85 3.84 4.07 26.99% 28.76% 19.00 17.15 7.73 7.99 5.52 6.38 Amazon.com, Inc. Net Operating Assets 2016 2015 2014 Operating Assets Total Assets $ Less: Cash and Cash Equivalents Less: Marketable Securities Operating Assets (A) 83,402 $ 64,747 $ 54,505 19,334 15,890 14,557 6,647 3,918 2,859 $ 57,421 $ 44,939 $ 37,089 $ 64,117 $ 51,363 $ 43,764 Operating Liabilities Total Liabilities Long term debt Other long term liabilities 7,694 8,227 8,265 12,607 9,249 7,410 Operating Liabilities (B) $ 43,816 $ 33,887 $ 28,089 Net Operating Assets (A-B) $ 13,605 $ 11,052 $ 9,000 Amazon.com, Inc. Net Operating Profit After Tax 2016 Operating Income $ Effective Tax Rate 36.61% Tax on Operating Income Net Operating Profit After Tax 4,186 1,533 $ 2,653 Date 1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 6/1/2014 7/1/2014 8/1/2014 9/1/2014 10/1/2014 11/1/2014 12/1/2014 1/1/2015 2/1/2015 3/1/2015 4/1/2015 5/1/2015 6/1/2015 7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016 5/1/2016 6/1/2016 7/1/2016 8/1/2016 9/1/2016 10/1/2016 11/1/2016 12/1/2016 1/1/2017 2/1/2017 3/1/2017 4/1/2017 5/1/2017 6/1/2017 7/1/2017 8/1/2017 8/11/2017 Adj Close 358.69 362.10 336.37 304.13 312.55 324.78 312.99 339.04 322.44 305.46 338.64 310.35 354.53 380.16 372.10 421.78 429.23 434.09 536.15 512.89 511.89 625.90 664.80 675.89 587.00 552.52 593.64 659.59 722.79 715.62 758.81 769.16 837.31 789.82 750.57 768.66 823.48 845.04 886.54 924.99 994.62 968.00 987.78 967.99 967.99 Annual Growth 3-Year Growth Amazon Stock Growth 2017 2016 17.55% 40.29% 39.77% 2015 65.57%