This report created from the financial statements of The Amazon.com, Inc. Company

Running Head: FINANCIAL ANALYSIS 1 Financial Analysis Students Name Executive summary FINANCIAL ANALYSIS 2 This report created from the financial statements of The Amazon.com, Inc. Company (AMZN) provides an analysis and evaluation of the actual and the prospective liquidity, profitability and the financial stability of the company. The methods that have been used in the analysis include trend analysis, the vertical analysis and the horizontal analysis. Also we have used certain analysis such as Quick ratio, debt ratio, and the current ratios. More calculations that have been used includes the returns on the owners equity, the earning per share, net operating working capital, total operating capital, net operating capital, net operating profit after taxes, operating cash flow and free cash flow. A result from the data reveals that, all the company ratios are above the industries averages. Comparative performance is good in the area of the liquidity, credit control and inventory management. The report finds that the tidings for the company are positive in the near future. The major areas of weakness highlighted require further investigation and immediate action by management. The recommendations that were provided include; Improving the average accounts receivable collection period, Raising/ increasing the inventory turnover and reduction of prepayments in order to have enough operating cash for the subsequent periods. The investigation in this report also had its shortcomings that arose and are highlighted as; FINANCIAL ANALYSIS 3 The forecasted figures used are estimates that sometimes maybe arbitrate; we also cannot fully provide data on the position of other companies with the data limitation we have experienced. The monthly details would have given us more information from which we could base a proper in year trend analysis, rather than the blanket whole year analysis provided. Though we had the above mentioned strain in preparation of this report, we still great belief that the analysis provided is best suited to show the standing of the Amazon.com, Inc. Company (AMZN). In the financial report below, the strengths, weakness, opportunity and threats have been highlighted as we analyze the various financial sub segments. Identify your company, its industry, and analyze the important segments (percentage of sales or subsidiaries) of your company compared to its industry and its overall business Amazon.com, Inc. operates as an online retailer in North America and internationally. It operates through the North America, International, and Amazon Web Services (AWS) segments. The company serves consumers through retail websites, such as amazon.com, amazon.ca, and amazon.com.mx, which primarily include merchandise and content purchased for resale from vendors and those offered by thirdparty sellers. Amazon.com, Inc. was founded in 1994 and is headquartered in Seattle, Washington. The only company that has been able to match the flirtatious margins by competitors. This development must be watched to avoid the company slipping into a deep competition for sales. The company falls under the Catalog & Mail Order Houses Industry which is a service sector industry. Perform a complete financial analysis of your chosen company's financial statements horizontal, vertical (Percentage of Sales and Common-Size), and changes in ratiosfor the last two years. FINANCIAL ANALYSIS 4 In the income statement the revenue of 88.98 billion is an increase as compared to the financial year ended 31st December 2013 where it was at 74.45billion, which is a 19.52% increase. Such a positive increase is encouraging though it's not the best for company since it was raised against the increased net receivables. Such a situation is a weakness to the company since growth in sales with increased net receivables will have a negative impact in the future. Net receivables increase is a potential for increased bad debt which will be a threat to the long term operation of Amazon Company. The negative revenue growth is a weakness to the company since decreased growth will mean that the net profits will reduce. FINANCIAL ANALYSIS 5 The gross profit of the co is a decrease from the previous year. The earning before interest and taxes of 0.69 billion is lower than the markets EBITDA but lower than 2013. The amount of sales being higher than 2013 is strength but it gross profit being lower than that 2013 is a weakness. The balance sheet show the earning per share of -5.22 that is below the market and 2013 so it is the list EPS in the whole industry. Such a case is a weakness that must be analyzed by the board. It can be corrected by the board increasing the amount that is attributable for dividends and reducing the investment. FINANCIAL ANALYSIS 6 Compare all ratios to industry averages. Evaluate the company's ratios against the industry averages FINANCIAL ANALYSIS 7 The ratios provided for the market and the specific companies that are provided are the operating margin, gross margin, earning per share and price per earning. The gross margin of the co is the lowest in the industry. The margin being lower than that of the market means that the company has a greater cushion in terms of loss and the amount of loss that can be accommodated is quite large. This is one of the weaknesses of the company that is highly disregards in terms of boosting long term earnings. The earnings per share of the co is negative in year 2014 compare to market which is a weakness that the management must analyze and make changes in terms of the amount attributed to shareholder. The levels of comparison show that the company is operating below the market rates and therefore are at a risk threat of losing the shareholders. FINANCIAL ANALYSIS 8 Compare all ratios to industry averages. Evaluate the company's ratios against the industry averages. The company's ratios are quite lower than the market ratios in vital ratios such as the gross margin and the operating margin as compared to industries. The only ratio where the company performed below the industry is in the EPS where they showed a weakness at negative EPS against the markets positive EPS. Analyze the company's cash flows. The net cash flows for the year end period to December 2014 at negative meaning that the company ended the year with a negative outflow. The company also showed some form of laxity in changing the debtor's period and the creditor's period in order to better their cash in hand. This is a weakness that will threaten the performance of the company in the next financial year. The financial year returns from investment activities were all negative returns meaning that either most of the investments were at the early development with opportunity that the inflow will be positive in the future. FINANCIAL ANALYSIS 9 Assess the overall financial health of your company based on this financial analysis. The company is financially healthy since they can be able to meet their current obligations when they arise. The total current assets stand at 31,327,000 against the current liability of 28,089,000. From this data we can say that the company in the short term is financially healthy. This is an opportunity for the company to gain for the operations of the year and invest more to increase liquidity. Further more in the long-term the company is still solvent with assets of 54,505,000 against the liability of 43,764,000. This is another strong point and an opportunity to counter the competitors with lower assets to cover for the liability The company has been faced by the threat of contingency liabilities that affects the operation of the business. Contingencies though not recorded in the statement are potential source of cash outflow if those cases are ruled against the company. The law suits include those filed in relation to monopolistic and discriminatory practices. Some of those cases that have been settled out of court have ended up costing the company a lot of money. Such situations affect the company's cash flow and also the long term position of the state. The emergence of other co's as a strong competitor is worrying for the company and is also a big threat too. The other has had market capitalization which is higher than the markets and that of Amazon. Such emergence is a threat to the market share of sales and the oversea market strategy. References http://finance.yahoo.com FINANCIAL ANALYSIS 10 For this assignment, you will complete the Financial Overview component of Amazon. To complete this assignment, use the Financial Analysis Toolkit Excel file, provided in the attachment, to complete a financial analysis of Amazon over the last two most recent years available in annual reports. Replace the numbers provided in the Excel file with the appropriate numbers for Amazon. Then, write a 2-3-page financial analysis of your company, addressing the following elements: Identify your company, its industry, and analyze the important segments (percentage of sales or subsidiaries) of your company compared to its industry and its overall business. Perform a complete financial analysis of your chosen company's financial statementshorizontal, vertical (Percentage of Sales and Common-Size), and changes in ratiosfor the last two years. Compare all ratios to industry averages. Evaluate the company's ratios against the industry averages. Explain the significance of the company's ratios when compared to industry averages. Analyze the company's cash flows. Assess the overall financial health of your company based on this financial analysis. A great way to integrate the completed calculations from your Excel sheet into your written analysis is to paste pieces of the worksheet directly into your Word document. You are also encouraged to create graphs or charts from the data that may illustrate your analyses as well. Please notify me when you're done. Thank you so much A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 B C D E F Tool Kit for Analysis of Financial Statements Financial statements are analyzed by calculating certain key ratios and then comparing them with the ratios of other firms and by examining the trends in ratios over time. We can also combine ratios to make the analysis more revealing, those indicated below are exceptionally useful for this type of analysis. RATIO ANALYSIS (Section 3.1) *NVIDIA Fiscal Years starts and ends on Jan 31, such that FY13 represents Jan 31,2012 to Jan31, 2013 Input Data: 2013 2012 Year-end common stock price $12.26 $13.86 Year-end shares outstanding (in thousands) 616,756 612,191 Tax rate 15% 12% After-tax cost of capital Lease payments (in thousands) $18,998 $21,439 Required sinking fund payments $0 $0 Balance Sheets (in thousands of dollars) Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Net plant and equipment Total assets 2013 $906,223 $2,995,097 $454,252 $419,686 $4,775,258 $1,636,987 $6,412,245 2012 $767,218 * Added to cash and qu $2,461,700 $336,143 $340,297 $3,905,358 $1,647,570 * In addition to equpme $5,552,928 Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Preferred stock (2,00,000 shares: none issued) Common stock (616,756,134 shares oustanding 2013 and 612 Retained earnings Total common equity Total liabilities and equity $356,428 $0 $619,795 $976,223 $608,319 $1,584,542 $0 $720 $3,246,088 $4,827,703 $6,412,245 $335,072 $0 $594,886 $929,958 $477,246 $1,407,204 $0 $700 $2,730,418 $4,145,724 * Added to Total Comm $5,552,928 Income Statements (in thousands of dollars) Net sales Operating costs 2013 2012 $4,280,159.0 $3,997,930.0 $3,631,920.0 $3,349,631.0 51 52 53 54 55 56 57 58 59 60 61 62 63 A B C Earnings before interest, taxes, depr. & amort. (EBITDA) Depreciation Amortization Depreciation and amortization Earnings before interest and taxes (EBIT) Less interest Earnings before taxes (EBT) Taxes (15.0%, 12.4%) Net income before preferred dividends Preferred dividends Net income available to common stockholders Common dividends Addition to retained earnings D $648,239.0 $0.0 $0.0 $0.0 $648,239.0 -$13,800.0 $662,039.0 $99,503.0 $562,536.0 $0.0 $562,536.0 $0.0 $562,536.0 E $648,299.0 $0.0 $0.0 $0.0 $648,299.0 -$15,097.0 $663,396.0 $82,306.0 $581,090.0 $0.0 $581,090.0 $0.0 $581,090.0 F A 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 B C D E F Calculated Data: Operating Performance and Cash Flows 2013 2012 $803,938.0 $513,700.0 $2,440,925.0 $2,161,270.0 $551,003.2 $567,909.9 $562,536.0 $581,090.0 $551,003.2 $567,909.9 $271,348.2 N/A Net operating working capital (NOWC) Total operating capital Net Operating Profit After Taxes (NOPAT) Net Cash Flow (Net income + Depreciation) Operating Cash Flow (OCF) Free Cash Flow (FCF) Calculated Data: Per-share Information 2013 $0.91 $0.00 $7.83 $0.91 $0.44 2012 $0.95 $0.00 $6.77 $0.95 N/A 2013 2012 Industry Average 4.89 4.46 4.20 3.83 2.22 1.3 2013 2012 Industry Average 10.20 38.7 2.61 0.67 11.75 30.69 2.43 0.72 2013 2012 24.71% 0.33 17.33% 46.97 128.36 25.34% 0.34 14.23% 42.94 105.60 2013 2012 13.14% 10.11% 8.77% 11.65% 14.53% 11.67% 10.46% 14.02% Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) Free cash flow per share (FCFPS) LIQUIDITY RATIOS (Section 3.2) Liquidity ratios Current Ratio Quick Ratio ASSET MANAGEMENT RATIOS (Section 3.3) Asset Management ratios Inventory Turnover Days Sales Outstanding Fixed Asset Turnover Total Asset Turnover DEBT MANAGEMENT RATIOS (Section 3.4) Debt Management ratios Debt Ratio Debt-to-Equity Ratio Market Debt Ratio Times Interest Earned EBITDA Coverage Ratio PROFITABILITY RATIOS (Section 3.5) Profitability ratios Profit Margin Basic Earning Power Return on Assets Return on Equity MARKET VALUE RATIOS (Section 3.6) 4.78 25.6 *Industry leader 1.89 *Industry leader 0.63 Industry Average 39.30% *Industry leader 0.65 *Industry leader 24.40 *Industry leader 196.79 *Incorrect for 2013 and N/A Industry Average 19.96% 17.63% *Industry leader 12.56% 19.43% Industry A B C D E F 114 2013 2012 Average 115 Market Value ratios 13.44 14.60 25.77 *NVIDIA doesn't accoun 116 Price-to Earnings Ratio 13.44 14.60 9.66 117 Price-to-Cash Flow Ratio 11.66 13.09 5.13 *Industry Leader 118 Price-to-EBITDA 1.57 2.05 3.59 119 Market-to-Book Ratio 120 121 TREND ANALYSIS, COMMON SIZE ANALYSIS, AND PERCENT CHANGE ANALYSIS (Section 3.7) 122 123 TREND ANALYSIS Trend analysis allows you to see how a firm's results are changing over time. For instance, a firm's ROE may b 124 the benchmark, but if it has been steadily rising over the past four years, that should be seen as a good sign. 125 126 A trend analysis and graph have been constructed on this data regarding Nvidia's ROE over the past 5 years. (N average data for earlier years has been provided.) 127 128 129 NVIDIA 2009 -1.2% 130 2010 -2.7% 131 2011 8.7% 132 2012 15.9% 133 134 2013 11.7% 135 136 Figure 3-1 Rate of Return on Common Equity 137 138 ROE 139 (%) 140 141 142 28.0% 143 144 24.0% 145 146 147 20.0% 148 149 16.0% 150 151 12.0% 152 153 154 8.0% 155 156 4.0% 157 158 0.0% 159 2009 2010 2011 160 161 ROE AMD -213.1% 107.4% 56.7% 37.7% -111.2% Intel 12.93% 10.82% 25.16% 27.15% 22.66% NVIDIA AMD Intel 2012 2013 A B C D E F 162 163 COMMON SIZE ANALYSIS 164 In common size income statements, all items for a year are divided by the sales for that year. 165 166 Figure 3-2 Common Size Income Statements 167 Industry Composite 2013 Net sales 100.0% Operating costs 72.1% Earnings before interest, taxes, depr. & amort. (EBITDA) 27.9% Depreciation and amortization 0.0% Earnings before interest and taxes (EBIT) 27.9% Less interest 0.0% Earnings before taxes (EBT) 27.9% Taxes (15.0%, 12.4%) 7.3% Net income before preferred dividends 20.6% Preferred dividends 0.0% Net income available to common stockholders (profit margi 20.6% Nvidia 2013 168 100.0% 169 84.9% 170 15.1% 171 0.0% 172 15.1% 173 -0.3% 174 15.5% 175 2.3% 176 13.1% 177 0.0% 178 13.1% 179 180 181 182 In common sheets, all items for a year are divided by the total assets for that year. 183 184 Figure 3-3 Common Size Balance Sheets Industry Composite 2013 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 Nvidia 2013 2012 Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Net plant and equipment Total assets 13.0% 11.5% 7.1% 5.6% 37.2% 62.8% 100.0% 14.1% 46.7% 7.1% 6.5% 74.5% 25.5% 100.0% 13.8% 44.3% 6.1% 6.1% 70.3% 29.7% 100.0% Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Preferred stock Total common equity Total liabilities and equity 12.6% 0.4% 2.3% 15.3% 61.1% 76.4% 0.0% 23.6% 100.0% 5.6% 0.0% 9.7% 15.2% 9.5% 24.7% 0.0% 75.3% 100.0% 6.0% 0.0% 10.7% 16.7% 8.6% 25.3% 0.0% 74.7% 100.0% PERCENT CHANGE ANALYSIS 2012 ### 83.8% 16.2% 0.0% 16.2% -0.4% 16.6% 2.1% 14.5% 0.0% 14.5% A B C D E F 210 In percent change analysis, all items are divided by the that item's value in the beginning, or base, year. 211 212 Figure 3-4 Income Statement Percent Change Analysis 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 Base year = 2012 Net sales Operating costs Earnings before interest, taxes, depr. & amort. (EBITDA) Depreciation and amortization Earnings before interest and taxes (EBIT) Less interest Earnings before taxes (EBT) Taxes (15.0%, 12.4%) Net income before preferred dividends Preferred dividends Net income available to common stockholders Balance Sheet Percent Change Analysis (not in textbook) Percent Change in 2013 Base year = 2012 Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Net plant and equipment Total assets 18.1% 21.7% 35.1% 23.3% 22.3% -0.6% 15.5% Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Preferred stock (2,00,000 shares: none issued) Common stock (616,756,134 shares oustanding 2013 and 612 Retained earnings Total common equity Total liabilities and equity 6.4% 0.0% 4.2% 5.0% 27.5% 12.6% 0.0% 2.9% 18.9% 16.5% 15.5% DU PONT ANALYSIS (Section 3.8) 255 256 Percent Change in 2013 7.1% 8.4% (0.0%) 0.0% (0.0%) (8.6%) (0.2%) 20.9% (3.2%) 0.0% (3.2%) Nvidia 2013 ROE = 11.65% (Profit (Equity margin) (TA turnover) Multiplier) 13.14% 0.67 1.33 A 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 Nvidia Industry Average B 2012 C 14.02% 20.72% D 14.53% 19.96% E 0.72 0.63 F 1.34 1.65 G 1 2 3 4 5 6 7 8 9 10 012 to Jan31, 11 2013 12 13 14 15 16 17 18 19 20 21 22 23 24 * Added to 25cash and quivalents prepaid expense and deferred income taxes 2013 26 69,701 27 103,736 28 29 * In addition 30 to equpment also includes goodwill, intangible assets, and other assets 31 2013 32 641,030 312,332 33 107,481 34 35 36 37 2013 38 3,193,623 39 -1,622,709 40 9981 41 42 * Added to 43Total Common equity additional paid-in capital, treasuary stock, and accumulated other comprehensive income 44 45 46 47 48 49 50 G 51 52 53 54 55 56 57 58 59 60 61 62 63 G 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 *Industry92 leader *Industry93 leader 94 95 96 97 98 *Industry99 leader *Industry leader 100 *Industry leader 101 *Incorrect for 2013 and 2012 as interest combined is income not expense 102 103 104 105 106 107 108 *Industry leader 109 110 111 112 113 G 114 115 *NVIDIA 116 doesn't account for depreciation in their 10-K statements Same P/E P/CF Ratio because there is no depreciation 117 *Industry Leader 118 119 120 121 122 123 nstance, a firm's ROE may be slightly below 124 d be seen as a good sign. 125 ROE over the past 5 years. (Nvidia and indusry 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 G 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 G nning, or base, year. 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 G 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299