Financial Report of Amazon
Executive Summary
This theory is based on the financial business plan of Amazon. The success of Amazon is mainly reliant on the presence of all brands that it particularly carries; however, its model of business does not assist its endurance. Many factors of the business model of Amazon are explained as prospective brand tempering forces. The successful and effective strategy of marketing and business illustrates how the company continues to innovate and evolve with new services and products. In this report, the ratio analysis and financial statement of the company will be illustrated to look at how Amazon is effectively performing by using accurate marketing and business strategy around the world. The mission statement of Amazon is to serve all customers through physical and online stores and mainly focus on convenience, price and selection.
In this report, the financial ratio analysis is mainly to be commenced like liquidity, profitability ratios etc., mainly along with undertaking some of the assumptions to make fiscal projections as it could be acknowledged that how the investors and lenders will particularly pay back all their debt and what they have planned how they will use their capital and also how they will grow their business. They also support evaluating their fiscal needs, monitoring capital, scheduling large expenditures, and schedules of production. In last, this report mainly will validate which financial ratios are suitable for Amazon.
Table of Contents
Introduction
Amazon is an American multinational technology company which mainly focuses on artificial intelligence, digital streaming, cloud computing and e-commerce. It has been mainly referred to as “one of the most significant cultural and economic in the universe”, and also is one of the most cherished brands in the world. It was mainly started by Jeff Bezos in Bellevue, Washington on 5th July 1994 (Richard, 2014).
A unique thing about Amazon is the organization has never mainly content to “remain in its particular lane”. The organization started as an online trader and it is now the powerhouse in the operations of cloud computing. This report evaluates the fiscal ratios through its annual report for 2022 of Amazon. They also evaluate the break-even analysis and fiscal estimates which are particularly based on appropriate assumptions. Through this statement, the organization could assess which financial source is accurate to earn profits and develop its business operations. In last, the financial statement on the finances of the organization must give accurate information on net income, profitability and operations of the business (Richard, 2014).
Brief
Financial Ratios
Financial statements are some written documents or record that mainly conveys the activities of Amazon and its economic performance. These are frequently audited by the firms, accountants and agencies of governments etc. for ensuring accurateness and for purposes of investing, financing or tax. Financial information is mainly utilized by financial experts and shareholders of an organization for assessing the productivity of Amazon and predicting the course of the organization’s value of shares (Faello, 2015).
Based on the annual report of Amazon for 2022, the financial reports calculated are given below:
Profitability Ratios:
- Operating Ratios – (Cost of goods sold + Operating Expenses / Revenue from operations)*100
= (66424 + 117917 / 116444)*100
= (184341 / 116444)*100
= 1.5*100
= 150:1
- Gross Profit Ratio – (Revenue – Cost of Goods Sold/ Revenue*100)
= (116444 – 66424 / 116444*100)
= (50,020 / 116444*100)
= 0.42*100
= 42:1
The ability of the business for creating profit margins regarding equity of investors, operating expenditures, financial assets, and sales over the provided time is evaluated and measured by investors and shareholders utilizing the financial statement ratios. Ratios of profitability include operating ratios and gross profit also. All these financial ratios are calculated by the given annual report of Amazon (Faello, 2015).
Liquidity Ratios:
- Quick Ratio – (Current Assets – Inventory / Current Liabilities)
= (133876 – 38153 / 139508)
= (95723 / 139508)
= 0.68:1
Current Ratio – Current Assets / Current Liabilities
= (133876 / 139508)
= 0.95:1
The capacity of all indicators like quick ratio, liquidity ratio etc. assists the organization in estimating its liquidity point, which evaluates the capacity of the organization for satisfying financial obligations and also its margin of security. In the particular situation of the current ratio, Amazon has obtained a perfect ratio in the year 2022 and it means that the organization could pay further liabilities (Innocent, et al., 2013).
Debt Ratio:
Debt Ratio = (Total debt / Total Assets)
= (276766 / 410767)
= 0.7:1
After evaluating the liquidity ratios and profitability ratios, it could be seen that the percentage of assets of the business are backed by liabilities. In the situation of the debt ratio, it is mainly identified that Amazon have a ratio particularly below and it means that the organization have more assets than debts (Innocent, et al., 2013).
Asset Activity Ratios
Asset Activity ratio = Cost of Goods Sold / Average Inventory
Average Inventory = 38153 + 24119 / 2
= 31136
So, 66424 / 31136
= 2.1:1
The assets activity ratios are mainly engaged for assessing how accurately Amazon utilizes all its resources for producing revenue and profit. It is engaged in evaluating the money mainly invested in the particular property and the revenue it is generating. In this particular situation, Amazon could be subsidized and funded by its shareholders (Mulyadi & Sihabudin, 2020).
Financial Projections:
In the annual report of Amazon, the organization is utilizing substitute assumptions for analyzing the financial predictions as they mainly research and consider the making of some other crucial data that may be utilized in the making of the forecast statements of profit and loss, balance sheet and also the making of cash flow statement in accumulation to extended costs or expenditures (Mulyadi & Sihabudin, 2020).
So, the other main assumptions that are undertaken are particularly based on financial statements including the statement of cash flow, accounts of profits and loss and balance sheet (Yahaya, et al., 2015).
These main assumptions are to be mainly considered as the organization prefers for creating a comprehensive range of products and services for satisfying the demands and needs mainly their customers in the retail market all around the world so that they could easily familiarize themselves with all these changing needs and demands (Yahaya, et al., 2015).
The Financial Projections of Amazon are:
- Income Statement
Income Statement
Amazon:
- Cash Flow Statement:
| Cash Flow Statement | |
| Particulars | Amount |
| Net Income/Starting Line | -3,844 |
| Cash From Operating Activities | 8,965 |
| Depreciation/Depletion | 8,978 |
| Deferred Taxes | -1,955 |
| Non-Cash Items | 12,154 |
| Cash Taxes Paid | 453 |
| Cash Interest Paid | -2,587 |
| Changes in Working Capital | -18,077 |
| Cash From Investing Activities | 906 |
| Capital Expenditures | -15,724 |
| Other Investing Cash Flow Items, Total | 3,646 |
| Cash From Financing Activities | 1,990 |
| Issuance (Retirement) of Stock, Net | -3,334 |
| Issuance (Retirement) of Debt, Net | 7,960 |
| Foreign Exchange Effects | 16 |
| Net Change in Cash | 1,101 |
| Beginning Cash Balance | 36,377 |
| Ending Cash Balance | 37,478 |
| Free Cash Flow | 18,075.12 |
| Free Cash Flow Growth | 215.69 |
- Balance Sheet:
| Balance Sheet | |
| Particulars | Amount |
| Total Current Assets | 133,876 |
| Cash and Short Term Investments | 60,710 |
| Cash | |
| Cash & Equivalents | 37,478 |
| Short Term Investments | 29,992 |
| Total Receivables, Net | 34,804 |
| Accounts Receivables – Trade, Net | 34,804 |
| Total Inventory | 38,15 |
| Total Assets | 410,767 |
| Property/Plant/Equipment, Total – Net | 232,136 |
| Goodwill, Net | 20,229 |
| Long Term Investments | 11,800 |
| Other Long Term Assets, Total | 20,233 |
| Other Assets, Total | 26,581 |
| Total Current Liabilities | 139,508 |
| Accounts Payable | 71,219 |
| Accrued Expenses | 56,254 |
| Current Port. of LT Debt/Capital Leases | 2,898 |
| Other Current liabilities, Total | 12,818 |
| Total Liabilities | 276,766 |
| Total Long Term Debt | 58,053 |
| Long Term Debt | 58,053 |
| Capital Lease Obligations | 20,885 |
| Other Liabilities, Total | 89,982 |
| Total Equity | 131,402 |
| Additional Paid-In Capital | 63,871 |
| Retained Earnings (Accumulated Deficit) | 82,071 |
| Treasury Stock – Common | -7,837 |
| Other Equity, Total | -4,782 |
| Total Liabilities & Shareholders’ Equity | 419,728 |
| Total Common Shares Outstanding | 0.01 |
Break-even analysis
It is the financial calculation which helps in weighing cost of the new service, organisations against the sell price unit. It helps to determine the point at which organisation will break even. In other words, break-even relives point at which to cover all the costs there is a need to sell enough units. In the financial business plan of amazon, break-even analysis plays a vital role. On three different it depends- price, profitability, and retail sales. It is a measure of whether amazon has earned or lost money so that your investment equals your investment dollar for dollar. Two simple ways can be used to lower the break-even point. The first is lower costs and the second is to raise prices. It is also sometimes known as the cost-benefit analysis. Due to the number of sales required by Amazon to cover all fixed & variable costs that occurred by this company throughout a specific time, the company must perform a Breakeven analysis (Soboleva, et al., 2018). Various methods can be used for calculating break-even analysis-
1) Equation method
2) Contribution margin method
3) Budget total basis
4) Graphical presentation method (SHROTRIYA, 2019).
Some of the assumptions are-
1) All the cost elements i.e. administration, production, and selling distribution can be divided into variable components & fixed components.
2) Per unit, output variable cost remains constant.
3) At all output volumes, fixed cost remains constant.
4) At all the levels of output per unit selling price remain constant or unchanged.
5) At the general level of price, there will be no change (Mazur, et al., 2018).
Benefits of break-even for amazon:
For planning and decision-making, break-even analysis is a powerful tool and it is also used for highlighting critical information like the prices, quantities sold, cots and so much more.
1) It helps to price smarter for goods and services.
2) It helps to cover the fixed costs.
3) It helps in catching the missing expenses
4) It helps in setting the targets of sales revenue
5) It helps in making the smarter decisions
6) It helps in limiting the financial strains
To calculate the break-even point in units of Amazon the formula which will be used is-
Break-even point (units) is equal to the fixed cost/ (per unit sales price minus variable cost per unit) (SHROTRIYA, 2019).
By the market value, the amazons rank as one of the world’s top most organization. According to the reports of 18 Feb 2022, the market capitalization of amazon was $ 1.6 trillion. During its fourth quarter amazon posted its net income of $ 14.3 billion for its 2021 fiscal year. The net income of the company increased by 98.3% over the same period a year ago, Amazon reported a 9.4% year-over-year (YOY) increase in revenue for the third quarter, to $137.4 billion in sales. Another source of Amazon’s income increased significantly, which boosted profits. In its operating income measure, which is used by business segments to measure profitability, the company fell 49.7% year over year to $3.5 billion (Lynn, & Rosati, 2021).
The primary source of revenue for amazon is retail with physical & online stores together accounting for the biggest share. Into three segments, amazon has divided its business: North America, international, and AWS (amazon web service). The first two segments in this breakdown, North America & International, are based on Amazon’s business divisions. The company generates revenue by selling its products in North America and other countries, as well as through subscriptions and exports (Lynn, & Rosati, 2021).
Let’s discuss some suitable sources of finance through debt and equity:
1) Debt financing: When amazon issues bonds or when the organization borrows from the bank it is known as debt financing. Bank loans or bonds issued by an institution or individual may enable a company to borrow money from a bank. Therefore, the banks and bondholders of the company are the company’s creditors. Debt financing generally refers to the long-term obligations of a company. To be fair, we should count all liabilities of the firm, as every liability is a debt. Furthermore, a company’s debt to suppliers comes under the category of debt financing in addition to the bond issue and bank loans. It is, in effect, a loan that a supplier gives to a company if it allows it to pay for the invoice later. While eventually, the company will be responsible for payment, in the short term it is recording the transaction as an account payable, a debt (Tekin, 2021).
2) Equity financing: Taking advantage of a company’s retained earnings or issuing equity to raise funds is called equity financing. Investors are the company’s owners, as opposed to debt providers.
Financial projection requirements:
1) It helps in predicting the cash flow statement of amazon.
2) It helps prepare the amazon balance sheet.
3) The income statement is analyzed.
4) It helps in monitoring the performance of the business (Tekin, 2021).
Advantages
Some of the advantages of financial forecasting are-
1) Helps in formulating the business plans.
2) Over the cash flows, there is better control of the organization.
3) It minimizes the financial risk.
5) For the future it helps in determining the company’s financial needs.
Disadvantages
Some of the disadvantages of financial forecasting are-
1) The information is not right.
2) It is very time consuming
3) For the new business, it is very difficult.
Suitability
1) For emergencies, a plan can be created.
2) Beforehand purchase and sale can be planned.
3) Financial requirements can be established.
Debt or equity financing
Based on the above analysis of the debt and equity financing it would be better off to go with the debt financing if amazon wants to expand its business more. Many organizations use a debt and equity financing combination as there are different advantages of using both. As amazon is now also attacking the financial services from each angle without applying to be a conventional bank. and debt financing also involves borrowing money and then paying it again on interest. As amazon is a profitable organization so there will be no pressure from the lenders.
Some sources of debt financing are-
1) SAB loans
2) Credit cards for business
3) Terms loans
4) Invoicing factoring
5) Business lines of credit
It is largely determined by the financial situation and creditworthiness of amazon whether or not you can secure debt financing.
There are various advantages of debt financing-
1) Over the business, the lender has no control.
2) Once the loan is paid by the organization, amazon does not have any relationship with the financier.
3) The interest paid is tax-deductible.
4) It is easy for the organization to forecast the expenses because there are no fluctuations (Begenau, & Salomao, 2019).
Conclusion
At the end of the report, it has been concluded that amazon is an advanced organization and it has various ways which can be used to expand the business. Amazon offers its clients the best services and products globally. It is also better for amazon to better go off with debt financing.
Based on the income statement amazon’s gross profit on June 30, 2022, was $49,945 and its total operating expenses are $ 117,917. As per the balance sheet of amazon, the total current assets are $133,876, total assets are $ 410,767. The financial statement of amazon consists of an income statement, cash flows, & operating income (Begenau, & Salomao, 2019).
References
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