Financial Statement Analysis of Amazon.Com

Financial Statement abbreviation of virago. com, Inc. Introduction The purpose of this essay is to fulfil monetary statement analysis on amazon. com, Inc. (NASDAQ AMZN ). We start with an introduction of virago and its industry. We consequently evaluate the last societys fiscal position, fluidness, in operation(p) cap expertness and financial flexibility using different ratios. To evaluate the financial performance of virago. com, Inc we disclose recurring NICO and do full ROE disaggregation. virago. coms computer memory price increased from $44. 29 per grant at the residual of fiscal socio-economic class 2004 to $134. 2 per administer at the end of fiscal family 2009. Earnings per sh be increased from $0. 63 to $2. 06. The stock closed at $118. 87 on 02/01/2010. recommendation Amazon. com is a fast growing E-Commerce union. Although face the recent U. S. and global economic level turn and discriminating contests from various industries, its flagrant r fla tue enhancement increased 28% in 2009, weaken earnings per sh are increased 31%. Based on our analysis, we project the company to continue assert the ut close produce rate. We project the two course of study can price range of Amazons stock to be $193 to $209.The stock is soon undervalued. Consequently, our recommendation of Amazon. com is BUY. Industry Analysis Amazon. com, Inc. is an American-based transnational electronic commerce company. Headquartered in Seattle, Washington, Amazon was founded in 1994. As one of the largest online retailers in the world, Amazon claims to offer Earths Biggest Selection. In addition to online retailing, Amazon alike offers programs that enables seller to sell their products on Amazon. com and to fulfill orders through Amazon. It earns fixed fees and revenue get by fees etc. hough those transactions. Amazon off-key its first simoleons in the stern quarter of 2001 and maintained high proceeds rate since then. We believe that the be pit eous are the key factors important to the future victor of Amazon. com * Successful in efforts to expand into world-wide market segments Amazon call for to throw issue expand internationally to maintain its sustainable branch. * Successful in optimizing fulfillment demonstrate and in operation(p) its fulfillment centers Amazon contend to continue to expand and optimize the surgical operation of its fulfillment centers. Successful in decision new revenue streams Amazon needs to assemblek new ways to modify revenue generation and drive its boilers suit ontogeny. * Manage growth effectively Amazons global expansion increases the complexity of the business. Financial position, silver-tonguedity, operating capability and financial flexibility support structure of Amazon. com control panel 1 summarizes how Amazon. com was financed as of each of the decease 6 fiscal year ends. As of December 31(in millions) 2009 2008 2007 2006 2005 2004Operating liabilities $ 8,447 $ 5,233 $4,006 $ 2,685 $1,929 $ 1,620 Financing liabilities 109 409 1,282 1,247 1,521 1,855 paleness 5,257 2,672 1,197 431 246 (227) Total summations $13,813 $ 8,314 $6,485 $ 4,363 $3,696 $ 3,248 defer 1 Amazons fixed assets additions steadily increased surrounded by fiscal year 2004 and 2009. Its possession of marke sidestep securities increased each year other than 2007, which was due to the prediction of an acquisition in 2008. At the resembling time, Amazon. om has been aggressively paying off its want terminal figure debt. Its debt continues to decrease amidst 2004 and 2009. The debt to integral assets ratio dropped from 57% in 2004 to wholly 1% in 2009. Between 2006 and 2008, Amazon repurchased total 17 million parcels of third estate stocks. Overall, Amazon. com luffs good financing structure and operating capability over the prehistorical tail fin years. Buy decreasing its debt level, Amazons management team shows well out looking of the company. Liquidity Three liquidity ratios of Amazon in the past 5 years are presented in turn off 2. The liquidity ratios of Amazons competitor, Ebay, are also presented for 2008 and 2009.The three liquidity ratios show Amazon has very good liquidity, which agency it could easily satisfy circulating(prenominal) liabilities with incumbent assets. Comparing to Amazon, Ebay is even more liquid as it could satisfy its short term liabilities purely by coin and silver equivalents. Amazon. com eBay 2009 2008 2007 2006 2005 2004 2009 2008 Current proportionality (to one) 1. 33 1. 30 1. 39 1. 33 1. 52 1. 57 2. 32 1. 70 Quick Ratio (to one) 1. 04 1. 00 1. 07 0. 99 1. 22 1. 27 2. 32 1. 70 Cash Ratio (Acid Ratio) (to one) 0. 86 0. 79 0. 84 0. 80 1. 04 1. 10 1. 10 0. 86 Table 2 Financial Flexibility Financial flexibility (Solvency and leverage) is a companys ability to adapt to unforeseen events and opportunities. Leverage center using debt (or other third par ty funds) to increase earnings for the owners. Table 3 presents some financial flexibility and leverage ratios of Amazon. com from 2005 to 2009 and for Ebay from 2008 to 2009. Amazon. com is a fast growing company and in the fiscal year end 2004, they had a shun total equity, which could skewed the ratios. Therefore, we did not present the ratios in 2004. From table 3 we can see that at the end of fiscal year 2009, twain Amazon. om and eBay have high financial flexibility due to low or even zero long-term debt. Their usages of leverages are some(prenominal)(prenominal) low. Although a company should try to drill leverage to increase earnings for the owner, in the current economical environment, have low or zero long-term debt is genuinely an advantage, which means they dont need to rely on creditors to maintain their high growth rate. Overall, Amazon. com has good operating capability, high liquidity and high financial flexibility. one thing to note is that in the current ec onomy environment, while a locoweed of companies are seeking for credit so far they could not find it, Amazon. om is using cash to paying off its debt. This shows that the companys operation is healthy and the management team is confident about the future growth of the company. Amazon. com eBay 2009 2008 2007 2006 2005 2009 2008 Financial Leverage 2. 8 3. 8 6. 7 11. 9 365. 5 1. 4 Debt to Assets 1% 5% 20% 29% 41% 0% 0% Debt to Equity 2% 15% 107% 289% 618% 0% 0% Debt to Capital 2% 13% 52% 74% 86% 0% 0% Liabilities to Equity 1. 63 2. 11 4. 42 9. 12 14. 02 0. 34 0. 41 Liabilities to Assets 62% 68% 82% 90% 93% 25% 29% Table 3 Operations and ProfitabilityAs shown in Table 4, we reconciled Amazons NICO as reported to recurring NICO for 2004 2009. The dilute net earnings per everyday voice as reported and recurring NICO per cat valium share are included too. We also included similar reconciliation for Ebays fiscal year 2009. Table 5 shows the complete disaggregation of pr ofit allowance and check on equity. From the ROE disaggregation we can see that between 2004 and 2009, Amazon. com maintained a gross profit valuation account between 22% and 24% and operating margin between 3. 6% and 6. 4%. Especially, since 2007, its operating margin stabilized at most 4. % with a slight increase in 2009. Its profit margin steadily increased 0. 2% each year from 3. 3% to 3. 7%. Amazon. coms ROE lessen over the years due to their pay buttocks of most of their debt. Overall, Amazon. com maintained stable operating cogency in recent years. At the same time, its overall profit efficiency is in a slight uptrend. Amazon. com has negative operating cycle, which means Amazon doesnt pay its suppliers until after it receives the payment of the sales. Therefore, Amazon doesnt need to stay fresh often inventory while it can hold the money for a longer degree of time. This is the advantage of the online retailing.Its operating cycle decreased from -27. 58 old age in 2006 days to -37. 16 days in 2009, which shows replace operating efficiency over the years. Amazon. coms operating margin and profit margin both were pretty stable with a slight increase in 2009. We acquit its profitability continue to maintain at the same level or reasonably increase. Amazon. coms operating cycle and Asset Turn Over Rate both continue to drop in the past three years (annual rate around 20% and 5% separately), which shows its make betterment in operating efficiency. We expect Amazon. com continue to improve its operating efficiency.Table 4 Table 5 Business and Investment Risks As a result of our analysis, we discovered the pursuit business and investment risks that could result in downgrading of Amazons stock. Intense competition Amazons business is intensely competitive. It has many competitors in different industries, including retail, e-commerce services, digital content and digital media devices, and web services. The intense competition has correspondin g negative meeting on prices, which in turn would stomach profit margins. For example, to compete with Apple, Amazon has to cut the price of its Ebook reader Kindle.Weakening of the U. S. or global economies A softening of take on caused by a weakening of the U. S. or global economies may result in decreased revenue or growth. taxation Risks Currently, Amazon doesnt collect sales or other taxes on shipments of most of its goods into most states in the U. S. This situation could change in the future due to prescript changes. This could decrease its ability to compete with traditional retailers. Growth Potential and Recommendation As a fast growing company, Amazon. com has a diluted recurring NICO per common share CAGR of 27% over the past pentad years.The diluted recurring NICO per common share increased 35% in 2009. The sustainable growth rate in 2009 was 23%. We expect Amazon to continue to maintain its growth rate. Therefore, we project the future growth rates of Amazon to be between 25% and 30%. The two year take diluted recurring NICO per common share would be between $3. 22 and $3. 48. We project Amazons P/E ration will be around 60. Therefore, the two year target price range for Amazon would be $193 to $209. The closing price of Amazon. com on 02/01/2010 was $118. 87. As the result of the above analysis, our recommendation of Amazon. com is BUY.