Financial Analysis of Amazon.com, Inc.

This report includes a significant financial analysis of the financial performance of Amazon.com, Inc. with the help of ratio analysis along with lightening on its sources of finance and dividend policy. It also covers recent developments in the international economy, sources of finance, dividend policy, and financial performance analysis.

REPORT

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
About the company and its business......................................................................................3
Two recent developments in the international economy........................................................3
Sources of Finance.................................................................................................................6
Dividend policy......................................................................................................................8
Analyse the financial performance to calculate ratios............................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13
APPENDIX....................................................................................................................................14

INTRODUCTION
A detailed analysis of the business organisation assists various stakeholders to make
relevant decisions regarding investments in the organisation by providing a deep study of the
financial performance (Bravo and et.al, 2019). This report includes a significant financial
analysis of the financial performance of Amazon.com, Inc. with the help of ratio analysis along-
with lightening on its sources of finance and dividend policy. A detailed study has been
performed on the recent developments in the global economy which have impacted on the
company's performance and development in the recent time and their future impact on the
company's financial performance. All these analysis will help the investors to make investment
decisions by assessing the organisational financial management and growth aspect.
TASK
About the company and its business
Amazon.com, Inc. is a American multinational company operating in mainly e-commerce
and information technology industry having its headquarter in Washington D.C. It is one of the
big five information technology company in the recent time which was actually formed in year
1994. The company has net revenue of $ 46,980 Crore in last year 2021. It has a total market
capitalisation of $ 1.176 trillion Crore. It has a wide customer base world-wide. It is the world's
largest online retailer having a great market cap.
Two recent developments in the international economy
Increasing role of Artificial Intelligence (AI) and Robotics
With the emergence of the new technologies there has a significant increase in the role of
Artificial Intelligence and robotics globally. Experts have provided their views on the major
results of the active AI and robotics development (Davydchuk and et.al, 2020). It has affected
substantially the business environment. With the rise in the uses of technologies, these is a great
increment in the requirements of Artificial Intelligence. It has higher benefits of using it in the
global business environment. Developments in the technology factor has not impacted on the
general people but also affected the manufacturing and service industry on a vast level.
Companies in now days more engaged in the using and development of robotics as it makes the
business practices more simpler than the previous times. This development in the global
economy has more impact in the developed countries whereas the developing countries which

has weak financial position remain unaffected with its effect. It has created new jobs roles in the
market place. It assist the companies to make their business processes more efficient and
effective. Using the emerging technology of robotics and artificial intelligence is not a challenge
but a advantageous collaboration between automated processes and humans.
To counter this development in the external environment of the business Amazon has
built a large and in-depth policy to using artificial intelligence and robotics in its business. It has
performed a deep research program on the artificial intelligence and its effect on the company's
business describing how the company can use this to enhance its efficiency and encounter the
technological factor of the external environment (Duan, J., 2019). For this it has launched a
range of products which supports the artificial intelligence and provide its customers more
benefits. In the last September, it announced to launch of Astro, which is its first household robot
supported by its Alexa smart home technology. Similarly before this, it has launched its Echo
product which also support the use of Artificial Intelligence. Further to counter its ill-effects on
the employees as there is a misperception that due to the use of robotics there will be less
requirement of the humans, it has planned various activities and sessions that will clear the use of
artificial intelligence to the employees and motivate them regarding using this in their outlays
and offices. After this development the sale of the Amazon company increases rapidly in the
global environment as well as local marketplace. The sale graph experienced a dip by over
86.23% when it was revealed to the customer that the interface is with the machine, not humans,
and decrease the timing of the call substantially. After that development the price of the products
have increased due to the cost of development. The profit of the Amazon company was high due
to this development. The profit of the company reached their highest level as share of gross
domestic product after introduce artificial intelligence. The annual economic growth rates
changing the nature of work and creating the new relationship between people and machines. If
the company uses third party AI software then company pays $40000 per year that the cost of
development is very high.
After few years, technology will rule the world with its immense powers. Company is
regularly increasing its uses within its business environment by measuring its impact on the
various business factors and managing and controlling its ill-effects. Since technology played a
vital role in the overall growth of its business, the company can not avoid to get along with
recent developments in the technology. A research team is set to do an in-depth analysis of the

area where it can use Artificial Intelligence to increase its efficiency and effectiveness in
performing various business functions.
Covid-19 development
There are several changes occurred during the recent years world-wide which has make the
business environment more dynamic (Dunuwila and et.al, 2018). Due to the liberalisation and
globalisation policy it has become more easy and simple to do business activities. There is a
major increase in the competitors in the economy as the emerging technologies have made it
simple to perform business practices from anywhere to everywhere plus the new government
policies has supported the newly established start-ups. Amazon has announced an investment in
India of $1 billion and committed to digitally enable 10 million micros, small, and medium
businesses, drive ecommerce exports worth $10 billion, and create 1 million additional jobs in
India between 2020 and 2025. More than 75,000 sellers have registered on the Amazon India
marketplace in regional Indian languages. After the COVID-19 the profit of the Amazon
company has increased because the customer preference the online market. The Amazon
company was much better feel during COVID-19. It is heavily invested in supporting employees,
customers and communities during the pandemic period. It remains only one company to receive
the benefit in pandemic period, with surging online sales helping it to report record profit in July.
They were hired more employees because they were fulfilled the needs of the customers. They
were provided many benefits of its employees such as vaccination service, medical services of
employees and built testing labs to keep the employees safe. The company were given many
benefits of their employees due to which the cost of the company expenses was increased.
During this situation many workers lost their jobs but that company created the new vacancy for
the workers because during this period company attracted the new customer. The sales of the
company reached up to $70.11 billion. The company had gained the huge sale through e-
commerce. During this period the customer’s preference the online shopping so that they paid
any cost which was charged by Amazon company. The company sold their product at higher
price at compare to market prices. To adopt this policy company was generated higher profit of
their employees. To encounter this challenge company has make a policy to observe its business
practices regularly and find the areas where it can improve its operational efficiency to maintain
its profitability and stability. Business of the company is speedily evolving. Some of company's
competitors have greater resources, a long-term goodwill, greater no. of customers. But company

is regularly increases its no. of products and services with maintaining high quality to counter
this competition risk. Company is looking for opportunities which will enhance its scale and size
of the company's operations. Along-with strengthen its business practices and policies, it is
focusing on the integration program which will help the company to have a greater n resources.
Sources of Finance
Sources of finance refers to the capital structure of the company to reflect how company
manages to get capital for conducting the business operations (Kaur and et.al, 2020). There is a
no. of resources through which a company can arrange its capital such as shares, debentures,
long-term debts, bonds.
Amazon company has a balanced capital structure with the optimum ratio of equity and
debts. It has total ordinary share capital of $ 509 million in year 2021 which has increased from
the last 2 years with $ 18 million. When it comes to the debt, total debt was of $ 48744 million in
year 2021 which has increased with $ 16928 million from the last year 2020.
Equity

From the above table it can be said that the total equity was of $ 52060 million in year
2019 which has increased by $ 86185 million over the period of 2 years. Company have issued
share options to its employee in the last year and reserves increases with $ 33364 million from
the last year (Kelly and et.al, 2018).
Debt
In the year 2020, company have a debt amounting $ 31816 million which has increased at
a rate of 53.21% from the last that shows that company have increased their debt amount
significantly which can result into high interest cost to the company. Company should try to
decrease the amount of loan as it required systematic periodical payment which can make
company suffer for weak liquidity.
Capital gearing ratio for last two years which are as follows:

Particulars Year2020 amount in ($) Year 2021 amount in ($)
Capital gearing ratio
= Non-current liabilities /
(Equity + non-current
liabilities) *100
101406/ (93404+101406) *100
= 52 %
140038/278283*100
=50.32%
It can be said from the above calculation of capital gearing ratio, that the company has
raised more long current liabilities in year 2021 than in year 2020. due to the increase in its non-
current liabilities capital gearing ratio has decreased which can be depicted as there will be more
obligations to pay liabilities on the part of companies therefore company should try to reduce its
long-term liabilities and improvise its gearing ratio.
Dividend policy
Dividend policy means those policies which pays by company to its shareholders.
Dividend policy is not relevant because investors sell and buy their shares when they have excess
and deficit of fund (Khemakhem and et.al, 2018). There are many types of dividend policy such
as regular dividend policy, irregular dividend policy, stable and no dividend policy. The
company chooses dividend policy in the favour of shareholders because they are owner of the
company. Regular dividend policy means the shareholders receive dividend in every year,
irregular dividend policy means company pays dividend only when company has surplus profit.
In stable dividend policy only the fixed percentage of profits pay to its shareholders. No dividend
policy means the shareholders do not known what amount of dividend received.
The company did not pay dividends. It follows dividend irrelevancy theory and it focuses
more on providing benefits to the shareholders in the form of increasing repurchasing prices of
the securities rather than to pay returns to its shareholders. Company has not preference share
capital it owns only equity share capital, so that company has not liability to pay at fixed
percentage of dividend rate to preference share holder. The net profit of the Amazon company is
increasing every year but it follows that policy to retain returns for future business activities.
Equity share holder do not want to receive dividend in every year because increasing share price
is more valuable as compare to pay dividend. If company pays regular dividend the investors will
invest more capital in Amazon company.

Analyse the financial performance to calculate ratios
Ratio Analysis- A ratio analysis is quantitative method of gaining insight into a
company's liquidity, operational efficiency and profitability. It indicates the two mathematical
expressions and as the relationship between two accounting figures.
Ratio analysis of the Amazon in the year 2020 and 2021
Probability Ratio- This ratio defines the operational efficiency of the company. It includes gross
profit margin ratio and net profit margin ratio.
1. Gross profit margin ratio- These ratio shows that the company earn profit after
payment of direct cost (Navarro and et.al, 2018).
Particulars Year2020 amount in ($) Year 2021 amount in ($)
Gross profit margin ratio-
(Revenue-Cost of goods
sold)*100/Revenue
(386064-233307)*100/386064
= 39.57%
(469822-272344)*100/469822
= 42.03
Comments- In the year 2021 Amazon earns 42.03% gross profit and in year 2020 the
G.P. Is 39.56%. In year 2021 company earns more revenue in compare to 2020. The company
should reduce cost of sales so that company will earn more profit in future.
2.Net profit margin ratio- These ratio shows net profit of the company after deduct
indirect cost, interest and taxes. It is relationship between net profit and sales of the business.
Particulars Year2020 amount in ($) Year 2021 amount in ($)
Net profit margin ratio-
Net profit*100/Revenue
21331*100/386064 =
5.53%
33364*100/469822 =
7.10%
Comments- In year 2021 company net profit is 7.10% which is more than in year 2020.
In year 2021 company made strategy and reduce sales and interest expenses and company earned
more profit in year 2021.
Liquidity ratio- It is also known as short term solvency ratio. It shows that the company
has enough fund to pay its short term liability. It includes-
1.Current ratio- It shows the relationship between current asset and current liabilities. The
company has enough asset to pay its current liabilities (Segura and et.al, 2018).

Particulars Year2020 amount in ($) Year 2021 amount in ($)
Current ratio- current asset /
current liabilities
132733/ 126385 = 1.05:1 161580/ 142266 = 1.13:1
Comments- An optimum current ratio is 2:1. In both years the current ratio is lower as optimum
ratio. In year 2021 the current ratio is 1.13:1 it is better than year 2020. In year 2021 company
has more current asset to pay its current liabilities as compare to 2020.
2. Quick ratio - It is a best ratio to identify how efficiently company can convert its
liquid assets into cash. This ratio shows sufficiency of the liquid assets to pay the
current debts.
Particulars Year2020 amount in ($) Year 2021 amount in ($)
Quick ratio
= (current assets –
inventories)/current liabilities
108938/126385
=0.86
128940/142266
= 0.90
Comments- It should always positive number and greater than 1. In year 2021 the company have
ability to pay its current debts more efficiently rather than from the year 2020.
Efficiency ratio- These ratio determines efficiency of the employed which the firm
manage and utilise its asset. These ratio is also known as performance ratio (Shijia and et.al,
2018).
1.Total asset turnover ratio- It determines the capability with the firm uses its total asset.
Particulars Year2020 amount in ($) Year 2021 amount in ($)
Total asset turnover ratio-
Sales / Total asset
386064/ 321195= 1.20% 469822/ 420549= 1.12%
Comments- In year 2021 the total asset turnover ratio is low as compare to year 2020. It means
total asset has not sufficient to generate sales so that company should increase current asset and
non-current asset.

2.Current asset turnover ratio- It identifies the efficiency of using the current asset by the
firm.
Particulars Year2020 amount in ($) Year 2021 amount in ($)
Current asset turnover ratio -
Sales / Current asset
386064/ 132733 = 2.90% 469822/ 161580 = 2.90
Comments- In year 2020 and 2021 the current asset turnover ratio is equal. It means in both year
company has equal capacity to generating sales. Company has equal current asset to earn
revenue.
Investment ratio- It measures the company has enough cash to investment on the asset.
1.Return on assets ratio- It identifies how much efficient and effective company business
practices are able to generate higher returns on the amount of assets invested (Tang, J. and Fu,
Y., 2020).
Particulars Year2020 amount in ($) Year 2021 amount in ($)
Return on asset ratio =
Net profit after tax/ total assets
= 21331/321195 =7% = 33364/ 420549 = 8%
Comments- In year 2021 the total returns generated is better than as compared to 2020. It means
in year 2021 the company has more more efficiently generated returns on its total assets invested
in the business rather than year 2020.
CONCLUSION
As concluded from the above report, it can be said that financial analysis of the
company's performance and liquidity can assist the various stakeholders to take decisions
regarding investment in the company. With the help of above report, stakeholders of the Amazon
company can take required decisions in terms of investing their own capital in the company. A
detailed analysis is performed in the report which spells out its sources of finance through which
it satisfies its capital requirement and its dividend policy through which it provides returns to its
investors and shareholders in order to make them satisfying. Further a significant performance

analysis is performed for the company which helps the management to make further finance
plans for future. Along-with these analyses two recent developments in the international
environment also presented in order to provide information regarding their substantial impact on
the company.

REFERENCES
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rubber in terms of material flow analysis, material flow cost accounting and life cycle
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Hernaus, A.I., 2019. Exploring the strategic variety of socially responsible investment: Financial
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region of Punjab. Journal of Agricultural Development and Policy, 30(2), pp.131-137.
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assets. Knowledge-Based Systems, 150, pp.116-126.
Khemakhem and et.al, 2018. Predicting credit risk on the basis of financial and non-financial
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Segura and et.al, 2018. Economic-financial modeling for marine current harnessing
projects. Energy, 158, pp.859-880.
Shijia and et.al, 2018, January. Aspect-based financial sentiment analysis with deep neural
networks. In WWW (Companion Volume).
Tang, J. and Fu, Y., 2020. Analysis and research on financial competitiveness of listed
companies in offshore engineering manufacturing. Journal of Coastal Research, 106(SI),
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Young and et.al, 2018. Corporate Financial Reporting and Analysis: A Global Perspective. John
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(Dunuwila and et.al, 2018)
(Hernaus, A.I., 2019)

APPENDIX