(PDF) Financial Analysis of Amazon

Amazon 2018
Income Statement
Analysis

Table of Contents
Comparison of net income of current and last year and causes of change..................................1
Accounts which has cached attention compared to prior year's income statement.....................1
Reasons behind the changes.........................................................................................................1
Calculation of profit margin of both the years.............................................................................2
Information provided by the results or ratios...............................................................................2
Result improved or worsened......................................................................................................2
REFERENCES................................................................................................................................4

Comparison of net income of current and last year and causes of change
From the annual report of Amazon it has been analysed that net income of year 2018 is
increased in current year as compare to previous year (Annual report of Amazon, 2018). There
are various causes of this increment and one of the main reason which is being identified is
increased sales and interest. All these elements have resulted in enhancement of sales for year
2018. Amount of revenue do not include any income which is collected on behalf of third party.
Accounts which has cached attention compared to prior year's income statement
There are various accounts which has cached the attention compared to prior year's
statement. These are other income or expenses, operating income and fulfilment. Brief
description of all of them is as follows:
Other income or expenses: This account is grabbing attention of the analyser because in
year 2017 it shows other income but for year 2018 it is showing expenses which means in
current year additional expenses have take places which were not being faced by organisation in
previous year. It also shows that other income of Amazon is reduced in current year.
Operating income: Annual report of Amazon is reflecting that operating income of
Amazon is increased in year which is resulting in increased profits. It has cached the attention
due to massive enhancement.
Fulfilment: These expenses are mainly related to e-commarce businesses because it is
the process of receiving, shipping and packing order for goods. As Amazon is one of the largest
e-commerce organisation so this particular account has cached attention because it is one of the
major accounts in the income statements that may leave impact upon profits.
Reasons behind the changes
There are various reasons behind the changes in various accounts of income statements.
All of them are as follows:
 Operating expenses are related to day to day activities of an organisation and main reason
behind increment of them is increment in North America and AWS sales and decrement
in operating loss from international sales.
 Reason behind occurrence of other expenses in year 2018 are reduced equity securities
gains, foreign currency and equity warrant.
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 There are various expenses that are resulting in increased fulfilment cost. These are
payment processes, related transaction cost, level of productivity and accuracy, variation
in units, volume and weight etc. All these factors are resulting in changes in fulfilment
expenses of Amazon.
Calculation of profit margin of both the years
In order to analyse profitability of an organisation it is vital for the businesses to calculate
net profit margin ratio. With the help of it it can be assessed that company is able to generate
higher profits or not. For this purpose net profit margin ratio is used by analysers of annual
report. Formula for it is as follows:
Net profit margin= Net profit/ net sale *100
Calculations for year 2018 and 2017 are as follows:
Net profit margin for year 2018 = 10073/ 232887 *100
= 0.0432 *100
= 4.32%
Net profit margin for year 2017 = 3033/ 177866 *100
= 0.0170 *100
=1.70%
Information provided by the results or ratios
The above calculated results are showing that in year 2017 profitability of Amazon was
not good but in year 2018 its profitability in increased due to enhancement in sales. It also
depicts that competitive advantage of the company is enhanced as compare to previous year
because for year 2017 profit margin was 1.70% and for year 2018 it has been increased up to
4.32%. It means Amazon is generating higher profits in current year as compare to prior
accounting period.
Result improved or worsened
The calculation of net profit margin shows that results in 2018 are improved because the
net profit margin is increased in current year. It is also showing that organisation's ability and
capability to generate profits from the sales in increased in 2018 as compare to 2017. main
reason behind the increment in margin is increased revenues because when a company generate
high revenues then it will help to make good profits. For comparison it is good but the ideal ratio
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is 15% which means organisation is not able to reach the ideal position. For this purpose, top
level executives and accounting professionals are required to formulate strategic decisions so that
profitability can be increased.
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REFERENCES
Online
Annual report of Amazon. 2018. [Online]. Available through:
<https://ir.aboutamazon.com/static-files/0f9e36b1-7e1e-4b52-be17-145dc9d8b5ec>
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