Financial Performance of Amazon

This report analyzes the financial performance and health of Amazon, including its recent financial performance, key products and services, and success factors. It provides recommendations for improving the company's financial position.

Running head: FINANCIAL PERFORMANCE OF AMAZON
Financial Performance of Amazon
Name of the Student:
Name of the University:
Author Note:

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Table of Contents
I. Executive Summary:....................................................................................................................2
Principal findings:........................................................................................................................2
Projections:..................................................................................................................................2
Recommendations:......................................................................................................................2
II. Financial performance and health:..............................................................................................2
A. Organisational context:...........................................................................................................3
1. Key products and services:......................................................................................................3
2. Management and organisation of Amazon:.............................................................................4
B. Recent financial performance:................................................................................................5
C. Current financial health:..............................................................................................................6
1. Capitalisation and financial health of Amazon:.......................................................................6
2. Amount of cash and resources:....................................................................................................6
3. Assessment of financial value:................................................................................................6
III. Success factors:..........................................................................................................................7
IV. Projections:..............................................................................................................................10
V. Business opportunities:.............................................................................................................10
Conclusion:....................................................................................................................................16
References:....................................................................................................................................17

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I. Executive Summary:
Principal findings:
The report uncovers several findings worthy of discussion. First, Amazon is an American
company which market IT products and artificial intelligence. The second finding is that
Amazon is listed on the NYSE but its capital base is weakening. Thirdly, the revenue base of the
company is expanding but its expenditure is also increasing.
Projections:
The first projection which can be made in the light of the present financial performance is that
the company shows signs of weakening in the capital market. The second projection is that the
company should seek to increase its current assets to support its current liabilities.
Recommendations:
It can be recommended in the light of the above discussion that the company should form
strategies to reduce its expenditure. Similarly, it can also be recommended that the company
should increase direct presence in more host countries to reduce its third party distribution costs.
Intended audience:
The intended audience for the business performance of Amazon would be stakeholders. The
stakeholders in this case would investors, both present and prospective. This is because the
financial performance parameters like revenue generation would enable the investors the returns
which they can expect to generate from their investments in Amazon shares. Similarly, the
prospective investors would be encouraged to invest in the shares of Amazon seeing the high

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dividends which the ecommerce giant gives back to the investors. The second stakeholder group
who would depend on the available financial figures reported in the financial statements to form
strategies.
II. Financial performance and health:
An analysis of the recent financial performances and present financial health of Amazon
shows that the American ecommerce company is performing highly in the global market. The
following sections would provide a strong evidence to testify the strong financial performance
based on the adduced statements namely, Annual Report of the company for the year ended
December 31, 2017.
A. Organisational context:
1. Key products and services:
The main products of Amazon.com consist of cloud computing, ecommerce services,
artificial intelligence and hardware items. The company has immense number of product line
under each of its product segments.
Amazon offers cloud computing services under the division Amazon Web Services. The
cloud computing platform is a platform which enables companies to acquire, share, manage and
apply a huge number of data which pertains to different business areas like procurement,
marketing and finance. Thus, Amazon using its cloud computing services serve multinational
companies from different industries to integrate the business functions to ensure high level of
interdepartmental works which in turn boosts the efficiency of the businesses (Aws.amazon.com.
2019). The main competitors of Amazon in its cloud computing segment are American IT giants
like Google and IBM. Thus, considering the net income of $ 3033 million in 2017 compared to $

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$2371 million and $ 591 million in 2015, it can be established the company is performing
strongly in the global market.
The second product which Amazon offers is ecommerce services which allow buying and
selling of goods using the digital platform of the company. The company offers both industrial
goods as well as consumer goods on the portal. The company in the ecommerce market serves as
third party digital marketing partners to global companies as well as local and regional
companies.
The third product which Amazon offers its customers is artificial intelligence and
decision making systems. The consumers of Amazon in this case are multinational companies
which use artificial intelligence to make business strategies.
The fourth segment of Amazon consist of hardware like Amazon Alexa and payment
gateways like Amazon pay.
It is evident from the discussion that Amazon provides these key products and services
for both its customer segments, namely end consumers and business companies. The company
markets these services throughout the world. The company uses third party ecommerce
companies to offer products to its consumers in markets where it as no direct presence in the
form of subsidiaries. Amazon provides these products to ensure that its customers, including
business firms and consumers are able to gain access to a large variety of products at affordable
prices. This enables the company to earn a huge profit from its businesses as shown in the
financial statements.
These features of Amazon which pertains to products, customers and locations help the
management of the company set boundaries of business decisions. The company forms its global

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strategies taking into account the macroeconomic conditions of the different host countries. For
example, the company before forming the product strategy of a particular country, takes into
account factors like customer preferences and purchase power. This ensures that the marketing
mixes of different countries are aligned with the market requirements of the countries. This
enable the company to generate immense revenue by ensuring high level of customer
satisfaction. Thus, it is evident that the products, customers and locations enable the apex
management of Amazon take market specific decisions.
B. Recent Financial Performance:
Part 1.
The consolidated income statement of Amazon shows that company is experiencing
increase in revenue. The graphs below shows that income of Amazon increased by 298 percent
in 2016 and by 28 percent in 2017. However, as shown in operations expenses graph, the same
increased by 26 percent in 2016 and 2017 it increased by a whopping 32 percent. Thus, it can
inferred that the company should try to minimise its expenses. The provision for taxation fell in
2016 by doubled in the year 2017 to $ 769. This means that company also requires to minimise
its taxation expenses.

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1 2 3
0
500
1,000
1,500
2,000
2,500
3,000
3,500
596
2,371
3,033
Chart Title
Years(2015, 2016, 2017)
Net income($m)
Figure 1. Graph showing increase in income
(Source: Ir.aboutamazon.com, 2019)
104,773
131,801
173,760
Operating expenses
Years(2015, 2016, 2017)
Operating expenses($m)
Figure 2. Comparison of operating expenses increase of Amazon
(Source: Ir.aboutamazon.com, 2019)

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Part 2.
The cash flow statement of Amazon shown below that the company is experiencing
healthy cash flow. The closing cash flow for the periods 2015, 2015 and 2017 shows steady.
However, the depreciation figure for the three years also show steady increase. The inventory
positions for the periods shows reduction which means that company is experiencing high level
of liquidity. Thus, it can be inferred that the cash positions of Amazon are satisfactory.

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Figure 3. Cash flow statement of Amazon for 2017
(Source: Ir.aboutamazon.com, 2019)
Part 3:
The analysis of the financial analysis shows that Amazon is not in a good financial
position. The net profit of the company shows an increase but the expenses are also growing at
steady. The balance sheet of the company for the three periods show the current ratio of the
company is way below 2, the required ratio. Thus, the company does not have sufficient current
assets to pay its current liabilities. The company should strengthen its asset positions by
acquiring new companies to get access to their current assets.
2. Management and organisation of Amazon:
Amazon is organised and managed by taking into account product groups, geographic
regions and functions. For example, the apex management of the company takes decisions and
functions regarding product groups by considering the geographical segmentation of the market.
The management takes into account factors like demand for particular goods and competition
before forming product decisions.
The market specific organisation and management of the key goods and services have
strong effect on the accounting and business decisions in the future of the company. The market
specific decisions enable Amazon cater to markets with more appropriate products. As shown in
the table below, the company was able to boost its profit by 298 percent in 2016 compared to
2015 as per the accounts of the company. Thus, market specific organisation enable the company
to serve markets and generate higher profits which effects in the books of accounts as shown
below.

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Year 2015 2016 2017
Net income($mn) 596 2,371 3,033
Increase from previous year 0 1,775 662
Increase (%) 0 298% 28%
B. Recent financial performance:
1. The consolidated income statement of Amazon shows that the company has not performed
well in spite of the fact that the income of the company has increased in comparison to the
previous year. The income statement (attached) shows that the profitability of the company has
increased by 28 percent in 2017 compared to 298 percent in 2016. This is evident from the fact
that the total operating expenses in 2016 was 131801 USD mn compared to 173760 USD mn in
2017. The operating expenses increased by 32 percent in 2017 compared to 26 percent in 2016.
This increasing operating expenses has eroded the net income in spite of lowering taxes in 2017
compared to 2016.
2. The consolidated cash flow statement of Amazon for the year 2017 shows that the company
has strengthened financially. It can however, be pointed out that the accounts receivable has
decreased. It can also be pointed out that the accounts payable has increased. Thus, in this light
can be pointed out that though the cash flow has increased, the falling number of debtors and
rising number of creditors shows that the company has less buyers(debtors) compared to
suppliers in term of money.
The above analysis shows that the underlying performances of the company is not
healthy. The company needs to acquire more companies using acquisitions and mergers. This
would boost the financial income of the company because this would enable Amazon to serve
more customers, thus generating higher revenue.

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C. Current financial health:
1. Capitalisation and financial health of Amazon:
The current financial health of Amazon is not satisfactory. This evident from the fact the
company does not have the required amount of current assets to pay off its current liabilities. The
current ratio calculated in 2016 and 2017 are 1.04 and 1.03. This means that company is not
financially strong to pay its debts.
2. Amount of cash and resources:
Amazon does not have the right amount of cash which is evident from the cash flow
statement and balance sheets. It can also be pointed out that the present business of Amazon is
sufficient to boost its future business. The company should enter into more markets to boost its
revenue generation.
3. Assessment of financial value:
The financial value of Amazon is not satisfactory and the same can be pointed out based
on two relevant indicators, goodwill and current ratio. First, the goodwill value has increased but
considering the lowering current ratio, it can be commented that the company is suffering for low
liquidity.
III. Success factors:
A. How do the company’s financial and strategic priorities affect accounting procedures
and business decisions?
The nature of the management of any organizations important to understand the growth
of a company. The main objective of any private organization is that of earning a higher profit
margin (Kantor & Streitfeld, 2015). For this purpose, there are a number of ways in which the

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company can achieve this desirable outcome. The first method is that of simply following the
profit motives of the organization without paying much heed to the quality of goods and services
produced. This might prove to be beneficial in the short run but it is not at all feasible in the long
run. In order to survive for a considerable period of time, there is a need on the part of any
private organization to appeal to its target consumers (Kristensen et al., 2017). For this purpose,
it is essential that the quality of the goods and services produced by any company is up to the
par. The organization of Amazon follows this method of increasing tis revenue. Once the
consumers start to have faith in the organization that the goods produced are of good quality,
they will purchase it in a higher volume.
The organization of Amazon is, as a result, efficiency oriented company. It believes in
the objective of providing quality goods and services to the consumers. This ensures that a loyal
consumer base is formed and maintained (Head, 2017). As a consequence of this, the consumers
buy the products in bulk, which in turn, increases the revenue earned by the organization. This
strategy of business decision is better than growth oriented strategy because in efficiency
strategy, the organizations are more concerned about the goodwill of the consumers. However,
growth oriented strategy is only concerned about the growth of the organization (Lincoln &
Andrew, 2018). This is not feasible for an e-commerce market like that of Amazon which wants
to stay in business for a long period of time. As a result, thinking about its long term objectives,
Amazon should try to invest more in the appeasement of its customers and in ensuring the well-
being of its employees (Smith, Rupp & Offodile, 2017).
B. How might the company better capitalize on nonfinancial factors?
The financial aspect of any private organization might be the most important factor as without
finances it is nigh impossible to run any business. However, besides the financial resources, the

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non-financial factors are also important (Diehl & Bishop, 2017). This is because of the fact that
the other units of the organization, such as the employees and the customers are not machines.
They require special assistance in order to function. Moreover, the factors of market share,
reputation, human resources and physical facilities are also important for the growth of any
organization.
1. Market Share
The market share of Amazon is immense. It has a base in almost all the countries of the
world and has been successful in achieving a dominant consumer base in those countries. As a
result, the organization of Amazon controls a substantial portion of the market in the world. The
expenditures of Amazon in its advertising campaign is also very high, around ten billion in the
financial year of 2016-2017 (Bernstein, 2015).
2. Reputation
Maintaining a positive reputation of any private organization is very essential. This is
because the consumers are highly influenced by the voice of the critics and their opinions of any
organization, especially the customer reviews (Galloway, 2017). The reputation of Amazon is
considerably high in the market place, when compared with the reputation of other e-commerce
platform, especially that of eBay and Snapdeal.
3. Human Resources
The number of people engaged in the activities of the Amazon organization is very high.
This has been possible because of the fact that the human resource management team of Amazon
is very efficient and considerate to the needs and desires of the employees of the organization

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(Smith, Rupp & Offodile, 2017). The satisfaction of the employees leads to higher productivity
and this in turn, has a positive impact on the level of revenue earning of the organization.
5. Physical facilities
Being an e-commerce market place, Amazon has a dominating physical existence in
almost all the places of the world. The people who delivery the products of the company to the
customers are very efficient in nature (Smith, Rupp & Offodile, 2017). The packaging factor of
the organization is also very effective and there are very rare cases of incidents when the
products delivered are broken are damaged. Moreover, Amazon itself has manufacturing unit
where the employees of Amazon produces its own products and services.
C. What are the most significant internal risks to the company’s financial performance?
There are some significant internal risks to the organization of Amazon since it is an e-
commerce platform. Due to its virtual presence, there is the imminent risk of the company
coming under severe threat from cyber-attack. This can have a disastrous impact on the
organization since all its activities is carried out through the medium of the internet (Bernstein,
2015). Any cyber-attack will render the organization non-functioning. Such cyber-attacks can
also prove to be dangerous for the customers engaged in business with Amazon because of the
fact that they pay their money online. Their bank accounts and credit cards may be compromised
and they may end up losing their finances. Another kind of internal threat to the existence of
Amazon which can prove to be disastrous is that of significant changes in technology (Bernstein,
2015). Since Amazon is an organization with its existence being completely on the virtual forum,
changes in technology essentially means that the organization shall have to update itself too in
order to remain in business. If it fails to adhere to the changes then its very survival may come

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under question. All of these risks has an adverse effect on the finances of Amazon. In order to
resolve the issue, the management level of the organization will have to spend their finances and
this would mean a depletion of their revenue.
IV. Projections:
Part A.
The projected statements have been assumed on the basis of the existing financial
statements of Amazon by increasing each amount by 10 percent. The projections that though the
company is likely to experience high net profit, it requires to minimise its expenses.
Part B.
The best projection for the coming three years would be same as the previous. However,
in order to present the worst projection, it has been assumed that the sale of company drops by
50 percent while the expenses remain same. The net income in the situation would fall to
negative.
Part C.
The assumptions and forecasting methodology used in the above estimation are
secondary and quantitative in nature. They are appropriate considering the future expenses and
income cannot be forecast accurately. The analysis only attempted to estimate the future cash
positions of the company. However, it can be pointed out that the financial strategies of the
company are in line with with mission and priorities.

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V. Business opportunities:
Amazon could invest in construction businesses for further expanding its business. As
Amazon s developing its wings, it is said that the organization wants smart homes to build in the
society. It could invest in start-ups that are developing in construction projects.
Amazon could use its resources to invest in preconstruction real estate projects that have
proven to be worthwhile. It would enable Amazon in buying real estate in the fraction of cost of
a property that is completed. Although, in some of the areas, real estate would be appreciated as
the value of the project before even it is completed. This is the reason why this kind of
investments would be ideal for Amazon. In essence to that, preconstruction real estate would
enable Amazon getting deals on the estate that would likely to be sold on one day lively basis.
However, it could take many years to complete the project, it would be a wise investment for
Amazon on long run basis.
For setting in the ground of real estate, Amazon would have to think about some aspects
before investing their resources in the business. Amazon is needed to compare all kinds of
properties before starting to invest in the real estate business. When it comes to invest in
preconstruction business, there would be variant option in form of Amazon. The property would
be raw or undeveloped land that have no planning or improvements that have been made by the
owner that owns the land currently. Although, developed properties would be zoned or planed
fully, that have streets and utilities ready at the place. Furthermore, many propertied might have
been already panned for beginning the construction that has all the plans and for the construction
ready. In addition to that, land that are less developed would be cheaper. It means that Amazon
would be organizing the plans so that they could utilize it and work on zoning laws of their own
for the development of the property.

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1. The first fact that would help Amazon investing in real estate would be that buying
raw land would require large amount of due-diligences that would make sure to the
fact that the land is surveyed and should be free form activities of crime and also
would be worked out by the local regulations and the governing bodies.
2. Amazon should purchase large sites for development. As in many cases, the project is
being developed with utilities and streets. Then they are sold to builders who would
then start the work of constructing houses that they would sale or rent to the public.
3. After all the steps are followed, the land owned by Amazon would generate huge
revenue as the price of the land would increase exponentially.
Amazon could invest in construction businesses for further expanding its business. As Amazon s
developing its wings, it is said that the organization wants smart homes to build in the society. It
could invest in start-ups that are developing in construction projects.
Amazon could use its resources to invest in preconstruction real estate projects that have proven
to be worthwhile. It would enable Amazon in buying real estate in the fraction of cost of a
property that is completed. Although, in some of the areas, real estate would be appreciated as
the value of the project before even it is completed. This is the reason why this kind of
investments would be ideal for Amazon. In essence to that, preconstruction real estate would
enable Amazon getting deals on the estate that would likely to be sold on one day lively basis.
However, it could take many years to complete the project, it would be a wise investment for
Amazon on long run basis.
For setting in the ground of real estate, Amazon would have to think about some aspects
before investing their resources in the business. Amazon is needed to compare all kinds of
properties before starting to invest in the real estate business. When it comes to invest in

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FINANCIAL PERFORMANCE OF AMAZON
preconstruction business, there would be variant option in form of Amazon. The property would
be raw or undeveloped land that have no planning or improvements that have been made by the
owner that owns the land currently. Although, developed properties would be zoned or planed
fully, that have streets and utilities ready at the place. Furthermore, many propertied might have
been already panned for beginning the construction that has all the plans and for the construction
ready. In addition to that, land that are less developed would be cheaper. It means that Amazon
would be organizing the plans so that they could utilize it and work on zoning laws of their own
for the development of the property.
4. The first fact that would help Amazon investing in real estate would be that buying
raw land would require large amount of due-diligences that would make sure to the
fact that the land is surveyed and should be free form activities of crime and also
would be worked out by the local regulations and the governing bodies.
5. Amazon should purchase large sites for development. As in many cases, the project is
being developed with utilities and streets. Then they are sold to builders who would
then start the work of constructing houses that they would sale or rent to the public.
6. After all the steps are followed, the land owned by Amazon would generate huge
revenue as the price of the land would increase exponentially.

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Fig – 1 Figure showing why investing in real estate would generate great returns
(Source: Coleman, 2019)
Amazon should understand the reason behind why builders are selling real estate
preconstruction sites. The profit of selling the site after the construction doubles up. While
buying something, Amazon should know why they are selling it or why it would generate profit.
Sometimes, builders are not concealing facts in respect to the property that would later be found
as ground breaking. This is the reason why Amazon should but preconstruction sites and hand it
over to builders’ for further construction. Builders need investment for the completion of the
project on given time. By selling the preconstruction sites, builders get access to money without

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thinking about credit or interest on a loans. Amazon should be aware of such facts before
entering in the real estate business. Often in other times, builder need other investors to get
access to money, at that times, Amazon could invest as it would generate revenue in huge
amount after the project id done and houses are being sold.
Amazon should know their competition. The brighter side in knowing their customers would be
helpful in knowing the current amount of investments needed to be done for the particular site or
property.
It is also important for amazon to know the current housing market. As investing in
preconstruction sites would require Amazon in doing some assumption about the current market
status and the values of the properties. It should be kept in mind by Amazon that it is not always
current while predicting the current status of the market. In doing so, sometimes assumption
could get wrong which would in turn means the loss of the investment made by Amazon. Before
jumping in the real estate business, Amazon should consider should consider someone who have
a reputation in the construction business. This would help them in investing in the right sites that
would give them maximum return from their investment.
Amazon could do capital investment for potential investments that would affect their budgeting
and decisions related to business. Capital budgeting is process that would help Amazon in
understanding their potential expenditures or the investments that they would place on real estate
business. The process would include the decision that involves investment related and
modification issues related to the current investments. Capital budgeting would generally involve
calculations for each of the investments on the project that Amazon would do in the real estate
business.

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The following are the factors that involves capital budgeting.
1. Capital budgeting involves high risks.
2. Huge amount of returns are expected.
3. Long period of time between the time of investment and the expected return.
With the help of capital budgeting, Amazon would develop long term strategic goals and
would formulate that would help them in generating huge revenue. It would provide the ability to
Amazon for valuing the invested project through capital budgeting that would in turn create a
framework for conducting business plans for seeking future goals and long term plans. It would
also help Amazon in seeking out new projects to invest in.
Cost benefit analysis:
The financial statement shows that Amazon has to bear immense expenditure to
strengthen its business. However, this investment would earn high benefit in the high
income as shown in the excel sheet titled ‘projections’.
Conclusion:
The analysis above shows that Amazon is not financially sustainable. The company
should make stronger financial strategies to retain its global position. The income of the
company is increasing. However, its high expenses are also increasing at higher rates that the
income as shown in the graphs above. The company should form strategies to acquire more
assets and resources to boost its asset positions.

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Diehl, K., & Bishop, B. (2017). Strategic Analysis of Amazon Madison Morgan November 16,
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Galloway, S. (2017). The four: the hidden DNA of Amazon, Apple, Facebook and Google.
Random House.
Head, B. (2017). The amazon effect. Company Director, 33(10), 22.
Ir.aboutamazon.com. (2019). Retrieved from https://ir.aboutamazon.com/annual-reports
Kantor, J., & Streitfeld, D. (2015). Inside Amazon: Wrestling big ideas in a bruising
workplace. New York Times, 15, 74-80.
Kristensen, M., Penner, J., Nguyen, A., Moy, J., & Lam, S. (2017). Company Synopsis for:
Amazon. com, Inc.
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(Coleman, H. (2019). Top 10 Amazing Ways to Earn a 10% Rate of Return on Your
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