Financial Statement Analysis - Amazon Inc

Running head: FINANCIAL STATEMENT ANALYSIS
FINANCIAL STATEMENT ANALYSIS
Name of Student
Name of University
Author’s Note

1FINANCIAL STATEMENT ANALYSIS
Table of Contents
BACKGROUND OF THE COMPANY:............................................................................3
ROLE OF AMAZON INC. IN INTERNATIONAL MARKETPLACE:...........................3
MARKET COMPETITOR:.................................................................................................3
SWOT ANALYSIS:............................................................................................................4
Strength:...........................................................................................................................5
Weakness:........................................................................................................................5
Opportunity:.....................................................................................................................5
Threat:..............................................................................................................................5
FINANCIAL STATEMENT ANALYSIS:.........................................................................5
Liquidity Ratio:................................................................................................................6
Current Ratio:..............................................................................................................6
Quick Ratio:.................................................................................................................7
Cash Ratio:...................................................................................................................8
Solvency Ratio:................................................................................................................9
Debt Equity Ratio:.......................................................................................................9
Total Debt Ratio:.......................................................................................................10
Equity Multiplier:......................................................................................................11
Activity Ratio:...............................................................................................................12
Inventory Turnover Ratio:.........................................................................................12

2FINANCIAL STATEMENT ANALYSIS
Receivables Turnover:...............................................................................................13
Payables Turnover:....................................................................................................14
Total Asset Turnover:................................................................................................15
Profitability Ratio:.........................................................................................................16
Net Profit Margin Ratio:............................................................................................16
Return on Asset:........................................................................................................17
Return on Equity:.......................................................................................................18
Return on Capital Employed:........................................................................................18
Market Value Ratios:.....................................................................................................19
Price Earnings Ratio:.................................................................................................19
Gearing Ratio:................................................................................................................20
CONCLUSIONS:..............................................................................................................21
RECOMMENDATION:....................................................................................................21
REFERENCES:.................................................................................................................23
APPENDIXES:..................................................................................................................24

3FINANCIAL STATEMENT ANALYSIS
BACKGROUND OF THE COMPANY:
Amazon Inc. is an American multinational company. The organization is considered as
the biggest e-commerce giant in the world. The company also includes cloud computing, digital
streaming and artificial intelligence. Amazon Inc. is counted among top four tech companies. In
terms of revenue, Amazon is considered as the largest e-commerce company. Amazon Inc. is the
most valuable company in the world. Amazon was founded by Jeff Bezos in July 1994. Amazon
has a long list of products, which includes audiobooks and Amazon Prime. The company has
also Web series, production house and even the publishing house.
ROLE OF AMAZON INC. IN INTERNATIONAL MARKETPLACE:
Amazon has launched considerable amount of retail operations in many international
markets. In this way the company expands their global footprint. As per the report provided by
RBC Capital Markets, five countries will provide more than $25 billion at the end of 2023. The
retail growth of Amazon will exceed even North America within five years. The same analysis
also stated that Amazon’s total revenue will increase from $5 billion to $406 billion within 5
years. Thus, it can be stated that the company’s financial performance expected to rise by
considerable percentage within 5 years.
MARKET COMPETITOR:
As per the recent data available the company’s annual revenue is $280.5 billion. The
company provides employment to 640,000+ employees around the world. The company’s main
competitors are Wal-Mart, eBay, Alibaba Group, Google, Microsoft, Oracle, Apple, Sony and
Flipkart. In recent period the company acquired considerable amount of business, which includes
Health Navigator LLC, INLT Inc., Canvas Technology, Inc., and eero LLC. The other

4FINANCIAL STATEMENT ANALYSIS
competitor of Amazon includes all physical stores present in various parts of the world. The
proper managing of funds and proper decision making assists the company to gain considerable
amount of revenue, which increases the financial health of the company. As per the market
analysis Amazon holds 78%, eBay holds 10%, Apple holds 6%, Wal-Mart holds 6% in e-
commerce market.
MARKET ANALYSIS OF E-COMMERCE
INDUSTRY (2018)
SWOT ANALYSIS:
STRENGTH
1. Strong Brand
2. High business diversification
3. Capability to develop themselves
OPPURTUNITY
1. Expansions in developing markets
2. New partnerships with other firms

5FINANCIAL STATEMENT ANALYSIS
according to the trend
WEAKNESS
1. Limited business model
2. Limited penetration in markets
THREAT
1. Aggressive competition in industry
2. Increase the rate of cybercrime
3. World recession
Strength:
It can be observed that the net profit ratio of the company is at par, which on the other
hand, increases the financial health of the company. The better financial performance of the
company increases the brand value of the company and high diversification of the company.
Weakness:
Due to the high percentage of debt the company faces some serious problems, Due to this
the company have limited penetration in the market.
Opportunity:
As per the analysis it can be determined that the company have high asset turnover ratio,
which will actually assists the company to develop more and can enter into new agreement.
Threat:
Due to the high competition in the market the company losses considerable amount of
customers that may affect the company’s financial health in future.
FINANCIAL STATEMENT ANALYSIS:
The financial position of Amazon Inc. is considered after determining the annual report
of 2018, 2017, 2016, 2015 and 2014. The ratio analysis is being used to determine and

6FINANCIAL STATEMENT ANALYSIS
differentiate the financial health of Amazon Inc. As per the financial statements of the company,
total current asset of the company has increased by 42% within 5 years period. The total current
assets of the company is high than the total current liabilities of the company (Nepstad, Daniel, et
al. 2014). It can also be seen that the total revenue of the company has increased by 38% within
5 years period. This shows that the company’s financial position has increased by considerable
means within 5 years. The ratio analysis based on the financial statements like income statement
and balance sheet of the company being conducted. The market share of Amazon Inc. considered
while performing the ratio analysis. To conduct the ratio analysis liquidity ratio, solvency ratio,
activity ratio, profitability ratio and market position analysis has been considered.
Liquidity Ratios:
Liquidity ratio is one of the financial metrics that assists the company to analyses the
ability to pay off the current debt or obligations without increasing the external capital. The
calculation of the metrics includes capital ratio, quick ratio and current ratio.
2018 2017 2016 2015 2014
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Liquidity Ratios
CURRENT RATIO QUICK RATIO CASH RATIO

7FINANCIAL STATEMENT ANALYSIS
Current Ratio:
The current ratio is the liquidity ratio that assists the company to determine the
company’s ability to pay short-term obligations. The current ratio assists the investors or the
corporate managers to analyses the company’s ability to maximize the current assets of the
company on its balance sheet, so that they can satisfy the current debt and other payables
(Annualreports.com. N. p., 2020. Web). As per the analysis of the balance sheet it can be seen
that the current ratio of the company in 2018 is 1.098. This indicates that the organization has the
ability to pay off the short-term obligations using the current assets.
Quick Ratio:
Like current ratio, quick ratio or acid test ratio also assists the investor or the corporate
managers to identify the ability of the company to meet the short-term obligations. The only
difference that can be identified between current ratio and quick ratio is that quick ratio considers
inventory in its measurement. Amazon’s quick ratio stands at 0.847 in 2018. This shows that the
ability of the company to meet the short-term obligations is pretty good. The current assets of
Amazon Inc. is high in comparison to the current liabilities of the company.
Cash Ratio:
The cash ratio of the company shows the ability of the organization to meet the short-
term obligations with the help of cash and cash equivalent. As per the analysis of the balance
sheet of Amazon Inc. it can be determined that the company’s ability to meet the short-term

8FINANCIAL STATEMENT ANALYSIS
obligations only through the cash and cash equivalent is 0.464 in 2018, which is much higher
than previous years. The lack of enough cash and cash equivalent was the reason that the
company saw a less cash ratio in 2017 in comparison to 2016. This indicates that Amazon Inc.
have enough cash and cash equivalent in its possession that can pay off the short-term
obligations.
Solvency Ratios:
The ability to meet the company’s debt can be determined through solvency ratio. The
main users of these ratios are investors, corporate managers and the prospective business lenders.
The ratio actually indicates whether the cash flow of the company is enough to meet the short-
term and long-term liabilities of the company (Annualreports.com. N. p., 2020. Web). If the
solvency ratio is lower in comparison to the actual number then the profitability of the company
will be greater. To solve the solvency ratio, total debt ratio, debt equity ratio and equity
multiplier has been analysed.
2018 2017 2016 2015 2014
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Solvency Ratios
TOTAL DEBT RATIO DEBT-EQUITY RATIO EQUITY MULTIPLIER

9FINANCIAL STATEMENT ANALYSIS
Debt Equity Ratio:
This ratio is used by the investors and corporate managers of the company to determine
the company’s financial leverage. The debt ratio assists the company managers or the investors
to calculate the number of equity that the company holds in comparison to the outstanding debt
of the company. As per the analysis it can be determined that the debt-equity ratio is 2.735 in
2018. This indicates that company’s equity cannot cover the debt or financial leverage of the
company.
Total Debt Ratio:
Debt ratio indicates the company’s extent of financial leverage. The total debt ratio can
also be understood as the part of the company’s assets that are mainly financed by debt. The debt
ratio of the company stands at 0.732, which shows that the company’s debt is higher in
comparison to the asset.
Equity Multiplier:
Equity Multiplier ratio is the financial leverage ratio that calculates the part of the assets
of the company that are mainly funded by the shareholder’s equity. This indicates the debt
proportion of the company is increasing in comparison to the total assets of the company. The
equity multiplier of Amazon Inc. is 3.735 in 2018. As per the analysis equity multiplier of the
company is on increasing terms and hence the company’s financial performance is not on the
good terms (Annualreports.com. N. p., 2020. Web). Thus, the financial leverage of the company

10FINANCIAL STATEMENT ANALYSIS
needs to be checked, so that the company’s financial position becomes stable and the total assets
can cover up all the debts.
Activity Ratio:
Activity ratio is the type of financial ratio that measures the company’s ability to convert
the different accounts in the balance sheet into cash or sales. Activity ratio also assists the
investors and the corporate manager of the company to assess whether the management of the
company doing a good job for creating revenue for the company or not. To analyses the activity
ratio of Amazon Inc. inventory turnover ratio, receivable turnover ratio, payables turnover ratio
and total asset turnover ratio are being formulated.
2018 2017 2016 2015 2014
0
2
4
6
8
10
12
14
16
18
20
Activity Ratios
INVENTORY TURNOVER RECIEVABLES TURNOVER
PAYBLES TURNOVER RATIO TOTAL ASSET TURNOVER

11FINANCIAL STATEMENT ANALYSIS
Inventory Turnover Ratio:
Inventory turnover ratio is the financial indicator that assists the investors and the
corporate managers of the company to find the ability of the company to generate the sales from
inventory (Annualreports.com. N. p., 2020. Web). As per the analysis, inventory turnover ratio
of Amazon Inc. the ratio fell down due to the decrease in sales and pilling up of inventory in
2015 led to the low inventory turnover ratio. This was not the case in next few years, as the sales
of the company increased by considerable means. Thus, in 2018 the inventory turnover ratio
increased and stands at 8.103, which is much higher in comparison to the previous year. This
states that the company’s ability to transfer the inventory into sales is immense.
Receivables Turnover:
Receivables turnover ratio assists the corporate manager of the company or the investors
to determine the company’s ability to calculate the company’s effectiveness in collecting the
receivables that are owned by the clients. As per the analysis of the receivables turnover of the
Amazon Inc. is 13.965, which means Amazon Inc. can easily gain access to the lending amount.
Payables Turnover:
Payables turnover of the company assists the investors and the corporate managers of the
company to determine the company’s ability to quantify the rate at which the company pay off to
the supplier. Due to the decrease in sales the ability of the company to pay-off debt to the
supplier decreased in 2017. The payables turnover for Amazon Inc. is 3.644 in 2018. As per the

12FINANCIAL STATEMENT ANALYSIS
analysis it can be determined that the company’s ability to provide the debt to its supplier is high.
This ability of Amazon Inc. assists them to gain goodwill in industry.
Total Asset Turnover:
Total asset turnover assists the investor and corporate manager of the company to
determine the company’s sales or revenues that is similar to the value of assets
(Annualreports.com. N. p., 2020. Web). The total asset turnover ratio is one of the best indicators
that the efficiency of the company to generate revenue using the asset can be determined. The
higher the total asset turnover benefits the company more. As per the analysis the total asset
turnover of the company is 1.432 in 2018, which is lower in comparison to previous year. This
indicates that Amazon’s ability to spend or generate revenue using the asset increases by
considerable means.
Profitability Ratio:
Profitability ratio is the metrics that the investor or the managers of the company uses to
assess the company’s ability to create revenue or profits over certain period of time. To measure
the profitability ratio of amazon Inc. profit margin ratio, return on asset ratio and return on equity
has been formulated.

13FINANCIAL STATEMENT ANALYSIS
2018 2017 2016 2015 2014
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Profitability Ratios
NET PROFIT MARGIN RETURN ON ASSET
RETURN ON EQUITY RETURN ON CAPITAL EMPLOYED
Net Profit Margin:
This ratio is used to determine the company’s ability to acquire profit from the market.
The ratio basically represents what percentage of sales is turned into profit. In 2018 the sales
revenue for the company increased by considerable means. In 2016 and 2017 the company
earned $2377 million and $3033 million respectively. In 2018 the company saw a serious rise in
sales revenue and it reached to $10073 million. The net profit margin of the company is 4.325%
in 2018, which is much higher than the previous year. This represents that the company’s ability
to fetch profit from the market increased by considerable percentage.

14FINANCIAL STATEMENT ANALYSIS
Return on Asset:
Return on asset is considered as the indicator of how profitable the company is in
comparison to the total asset. As per the analysis the return on asset of the company is 6.193% in
2018. This means that the company’s ability to gain revenue from the market is immense.
Return on Equity:
Return on equity is an indicator, which states that the company’s ability to change the
assets into profit. As per the analysis it can be found out that Amazon’s return on equity stands at
23.130% in 2018. The return on equity states that company’s ability to convert the assets into
profit is immense.
Return on Capital Employed:
The proficiency of using the capital can be searched using the return on capital employed.
As per the analysis of the company’s return on capital employed ratio the company ‘utilization of
the capital is very efficient. This is the reason the liabilities of the company decreased in last five
years.
Market Value Ratios:
The market value ratios states that whether the company’s shares are overvalued or
undervalued. Thus, to calculate the market value ratios price earnings ratio is being calculated.

15FINANCIAL STATEMENT ANALYSIS
Price Earnings Ratio:
The price earnings ratio assists the investors to determine the current share price in
comparison to the EPS. As per the analysis of the company it can be determined that the price
earnings ratio of the company is much better as unit stands at 3.793 in 2018.
Gearing Ratio:
The gearing ratio is the ratio that determines the company’s ability to pay off the debt
using the equity of the firm. The Amazon Inc. gearing ratio calculation is based on the Equity
Ratio. The equity ratio resulted as 26.775% in 2018 in comparison to 2014 that was 21.102%.
The reason behind the rise in the gearing ratio is due to the better performance of the company in
recent years. The company in the last four years (2014-17) has lower equity ratio where it has
maintained more than 25% in the year 2018 that shows its current position is typically optimal or
normal as a well-established company as compare to the previous years. However, the company
does not have maintained a higher equity ratio. The higher equity ratio is considered favourable
for the company as it shows the company is worth to invest in.

16FINANCIAL STATEMENT ANALYSIS
2018 2017 2016 2015 2014
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
GEARING RATIO
CONCLUSIONS:
As per the above analysis, it can be determined that the financial performance of the
company in the market is pretty good as the company’s ability to earn profit and utilize the
current assets and total assets are pretty better, which can be clearly understood from the
liquidity ratio and profitability ratio. The quick ratio of the company increased from 0.763 in
2017 to 0.847 in 2018. The profit margin ratio of the company also increased from 0.017 in 2017
to 0.043 in 2018. The company’s total assets are much more in comparison to the total liabilities
and it can be seen from the total debt ration where the ratios in last five years stand below 1. The
share price of the company also indicates that the company’s financial performance in last five
years is quite notable. Thus, the company’s financial health was successfully converted from the
loss making company to one of the most profitable company in the world. The inflation rate
around the world and current economic condition are not considered while calculating the

17FINANCIAL STATEMENT ANALYSIS
financial ratios of the company. Thus, the data provided in the report does not consider the
external data such as economic data like inflation rate.
RECOMMENDATION:
It is also recommended that the company should consider the external data specially the
economic data like inflation rate and recession rate of the country, so that the company can
perform much better in world market. The expanding the operations of the company in new
market and new regions will earn more profit for the company. The diversification from the
technology industry and e-commerce industry will increase the level of sustainability in the
market. Amazon Inc. can enter into hospitality industry, which is also considered one of the most
profitable industries of the world. To achieve this company should consider the internal factors
like corporate governance, shareholders’ interests, employee’s interests, customer’s interests and
interests of others stakeholders as well for maintaining the sustainable operations in the existing
industry. Thus, if the company implements the above mentioned recommendations in its
operations then the company can earn more profit from the market and remains sustainable for
longer period of time.

18FINANCIAL STATEMENT ANALYSIS
REFERENCES:
Annualreports.com. N. p., 2020. Web.
Buhrmester, Michael, Tracy Kwang, and Samuel D. Gosling. "Amazon's Mechanical Turk: A
new source of inexpensive, yet high-quality data?." (2016).
Kantor, Jodi, and David Streitfeld. "Inside Amazon: Wrestling big ideas in a bruising
workplace." The New York Times 15 (2015): Q1.
Nepstad, Daniel, et al. "Slowing Amazon deforestation through public policy and interventions
in beef and soy supply chains." science 344.6188 (2014): 1118-1123.
Ritala, Paavo, Arash Golnam, and Alain Wegmann. "Coopetition-based business models: The
case of Amazon. com." Industrial Marketing Management 43.2 (2014): 236-249.

19FINANCIAL STATEMENT ANALYSIS
APPENDIXES:
AMAZON
78%
E-BAY
10%
APPLE
6%
WAL-MART
6%
MARKET ANALYSIS OF E-
COMMERCEINDUSTRY
2018 2017 2016 2015 2014
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
GEARING RATIO

20FINANCIAL STATEMENT ANALYSIS
2018 2017 2016 2015 2014
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Profitability Ratios
NET PROFIT MARGIN RETURN ON ASSET
RETURN ON EQUITY RETURN ON CAPITAL EMPLOYED
2018 2017 2016 2015 2014
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Liquidity Ratios
CURRENT RATIO QUICK RATIO CASH RATIO

21FINANCIAL STATEMENT ANALYSIS
2018 2017 2016 2015 2014
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Solvency Ratios
TOTAL DEBT RATIO DEBT-EQUITY RATIO EQUITY MULTIPLIER
2018 2017 2016 2015 2014
0
2
4
6
8
10
12
14
16
18
20
Activity Ratios
INVENTORY TURNOVER RECIEVABLES TURNOVER
PAYBLES TURNOVER RATIO TOTAL ASSET TURNOVER
http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2017.PDF

22FINANCIAL STATEMENT ANALYSIS
http://www.annualreports.com/HostedData/AnnualReportArchive/a/
NASDAQ_AMZN_2016.pdfhttp://www.annualreports.com/HostedData/AnnualReportArchive/
a/NASDAQ_AMZN_2015.pdf
http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AMZN_2018.pdf