Comprehensive Financial Analysis Report: Amazon Inc.

This report offers a comprehensive financial analysis of Amazon Inc., covering key aspects such as company financing and capital budgeting. Part 1 delves into Amazon's cash conversion cycle, working capital management, and financing options, including debentures and equity share capital. The analysis includes bond pricing calculations and an assessment of holding period returns. Part 2 focuses on capital budgeting, examining free cash flow, discounting rates, payback periods, and the impact of store counts on financial projections. The report incorporates financial data from various years and includes references to relevant sources. The report concludes with a personal reflection.

Running Head: AMAZON INC. 1
AMAZON INC.

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Contents
Part 1: Company Financing........................................................................................................3
Question 1...............................................................................................................................3
Question 2...............................................................................................................................3
Question 3...............................................................................................................................3
Question 4...............................................................................................................................4
Question 5...............................................................................................................................4
Question 6...............................................................................................................................5
Question 7...............................................................................................................................5
Part 2: Capital Budgeting...........................................................................................................5
Question 1...............................................................................................................................5
Question 2...............................................................................................................................5
Question 3...............................................................................................................................5
Question 4...............................................................................................................................6
Question 5...............................................................................................................................6
Part 3: Personal Reflection.........................................................................................................6
References..................................................................................................................................7

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Part A: Company Financing
Question 1
The cash conversion cycle is the cycle that determines the difference between the inventory
day, receivables days and the days outstanding in case of payables. In comparison to the year
2013, the cash conversion cycle has been -47.12 days altogether. The biggest competitor of
Amazon is Walmart and Costco and their CCC lies in the range of 0-20 days which is a
nominal value. However, Amazon works in a different manner (Walmart, 2019). Companies
like Amazon whose yearly sales are $232.89 is far-fetched in terms of the cash conversion
cycle. Talking about the working capital, it is the difference between the current assets and
the current liabilities. The working capital of Amazon is far better having the total count of
assets which are not inclusive of any current assets back in the year 2013. From thereafter the
working capital has been managed effectively and efficiently (Amazon, 2018).
Question 2
The promotion of the new product is one such strategy that is adopted by Amazon and this
needs the amount in hand to invest in the business. The company is its own financer and
various growth and the potential promotional strategies are required to move forward with the
new product concept. Hence, Amazon tends to be on number one in terms of the operating
performance against its competitors (Amazon, 2013).
Question 3
There are different kinds of the options that are available for Amazon that in order to
purchase the assets so that the operations are running effectively. The options that are
available in the market are debentures, equity share capital. The debentures are given a fixed

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premium rate and the equity share capital is the one that takes the risky factors into
consideration.
 Equity shareholders enjoys some special rights such as they are allowed to attend the
board meeting so whatever the decisions are taken by the Board meetings so that if
any important event or information is going to be disclosed the shareholders will be
aware of it.
 In terms of cost the debentures are cheaper than the cost of the equity and the less
formalities re required to complete in terms of the legal format.
 The debentures are given the fixe d amount of interest income and equity shareholders
are paid after the debenture holders.
Question 4
In the financial year 2018, the CCC of Amazon Inc, was -47.12 days and the same was -55.07
days in the year 2013. At times the negative amount reflects the negative overview however,
the CCC of Amazon is negative and Jeff Bezos considers it as a strong move as the operating
cash flow is yet smooth. The method that is being followed by Amazon is to keep a stringent
balance between the demand of the items by the customer and the inventory lying in the
warehouse (Brooks and Upton, 2017).
Question 5
Every organisation is prone to certain challenges and one such company is Amazon and the
risks are bifurcated into three major risks such as the environmental risk, the foreign
exchange risk and the risk of the security. These risks are further divided as systematic and
non-systematic risks. The environmental risk requires immediate scanning as the external
factors have a major impact on the customer services. Secondly, the risk of the security is the
crucial one as the entire working and the operations are mostly dealt on the online basis. The

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security at the back end is necessary to protect the information from the other competitors
like Flip kart. Further the risk of the foreign exchange is again a major problem as the
products also have an impact and the company has to pay the extra import duty (Nobre, et al
2016).
Question 6
Question 6
Calculation of Bond Pricing
FV 1000
Rate of Coupon 4.50%
YTM 5%
Price of the Bond $ 1,537.46
Question 7
The holding period of the Amazon comes at 80% which indicates that the value of the
company is overvalued completely. If the funds are invested in Amazon in the year 2013,
than the value in the current year is 80% more than the funds invested earlier. The
shareholders can get the returns in the better manner (Brooks and Upton, 2017).
Part 2: Capital Budgeting
Question 1
Annual cash flows, mainly the free cash flow are considered as those cash flows of the
company that are produced from its operations and in the case of Amazon the cash flows that
company generate from its 3000 outlets are free cash flow. It is the method that is used by
the company in order to keep the cash aside to make the purchases for the potential assets and
the investments (Bell, 2017).

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Question 2
The rate at which cash flows of the company are discounted for a specific period is termed as
discounting rate. The lower limit rate is picked because “that the profits benefited by the
investors will be higher than the expense of capital” as when the money flows are limited at
12% the NPV of the ventures can be estimated at $8.02 billion and when limiting rate is 5%
the net present value is $4.97 billion of the money flows. So the limiting rate that can be
utilized by Amazon is 5% regardless of the idea of the business is of Speculative nature.
From the numeric it can conclude that the higher the net present value of the proposal or
venture the more practical and worthy the venture will be. In some situations there might be
possibilities that the cash flows from the project will be negative in that case the discounting
factor is consequently the pace of 5% is appropriate for the company (Bell, 2017).
Question 3
As per the Amazon policies the company payback period could be the 2 years but at present
the company payback period is seen as 5.47 years. The payback period is mainly the time
taken for recovery of the amount invested in the proposal and can be recovered efficiently the
management of the company. This technique is considered as the simplest way to take
decision regarding capital budgeting. From the statistics of Amazon it is known that the
recovery time for the company is unrealistic and longer, Amazon should take not more than 2
years to recover the amount. To solve this issue the company should invest on its hardware
and software structure this can help Amazon to manage its payback period (Molla, 2019).
Question 4
The store count of 3000 is hypothetical and this is clearly written in the article of the
company. The fact that “Amazon can possibly develop and be a multimillionaire business
yet the remaining costs and the expenses that are calculated are in the hypothetical manner”
this showed that the cash flows of the company and the performance of the company can

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fluctuate. The different parameters should be included and for that all the years will be
studied in the detailed manner in order to perceive the future results and further the
depreciation on assets of the company is also calculated on the total amount of 10 billion
dollars and this is added back to arrive at final cost incurred by the company (Fox 2019).
Question 5
Normally the customers are 550 in number per day and Amazon keeps a proper record of all
the customers. The internal rate of return which is basically 17% is useful for the proposal
and the stores count of 3000 can be surely acceptable on account of the management of
Amazon (Bell, 2017).

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References
Amazon, (2013) Annual Report [Online] Available from
https://www.sec.gov/Archives/edgar/data/1018724/000101872414000006/amzn-
20131231x10k.htm#s5E4608A3D31ECD4262C800E92744DB44 [Accessed on 21st
September 2019]
Amazon, (2018) Annual Report [Online] Available from https://ir.aboutamazon.com/static-
files/0f9e36b1-7e1e-4b52-be17-145dc9d8b5ec [Accessed on 21st September 2019]
Bell, P., 2017. Introducing the Net Present Value Profile.
Brooks, R. and Upton, K., (2017) Bond Portfolio Holding Period Return Decomposition. The
Journal of Investing, 26(2), pp.78-90.
Fox J. (2019). At Amazon, It’s All About Cash Flow [Online] Available from
https://hbr.org/2014/10/at-amazon-its-all-about-cash-flow [Accessed on 21st September
2019]
Molla, R. (2019). Amazon’s cashierless Go stores could be a $4 billion business by 2021,
new research suggests [Online] Available from
https://www.vox.com/2019/1/4/18166934/amazon-go-stores-revenue-estimates-cashierless
[Accessed on 21st September 2019]
Nobre, C.A., Sampaio, G., Borma, L.S., Castilla-Rubio, J.C., Silva, J.S. and Cardoso, M.,
2016. Land-use and climate change risks in the Amazon and the need of a novel sustainable
development paradigm. Proceedings of the National Academy of Sciences, 113(39),
pp.10759-10768.

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Walmart, (2019). Cash Conversion Cycle for Walmart Inc. [Online] Available from
https://finbox.com/WMT/explorer/cash_conversion_cycle [Accessed on 21st September
2019]

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Appendix 1
Years
Annual
Cash Flows
Discounting
factor
Present
value Years
Annual
Cash Flows
Cumul
aitve
cash
flows
0
$
(10,000.00) 1.000
$
(10,000.00) 0
$
(10,000.00)
-
10000.
000
1
$
1,815.00 0.893
$
1,620.54 1
$
1,815.00
-
8185.0
00
2
$
1,815.00 0.797
$
1,446.91 2
$
1,815.00
-
6370.0
00
3
$
1,815.00 0.712
$
1,291.88 3
$
1,815.00
-
4555.0
00
4
$
1,815.00 0.636
$
1,153.47 4
$
1,815.00
-
2740.0
00
5
$
1,815.00 0.567
$
1,029.88 5
$
1,815.00
-
925.00
0
6
$
1,972.50 0.507
$
999.33 6
$
1,972.50
1047.5
00
7
$
1,972.50 0.452
$
892.26 7
$
1,972.50
3020.0
00
8
$
1,972.50 0.404
$
796.66 8
$
1,972.50
4992.5
00
9
$
1,972.50 0.361
$
711.30 9
$
1,972.50
6965.0
00
10
$
2,672.50 0.322
$
860.47 10
$
2,672.50
9637.5
00
Net Present
value
$
802.69
Payback
period 5.47