Financial Statement Analysis of Amazon Inc. for Stock Purchase

This report provides a comprehensive analysis of Amazon Inc.'s financial performance over the past three years, including an examination of liquidity, profitability, and solvency ratios. The analysis reveals improvements in Amazon's financial health, with positive trends in current, acid test, and working capital ratios, as well as enhanced profitability and solvency positions. The report also includes a comparative analysis with Amazon's competitor, eBay, highlighting the deterioration of eBay's financial performance over the same period. Based on these findings, the report recommends the purchase of Amazon stock. The analysis utilizes financial data from annual reports and employs standard financial ratios to assess the company's performance and provide an informed investment recommendation. The report is structured as a letter to an investor, summarizing the findings and providing a clear conclusion regarding the investment potential of Amazon stock.

Running head: ACCOUNTING STATEMENT ANALYSIS
Accounting statement analysis
Name of the student
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Author note

1ACCOUNTING STATEMENT ANALYSIS
July 26, 2019
Mr. Alex Taylor
236 Park Road,
Washington DC
Subject: providing suggestion regarding purchase of Amazon stock
Dear Mr Taylor,
This is to inform you that I have already analyzed the financial performance of Amazon Inc. for
the past 3 years and compared the same with its main competitor eBay for the same period.
Findings from the analysis are as follows –
 Liquidity ratios are used for measuring the entity’s ability of making payment for the
short term dues when they become payable. Looking into the liquidity ratios of Amazon
for the past 3 years it is observed that the current ratio of the entity has been increased
from 1.04 to 1.10 over the past 3 years. In the same way the acid test ratio or the liquid
ratio went up from 0.78 to 0.85 and working capital ratio has been increased from 1.04 to
1.10 over the past 3 years. Hence, it can be stated that the liquidity position of the entity
has been enhanced.
 Profitability ratios are utilized for measuring the ability of the entity to convert its
revenue into net earnings after meeting the expenses associated with its business
operation, interest expenses along with tax expenses. Looking into the profitability ratio it
can be identified that the net profit margin for the entity has been enhanced and increased
from 1.74% to 4.3% during the period of 2016 to 2018. Further, the return on asset that
analyses the profitability of entity against its assets has been enhanced and increased
from 3.20% to 6.85%. In the same way return on equity that measures the rate of return
on the shareholder’s holdings has been increased from 14.52% to 28.27%. Hence, it can
be stated that the profitability position of the entity has been enhanced over the past 3
years.
 Solvency ratios are computed for measuring the ability of the entity with regard to
meeting of the debt as well as other obligations. Looking into the solvency ratio of

2ACCOUNTING STATEMENT ANALYSIS
Amazon Inc. it is observed that the company has improved its solvency position as the
proportion of debt in the capital structure against the equities has been reduced over the
past 3 years. Debt to equity ratio has been reduced from 3.32 times to 2.73 times and debt
ratio has been reduced from 0.77 to 0.73. Moreover, the times interest earned has been
increased from 8.65 times to 8.77 times. Hence, it can be stated that the solvency position
of the entity has been enhanced over the past 3 years.
If financial performance of Amazon Inc is compared against its main competitor eBay, it can be
identified that though the liquidity position of the company is better than Amazon, the same over
the past 3 years for eBay has been deteriorated and current ratio has been reduced from 2.31 to
1.60. In the same way the profitability position measured through net profit margin has been
reduced from 78.15% to 23.54%. Further, debt portion in the capital structure has been increased
and debt equity ratio is increased from 1.26 to 2.63. Hence, the financial performance of eBay
over the last 3 years has been deteriorated whereas the financial performance of Amazon over
the last 3 years has been improved. Hence, considering the performance of the entity it is
suggested that the stock of Amazon shall be purchased at this time.
Sincerely,
Mery Johnson, Investment analyst

3ACCOUNTING STATEMENT ANALYSIS
Bibliography
Annualreports.com. (2019). Retrieved 26 July 2019, from
http://www.annualreports.com/HostedData/AnnualReportArchive/a/NASDAQ_AMZN_2
018.pdf
Annualreports.com. (2019). Retrieved 26 July 2019, from
http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_EBAY_2018
.pdf
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific Book
Chapters, 109-169.

4ACCOUNTING STATEMENT ANALYSIS
Appendix