Analyzing Amazon Inc. Stock and Debt vs Equity for Cash Flow

This report analyzes the 2018 Annual Report of Amazon Inc. to assess its financial position, focusing on stockholders' equity and strategies for generating cash flow. The analysis includes an examination of issued and outstanding shares, treasury stock, and the debt versus equity position. Key financial ratios, such as return on equity, debt-to-equity, capital structure leverage, and times interest earned, are calculated and used to evaluate the company's financial health. The report also discusses the advantages and disadvantages of issuing new stock and convertible bonds, recommending that Amazon Inc. continue issuing new shares to raise capital. The memo is addressed to the CEO, summarizing findings and recommendations regarding Amazon's financial strategy.

Running head: ACCOUNTING STATEMENT ANALYSIS
Accounting Statement Analysis
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Author’s Note

1ACCOUNTING STATEMENT ANALYSIS
MEMO
Ref: 45496
To: The Chief Executive Officer
From: The Finance Manager
Date: 06.07.2019
Subject: Recommendation and Explanation
It can be seen from the 2018 Annual Report of Amazon Inc. that the company has authorized
500 million preference shares for $0.01 par value and there was not any outstanding
preference shares in 2018. Issued shares were 507 million and 514 million; and outstanding
shares were 484 million and 491 million. Amount of treasury stock in 2018 was $1,837
million. Followings are the ratios for analysing debt vs. equity position of the company.

2ACCOUNTING STATEMENT ANALYSIS
It can be seen from the above that Amazon Inc. has issued new stocks in the year of 2018.
Now, it needs to be mentioned that there are certain advantages as well as disadvantages of
issuing new stock that the company is needed to take into consideration at the time of the
issue of new stocks. In case of the advantages, new stocks outperform bonds in yielding huge
returns and it is considered as a major advantage of issuing new stock. Issuing new stocks
does not need the credit ratings of the companies and thus, the companies with not so good
credit ratings can raise capital through this (Zaremba & Okon, 2016). Issuing new stock
provides the opportunity of not knowing any money to the investors since it is not borrowing.
However, at the same time, there are certain disadvantages of issuing new stock. Through the
issue of new stocks, a company gives each investors a part of ownership which makes the
companies answerable to the shareholders. After that, companies face the burden of giving
dividend to the shareholders. The companies have to bear all the legal liabilities since the
management has to face all the issues (Zaremba & Okon, 2016).
It can be seen from the above tables that Amazon Inc. has put emphasis on the issue of shares
for the purpose of raising capital for their business as compares to term debts. For this reason,
Amazon Inc. has witnessed increased return in equity in the year 2018 as compared to 2017.
It can also be seen that, Amazon Inc. has less proportion of debt in the capital structure as
compared to equity. Thus, it is recommended to Amazon Inc. to keep issuing new shares for
raising capital.
As per the 2018 Annual Report of Amazon Inc., the company has not re-issued any treasury
stock; and they have not also issued any convertible bonds. However, it is needed for
Amazon Inc. to consider the advantages and disadvantages of convertible bonds (Martynova
& Perotti, 2018). Convertible bond holders receive a fixed income regardless of how
profitable the company is and this makes more operational income available for the common
stakeholders. However, financing through convertible bonds leads to the risk of EPS dilution

3ACCOUNTING STATEMENT ANALYSIS
along with the dilution of company’s control (Martynova & Perotti, 2018). These are major
disadvantages for Amazon Inc. for the issue of convertible bonds issue. On the overall, it is
recommended to Amazon Inc. to issue new stocks for the purpose of raising capital.

4ACCOUNTING STATEMENT ANALYSIS
References and Bibliography
Ir.aboutamazon.com. (2019). ANNUAL REPORT 2018. Retrieved 6 July 2019, from
https://ir.aboutamazon.com/static-files/0f9e36b1-7e1e-4b52-be17-145dc9d8b5ec
Martynova, N., & Perotti, E. (2018). Convertible bonds and bank risk-taking. Journal of
Financial Intermediation, 35, 61-80.
Zaremba, A., & Okon, S. (2016). Share issuance and expected returns around the world. The
Journal of Investing, 25(4), 97-107.