Corporate Performance Report

 Amazon

In the business world, it is imperative that each person be able to determine and make recommendations regarding the viability of any purchase, as well as justify the claims made to upper management. Whether the purchase is equipment, stock, or another company, the same techniques and skills are called into play.

The Corporate Performance Report

will require you to apply pertinent business concepts to the analysis of a chosen company using data from the company’s annual report as well as other sources. Using different business concepts and real-world techniques, you will analyze the strengths and weaknesses of the company and write a report for upper management either recommending or not recommending purchase of the company stock. Just as you would in any business situation, you will be required to revise and improve the pieces of your report as you progress and your final product will be something that could be used in the real business world.

 

The completed report must include the following sections and content.

Executive Summary (Completed in Week Five)**

• Create an Executive Summary for your report that can be used as the first page of the final product to provide general information for upper management

  Provide a synopsis of your findings, including your recommendations and a rationale for whether or not to purchase stock from this company.

Introduction to and Background on the Company (Completed in Week One)**

• Analyze your chosen company’s current business and financial conditions and create a brief introduction to your company that includes the following.

  The mission of the company
  A descriptions of the company’s current business operation, competitors, financial condition
  General information that explains why the company interesting to you as an analyst.

Financial Statement Review (Completed in Week Two)**

• Evaluate the financial performance of your company by creating a complete financial statement review.

  Review all three accounting statements and compare each of these statements to previous statements for the past three years.
  Describe any positive or negative trends that emerge from the accounting statement data and comparisons, providing a detailed explanation of the factors that lead to these trends.
  Assess potential weaknesses in the financial statements for your company.

Market Summary and Value Calculation (Completed in Week Four)**

• Summarize how your company compares to the overall market based on researched competitive market data.
• Summarize what 3-5 market analysts are currently saying about the company.
• Calculate the value of the company’s financial assets by completing ratio analyses for the company for the last three fiscal years within the following bulleted categories. Provide a rationale as to whether each ratio is favorable or signals potential trouble for the company justifying your observations with evidence from the data and your findings.

(Note: Your report must include a minimum of 2 ratios from each bulleted category, with a minimum of 10 total analyses. The greater the number of relevant ratio analyses you can provide, the stronger your business case will be to either purchase or not purchase the stock.)

• Categories for ratio analysis

  Liquidity
  Financial leverage
  Asset management
  Profitability
  Market value

Financial Returns and Capital Constraints (Completed in Week Three)**

• Formulate the expected financial returns and associated risks by completing the following calculations.

  Calculate the Return on Equity (ROE) using the DuPont system.
  Calculate the Constant Growth Stock Valuation (CGSV) and compare it to the current stock price.

• Research your company’s industry and evaluate what type(s) of capital constraints your company must consider in order to be competitive in the market. Explain the appropriate financial techniques that would be used in this evaluation.

** Be sure to include any additional revisions based on the feedback you received from your instructor in the weekly mentorship exchanges and Waypoint submitted assignments.

The Corporate Performance Report

• Must be eight to ten double-spaced pages in length (not including title and references pages) and formatted according to APA style

1

Introduction

and Background of Amazon company

Name: Garry Bray Jr.

Ashford University

Course: BUS401

Instructor: Richard Burke

Date: 19 October 2020

Introduction

Amazon is currently involved in e-commerce operations and aims to improve its increased efficiency to ensure productivity through innovative brands’ production. Amazon products include consumer electronics, personal care and health items, scientific and industrial supplies, and beauty products (Neubacher, 2020). Amazon’s mission is raising the standards of customers’ experience and using advanced technology to ensure that it attracts more customers. The organization competes with some of the famous and largest companies worldwide, such as Otto and Alibaba. Amazon Company is the best to study since it shows commitment to customers by providing world-class services. Furthermore, the company has incorporated platforms that facilitate convenience and simplicity in its online shopping experience (Seagal, 2020). Therefore, the paper discusses Amazon’s mission, its current financial condition and business operations, Amazon’s competitors, and the main reason why it is an exciting organization to study.

Amazon’s Business Mission

Amazons’ mission is to ensure that they raise the standards of customers’ experience using technology so as consumers buy anything they want, empower their businesses, and maximize their success. For that reason, it aims at companies and customer’s digital empowerment in the UK to improve its living standards and enhance economic competitiveness (Hahn, Kim, and Youn, 2018). The mission of digital infrastructure enhances customer experience and creates a room for competition at a global stage. Amazon is the top among UK companies for attracting and retaining talent.

Amazon Current Business and Financial Information

Amazon’s current business operations include e-commerce activities and improving its Operations Management (OM) through increased efficiency to ensure productivity. Additionally, the organization has incorporated advanced technologies for the optimal production of brands and services. Through continuous improvements, Amazon continues to expand and diversify its business while still maintaining adequate operations’ support despite the product mix broadening and global expansion. Amazon has shown a continuous improvement of its revenue from $107,006 in 2015 to $280,522 in 2019. As of 2018, the cost of goods sold amounted to $139,156, and the organization had an operating income of $12,421 (Majed, Nuraddin and Hama, 2018). According to Amazon’s financial statement, the organization had 504shares outstanding, continuous improvement from 477 in 2015, and gained $11,588 in income from continuing operations (Moore and Tambini, 2018). 

Amazon’s Main Competitors

Amazon competes with some of the world’s largest companies, such as Apple, Netflix, and Google. Apple is an America-based online retailer that specializes in online selling of electronic products. Netflix is a major competitor to Amazon because it has an increased market share in many parts of the world compared to Amazon, thus attracting more customers. Google, on the other hand, is best known for its innovations (Gregory, 2019). Therefore, it sells products from different brands on its e-commerce platform, selling other companies’ products while Amazon majors on its brand. Netflix sells its products based on customer needs, which vary from one region to another.

Why Amazon Company is an Interesting Organization to Study

Amazon is an exciting business organization to study since it shows commitment during its provision of world-class services. Additionally, the organization uses initiatives to create platforms that consumers can track and order goods online. As a result, there is convenience and simplicity in their online shopping experience (Neubacher, 2020). Diversification ensured in the organization facilitates the provision of different products giving its customers a chance to explore new merchandise hence attracting new business opportunities. Amazon aims at consistently maintaining culture and enhancing community donations during pandemics to ensure corporate social responsibility.

Conclusion

Although it started as an online retailer of books, it has grown to become the largest e-commerce company in revenue in the United States. Amazon is an exciting organization to study since it has excellent customer relationship that offers the clients discounted pricing. Netflix and Google are some of Amazon’s competitors, and they have multiple online stores, subscription services, physical stores, and third-party seller services, which are their primary income sources.

References

Gregory L., (2019) Amazon.com Inc’s mission statements and vision statement. Viewed online at

http://panmore.com/amazon-com-inc-vision-statement-mission-statement-analysis

(Accessed 19th October, 2020)

Hahn, Y., Kim, D., & Youn, M. K. (2018). A Brief Analysis of Amazon and Distribution Strategy. The Journal of Distribution Science, 16(4), 17-20.

Majed, S. Z., Nuraddin, S. H., & Hama, S. V. S. (2018). Analyzing the amazon success strategies. Journal of process management. New Technologies, 6(4), 65-69.

Moore, M., & Tambini, D. (Eds.). (2018). Digital dominance: the power of Google, Amazon, Facebook, and Apple. Oxford University Press.

Neubacher, B. (2020). Alphabet and Amazon: how incumbent resource power keeps competitors at Bay (Doctoral dissertation).

Seagal T., (2020). Who are Amazon’s main competitors? Vierwed online at

https://www.investopedia.com/ask/answers/120314/who-are-amazons-amzn-main-competitors.asp#:~:text=Amazon’s%20retail%20store%20rivals%20include,Oracle%2C%20Microsoft%2C%20and%20IBM

. (Accessed 19th October, 2020)

5

Amazon’s Financial Report Review

Name: Garry Bray Jr.

Ashford University

Course: BUS401

Instructor: Richard Burke

Date: 26 October 2020

Amazon’s Financial Report Review

In this document, I have chosen Amazon Company to be the organization which I look at its financial statements keenly and review them. Amazon is one of the companies considered to be very valuable globally because it dominates the e-commerce business. In addition to that, it has in the recent days begun to generate disruptions in the other areas such as in the retail business. After checking its financial statements, I realized that Amazon is a one of a kind company. The company puts more focus on its growth despite the fact that it has already achieved the success that it now enjoys in its market share internationally. The company makes sure that it re-invests large amounts of cash back into the business and this is one of the factors that makes it stand out and continue to prosper (Franek, K., 2020).

I will now begin by evaluating the financials of Amazon in the year 2019. In 2019, the company had an operating cash flow of 39 billion dollars. However, I went ahead and calculated the free cash flow and accustomed the company for a lease financed investment together with compensations that are based on their stock, I realized that its free cash flow becomes negative. Nonetheless, the company is still able to operate very well and efficiently because Amazon Company has made several high level investments in its logistics, capacity of server as well as its fulfillments. Amazon went ahead and sold their products to consumers directly for reduced prices and also gave offers to their clients to order their products for free shipping which made them incur some losses in the process. I say this because I noticed that most of their profits come from AWS and third-party seller services.

Moving ahead to the balance sheet of Amazon Company, I realized that in 2019, its assets had jumped from 63 billion dollars 225 billion dollars. This assumed a positive growth by 38% from 2018. I checked the factors that lead to this jump and realized that the GAAP of United States had changed which wanted all companies to show their assets as well as obligations from their operating leases in their balance sheet. Moreover, there were various important changes which led to an increase in the growth in property together with equipment and investments that are short term. The factors that mainly brought up the increased assets came from changes in the leasing accounting. The company also had an increased capital from compensations relating to stock.

When it comes to the other accounting statement, which is the income statement, I was very fascinated by what I saw. In 2019, Amazon Company had a pretty good year since its revenues had positively surged. By this, I mean that Amazon’s revenue heightened by about 48 billion dollars, this accounted to 20% growth to 281 billion dollars. One of the features of Amazon, online stores became the biggest driver of this growth which included the products that they sold to their customers directly. In addition to that, the third-party seller services and AWS also made huge contributions to their revenue growth by contributing 11 billion dollars and 9 billion dollars to the revenue respectively. In this financial year, the only stream of revenue that did not grow at all was the physical store revenue.

Now that we have analyzed the financial statements of Amazon in the last year, now we are going to compare 2019 with the last three years. The revenues of Amazon have been increasing regularly since 2016. For instance, the revenues that Amazon Company had in 2016 were about 135 billion dollars, in 2017 it was 177 billion dollars, in 2018 they had 232 billion dollars and in 2019 it was 280 billion. As we can see from the figures, the trend is increasing gradually over the years. This simply means that the company is good at its job ensuring that they have a steady increase. When we compare the balance sheet over the last three years, we can also see that cash on hand, total assets, total liabilities, and shareholder equity all increase steadily. In 2016, total liabilities and shareholders’ equity increased from 83 billion up to 225 billion in 2019 (Macrotrends LLC, 2020).

I realized that one of strongholds that Amazon Company has over its competitors in the market share is in its ability to competently combine Artificial Intelligence and its software with physical technology which includes warehouses, servers and robotics. From its balance sheet, I noticed that the company has a significant amount of investment on property and equipment which are important factors in the success of any business. Between the years 2018 and 2019, I realized that the United States accounting regulations that needs companies to involve their long-term operating leases in the balance sheet went a long way to boost the figures in the balance sheet as we see an additional 25 billion (Franek, K., 2020). A company like Amazon works internationally and therefore is required to make as much profit as we have seen in this analysis.

References:

Franek, K. (2020, September 23). Amazon annual report: Financial overview & analysis 2019. KAMIL FRANEK | Business Analytics. 

https://www.kamilfranek.com/amazon-annual-report-financial-overview-and-analysis/

Macrotrends LLC. (2020). Amazon cash flow statement 2005-2020 | AMZN. Macrotrends | The Long Term Perspective on Markets. 

https://www.macrotrends.net/stocks/charts/AMZN/amazon/cash-flow-statement

Stobierski T. (2020, May 5). 13 financial performance measures managers should monitor. Business Insights – Blog. 

https://online.hbs.edu/blog/post/financial-performance-measures

Wikihow.com. (2019, October 25). How to Review a Financial Statement. 

https://www.wikihow.com/Review-a-Financial-Statement#:~:text=Look%20at%20the%20Notes%20to,flow%20statement%20and%20stockholder’s%20equity

1

4

Amazon Financial Returns and Capital Constraint

Name: Garry Bray

Ashford University

Course: BUS401

Instructor: Richard Burke

Date: 29 October 2020

Introduction

Financial statements of companies are utilized to demonstrate the performance of the company and other information that can be useful to stakeholders. Investors require such information when making investment decisions. Therefore, management must find approaches that will attract investors to their companies. Increasing return on equity is one of the ways used by the companies to attract investors and use debts to meet asset requirements of the enterprise. This exercise use DuPont analysis to analyze the economic conditions and business performance of Amazon. DuPont analysis breaks down ROE into operating efficiency, asset efficiency, and leverage to find out which activities are contributing the most to changes in return on equity (ROE) (Doorasamy, 2016).

Return on Equity

Return on equity is the amount paid to shareholders as return to the amount they have invested in the company. Return on equity is calculated as: the net profit margin * Asset Turnover *equity multiplier.

(NASDAQ, 2020)

Net profit margin is calculated as;

= = 0.0413 or 4.13 %

Asset turnover = = = 1.4463

Equity Multiplier = = = 3.67

ROE = 0.0413 * 1.4463 * 3.67 = 0.2192

Net profit margin shows that the company 0.0413 for every dollar of sales as profit. The company’s ability to use its assets to generate sales effectively is indicated by its asset turnover. Amazon generates 1.4463 dollars for each dollar of assets. The equity multiplier is a measure of the percentage of assets that are owned by shareholders at Amazon. According to the financial information from Amazon’s financial statements, 3.67 an indication that most of the assets are funded by equity compared to debt. The company takes low debt which is important for company because it cannot be liquidated in case of insolvency.

Constant Growth Stock Valuation

Stocks can be valued using the constant growth stock valuation model (CGSV), to determine the rate growth of the asset under consideration. The formula for CGSV is given as

P= D/(r-g). P stands for the current price, D stands for the next dividend of the company. However, the dividend policy of the company allows the company to recycle back revenues to the business and does not pay dividends. Amazon has observed premier stock growth and thus has not hurt the investors with a stock price of $1785. The stock has generates a return of 30 percent annually but does not pay dividends since it is ploughed back into the business.

D = amazon has an EPS of 6.47

Stock price = $1785

Growth rate = 6.94

CGSV = $6.47/ ($1785+6.94) = 0.0036 + 0.0694 = 0.073

Constant growth stock valuation is more appropriate technique given the fact that it does not make dividend payment to its shareholders.

Capital Constraint

Amazon is a leader in the industry beating giants in the e-business such as Wal-Mart, Chewy.com, eBay, Netflix and other related companies. The company has been able to beat competition and remain at the top of the industry. Analyzing the company’s financial strengths of the capital positions is achieved through analyzing its financial obligations in terms of debt and equity, capitalization ratio of the company, and the debt and debt to equity ratio. The company has applied capital rationing strategy to ensure that only the profitable business are invested using the limited capital. Besides, the company has been able to focus on projects that guarantee highest returns, enabling it beat competition in the market (Buddenberg, 2018). Amazon is overvalued with a market cap of $1.66 trillion, Amazon’s stock is being valued at over four time its potential 2020 revenue of $400 billion.

References

Buddenberg, J. (2018). Aggressive Working Capital Strategies for Network-enabled Business Models (Doctoral dissertation, IE University).

Doorasamy, M. (2016). Using DuPont analysis to assess the financial performance of the top 3 JSE listed companies in the food industry. Investment management and financial innovations, (13, Iss. 2), 29-44.

NASDAQ. (2020, January 02). Amazon.com Inc. (NASDAQ:AMZN). Retrieved from NASDAQ:AMAZON:

https://www.stock-analysis-on.net/NASDAQ/Company/Amazoncom-Inc/Ratios/DuPont

Market Summary and Value Calculation

Name: Garry Bray

Ashford University

Course: BUS401

Instructor: Richard Burke

Date: 5 November 2020

Market Summary and Value Calculation

Amazon provides their customers an online retail shopping service. Their customers can purchase items online, pay for them over the internet, and have them delivered right to your door without ever leaving your home. In addition to being one of the largest online retailer companies, Amazon has begun to build an advertising business that not only competes with its competitors Google and Facebook but is also expected to bring in $17.6 billion in 2020. Amazons revenue for 2019 was $280.522 billion, an increase of 20.5% over $232.887 billion in 2018. Their profits of $11.588billion in 2019 had a 15% increase over $10.073 billion in 2018. Some strengths Amazon has to offer are their low-cost structure, a large product selection, and many third-party sellers.

Overall market competitors

Amazon’s growth in the e-commerce market has caused its competitors to lose their customers. According to Jeremy Bowman (2019), Amazon controls 49.1% of the e-commerce industry. There are many Amazon competitors but some of the biggest ones are Walmart, Alibaba, Costco, and eBay. Of these competitors Amazon’s number one competitor is Walmart, Inc. In 2018, Walmart had a total equity of $79.6 billion versus Amazon’s $43.55 billion. In addition, Amazon employed slightly less employees than Walmart. Walmart lead these areas but not by much. Where Amazon excels is in the innovation department. Amazon and launched 17 locations of Amazon Go stores, where consumers can go in to pick up items versus ordering online. Walmart announced it would add automated robots inside their retail stores. Amazon also turned to leverage robots in their fulfillment centers, they also began to utilize robots to deliver packages. Amazon continues to thrive over its competitors in the innovation department. Other areas where Amazon thrives in comparison to its competitors are in customer service, digital growth, and supply chain logistics.

Market analysts

Market analysts tend to study market conditions, consumer behavior, and competitor’s activity so that they can help companies decide on products and services to sell. One market analyst, Morgan Stanley, says the following; “Amazon is poised to surge 15%, making it a top ‘buy’ pick for 2020.” (Stanley, 2020). Amazon shares had grown by 3% and with their higher earnings as of last quarter Morgan Stanley predicts that Amazon shares will continue to grow at least another 15%. According to James Lee, tech analysist, the impact of COVID-19 epidemic, stocks have dropped significantly. However, with the recent request to self-quarantine the need for deliveries of items such as food, household, and others are in high demand. “Amazon is expected to benefit from increased demand for healthcare, grocery and consumer packaged goods products” (Lee, 2020). In 2018, another market analyst, Raymond James, had expected the e-commerce industry to represent 39% of retail sales. As Amazon drives their e-commerce sales by more than 50%, has caused difficulties for other companies to compete. This lines up perfectly with the analysis provided by Morgan Stanley. Another analyst, SunTrust Robinson Humphrey, states that Amazon’s business will grow from $7.5 billion in 2018 to $25 billion by 2022. Amazon’s growth can be contributed to Echo devices, advertisements, and Whole Foods 365.

Ratio analyses

As a business, the owners of Amazon.com, Inc. are prudent to taking on effective planning and financial management so that they can run a successful and financially stable company. According to Lohrey (2019), “Ratio analysis is critical for helping you understand financial statements, for identifying trends over time, and for measuring the overall financial state of your business.” Ratios contain numerical values, which are obtained from the companys financial statements. Ratios are indicators of how a business is doing individually and against its competitors. In addition, ratios provide lenders and investors financial insight of how a company is doing, which assist in making lending and investment decisions. In the following sections I will provide a ratio analysis of Amazon.com, Inc. to provide background on the benefits of the health of the company.

Liquidity ratios

Liquidity ratios are a tool that is utilized by the management of a business and reflects the ability a company must repay short-term liabilities such as operating and financial expenses. I will be discussing the following two ratios for Amazon.com; current ratio and quick ratio. The current ratio of a company indicates how many times you can pay current liabilities. According to Amazon.com, Inc. current ratio listed below you can see an improvement from 2017 to 2018 but then from 2018 to 2019, it remained the same. This is not necessarily bad and dictates a desirable situation to be in because their current liabilities are greater than their current liabilities and they have been able to pay their currently liabilities for the last three years. The quick ratio uses its near cash or quick assets to pay its current liabilities. According to the quick ratio analysis below, Amazon’s quick ratio had improved from 2017 to 2018 and again from 2018 to 2019. The low ratios of .76 in 2017, .85 in 2018, and .86 in 2019 indicate that Amazon cannot fully pay back its current liabilities. This does not necessarily mean that Amazon is in bad shape as its quick ratio does increase from year to year.

Debt management ratios

The debt to equity ratio is calculated by taking long term debt and divide it by shareholders equity. A higher number indicates the company has more debt to equity, and a lower number indicates that it has less debt to equity. Times interest earned is the ability to meet interest payments on a company’s debt.

Asset management ratios

Asset management ratios can tell you how a company is managing its assets. Two ratios that I will cover for Amazon are the inventory turnover and asset turnover. The inventory turnover will tell how often a company sells and replaces its stock of goods during a given period. Amazon’s inventory turnover has a 41-day inventory turnover, this could be due to its big inventory options but nonetheless they tend to hold on to their assets longer then the industry standard. Asset turnover is how well a company uses its assets to generate sales revenue or income.

Profitability ratios

The profitability ratios are used to assess a company’s ability to generate earnings. Two of the ratios we used were the return on equity (ROE) and gross profit margin. Return on equity shows the profitability of the business as it relates to equity. Amazon’s ROE has increased and topped its competitors Walmart and Target. Gross profit margin is the money that is left over after sales.

Market value ratios

Market value ratios are used to evaluate a company’s current share price. Two of the ratios we will be using for Amazon are the price-earnings ratio (P/E) and price-to-book (P/B). the P/E ratio evaluates the share price as it relates to the annual net income of a business. Amazons P/E is higher than the industry standard but that is because Amazon is associated as a tech company. The price-to-book (P/B) ratio is used to conduct an analysis of a stock.

References

Anderson, G. (2019, March 28). Amazon’s Weakness In Private Label Outweighs Its Success. Retrieved from

https://www.forbes.com/sites/retailwire/2019/03/28/amazons-weakness-

in-private-label-outweighs-its-success/#20086edd479b

Liquidity Ratios Overview. (2018, March 29). Retrieved from

https://www.learnmanagement2.com/Liquidityratios.html

Bowman, J. (2019, February 6). These Stocks Are Amazon’s Biggest Competitors. Retrieved from https://www.fool.com/investing/who-are-amazons-biggest-competitors.aspx

Commerce The New E in Success. (2018, February 2). Retrieved from

https://www.raymondjames.com/commentary-and-insights/business-

ownership/2018/02/02/e-commerce-the-new-e-in-success

Jurevicius, O. (2020, March 16). Amazon SWOT Analysis (5 Key Strengths in 2020). Retrieved from https://strategicmanagementinsight.com/swot-analyses/amazon-swot-analysis.html

Lohrey, J. (2019, January 25). Importance of Ratio Analysis in Financial Planning. Retrieved from

https://smallbusiness.chron.com/importance-ratio-analysis-financial-planning-

80600.html

Morgan Stanley thinks Amazon is poised to surge 15%, making it a top ‘buy’ pick for 2020 (AMZN) | Markets Insider. (n.d.). Retrieved from

https://markets.businessinsider.com/news/stocks/amazon-stock-price-surge-morgan-

stanley-buy-rating-fresh-money-2020-2-1028890047

Nagy, F. (2019, February 11). How to Complete a Ratio Analysis on Financial Statements. Retrieved from

https://bizfluent.com/how-12039840-complete-ratio-analysis-financial-

statements.html

Rexaline, S. (2020, March 11). Why This Analyst Recommends Buying Amazon, Baidu, Facebook And Uber Following COVID-19 Battering. Retrieved from

https://www.benzinga.com/analyst-ratings/analyst-color/20/03/15527063/why-this-

analyst-recommends-buying-amazon-baidu-facebook-and-uber-following-covid-1