Amazon times interest earned ratio

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

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