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Business models: The Amazon financial analysis you need to know

In order to have a better financial analysis of this company it is necessary to see a bit of its history in order to see the development it has had over time since its creation. On the other hand, we must know what is and what is the purpose of financial analysis and, thus, be able to know what data it throws at us about this company and for its analysis.

Amazon.com, is an American e-commerce company based in Seattle, Washington. It was one of the first large companies to sell books through the Internet.

Jeffrey Bezos, 34 years old, founded in 1995, in Seattle, Amazon.com, an online book trade

Jeffrey Bezoz was born on January 12, 1964 in Albuquerque, New Mexico. He studied Electrical Engineering and Computer Science at Princeton University. In 1986 he started working in a fiber optic company where he became vice president. After 1990 to 1994 he worked at a Wall Street company, D.E. Shaw and Co.

In 1994, Jeff Bezos quit his job and told his wife to pack everything. They took the car, the laptop and their dog and stopped in Seattle. There they rented a house and created the largest bookstore in the world: Amazon.

Amazon.com whose name is inspired by Amazonas, the longest river in the world

The first Amazon.com website was inaugurated on July 16, 1995, with an exponential growth of the company and its presence in the network. After 30 days of leaving Amazon.com to the network and without promotion in the media, Amazon.com was selling books in all 50 US states and in 45 countries.

In 1996, the website had more than 2,000 visitors per day. A year later he had multiplied them by 25. Just a year ago, in December 1999, Time magazine named Jeff Bezos Character of the Year and they hailed him as “the king of cyber-commerce”.

Amazon.com started as an online bookstore, soon diversified into different product lines, adding DVDs, music CDs, software, videogames, electronics, clothing, furniture, food and more. But Bezos still has a supreme aspiration, a new vision: to be the largest store on the planet.

Financial analysis is often used to evaluate current or historical performance

Administrators also use the input of that analysis for the planning exercise. In the preparation of budgets, the inputs of financial analyzes are widely used. The financial analysis provides a link between the operation, activities and financing activities. That is, it provides a link between the income statement and the balance sheet.

The first step in this process is to know how much additional assets we need and how much capital we need.

Mobilize from different sources. Financial analysis, which provides a historical link between various financial components, is useful. That is why we show this data collected from the pages of investing.com, Reuters.com and StockCharts.com.

Amazon ratio analysis

  • Cost effectiveness:

The value of profitability is an adequate measure for evaluating the attractiveness of a security.

  • What is proportion analysis?

In the common trend and size analysis, the financial statements are examined independently.

The financial statements provide an additional perspective if analysts and managers link these financial statements through the analysis of ratios. The proportions are intended to evaluate the profitability, productivity of assets or capital and risk associated with operations.

How liquid is the company?

  • Liquidity ratios

These indices measure the ability of a company to meet its financial obligations, as suppliers, due on the due date.

Liquidity: Quick ratio 2.86 Current ratio 2.90 Debt to equity 92.32%

In comparison to the other companies we mentioned, Amazon.com is better at short-term liquidity, since this measures the company’s ability to meet its short-term obligations with its most liquid assets.

ROE

To understand the impact of the repayment of the loan on capital, we can compare the ROE with the ROI or with a new one. Measure called Return on Employed Capital (ROCE).

Return on investment Amazon

If the ROE is greater than the ROI or ROCE, it means that the company is in a position to obtain a better return than the cost of the loan.

On the other hand, if the ROE is less than ROI or ROCE, it means that the company is not in a position to obtain a better return than the cost of the loan. That is, indebtedness destroys the profits of the shareholders. Now we will examine the impact of the debt on the return on the company’s equity.

In this case of Amazon.com, we observed that this company is able to obtain a better performance than the cost of the loan, but as we observe the industry is better than Amazon.com, but we do not have as much disadvantage as other companies could have it.

Activity ratios

Activity relationships indicate how well, a company uses its assets. The ineffective use of assets results in the need for more financing, unnecessary interest costs and, consequently, a lower return on capital. In addition, low activity ratios or the deterioration of business relationships may indicate uncollectible accounts receivable or inventory or obsolete equipment.

Amazon’s financial efficiency

Amazon.com is torn between the efficiency of arrival of its products towards users, that is: all products made by Amazon.com want it to arrive in less than 2 days, this makes this portal unique in its kind, since for more than others they want to compete, they will not be able to because Amazon.com is characterized by that, the efficiency of delivery over the products.

Amazon.com efficiency in the last period

Another important point is the price of the shares of this company as it will determine many financial data such as sales, market capitalization, beta, dividends, expenses per share, etc.

Rotation of accounts receivable or debtors

Instead of expressing value as a relationship, normally, the efficiency of the company in this parameter is measured in the time required to collect the debtors’ fees. The average collection period measures the number of days the company must wait on average between the time of sale and when it is paid.

That’s why we look at this information on the investing.com page where we can see the earnings and earnings per share of recent years:

Amazon: Income and earnings per share in recent years

When discussing the positive impact of debt on the return of shareholders, it was also mentioned that debt can destroy the wealth of shareholders. The debt can also cause financial problems and if the company does not pay the interest or does not pay the capital, it is possible that the debt holder can submit a liquidation request against the company.

Normally, senior management establishes the objective and operational managers determine the level of operations required to achieve the objective. It would be difficult to increase the level of operations without any investment unless there is a huge idle capacity.

Conclusion

According to the researched analysis and financial data collected of the profitability, liquidity, leverage and efficiency of Amazon.com, we can reach a decision to invest in this company because since entering the stock market it has had a very good run towards rise, at least until two months ago.

Published inStartups

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