Amazon.com Financial Ratios and Financial Statements Analysis and Review
In "Amazon.com 2019 Financial Statements and Financial Ratios: Defined, Discussed, and Analyzed for 5 Years” that was written by, Paul Borosky, MBA., doctoral candidate, and owner of Quality Business Plan and Finance Homework Help, the author summarized Amazon.com's 2019 10k, Amazon.com's 2018, 10k annual report, Amazon.com's 2017 10k annual report, and Amazon.com's 2016 10k annual reports as the basis for information gathering. After all of Amazon.com's 10k annual statements were collected, which included Amazon.com's Income Statements and Amazon.com's Balance Sheets, he then used proprietary financial templates to calculate different financial ratios such as Amazon.com's ROE, ROA, and debt ratio.
Amazon.com 2015 to 2018 Income Statement Summarized
|Income Statement 2018|
|R & D||28,837||22,620||16,085||12,540||9,275|
Amazon.com 2018 Revenues Analysis:
Amazon’s revenues were $88.9 billion in 2014. The revenues had steadily increased over the next five years to reach $232 billion in 2018. To accomplish this, the organization had experienced significant year-over-year growth. In 2015, their growth rate was a little over 20% annually. Over the next several years, this growth rate only increased. In 2017, their growth rate was an astonishing 30.8%. However, in 2017 the growth rate increased slightly to 30.9%. This indicates that Amazon may have peaked with their exponential growth rate trend. Over the next several years, Amazon may experience an annual growth rate between 25 to 30%. However, this growth rate should stabilize within the next 6 to 8 years to a moderate rate between 5 to 10%.
|Revenues and Growth|
Amazon.com 2018 Cost of Goods Analysis:
Amazon started 2015 with the cost of goods sold at 70.5%. Mind-blowingly enough, their cost of goods sold had actually decreased steadily over the last five years. This has resulted in the cost of goods sold in 2018 to be approximately 59.8%. The cost of goods trend, for most companies, either stays pretty flat or slightly increases, due to raw material cost increases and competitive pressures not allowing companies to increase their prices. In other words, passing raw material cost increases to the customers. Not a problem for Amazon… Wow.
To accomplish this COGS reduction feat, the firm may be selling more of their own product lines, such as the Echo and electronic tablets. Further, the company may also be acquiring service-based companies, which enjoys a low cost of goods prices.
|COGS as % of Revenues|
|Income Statement 2018|
Amazon.com 2018 SG&A Analysis:
Amazon has been keeping their SG&A percentage as compared to revenues between 1.6% to 2.1%. This indicates that management is controlling overhead costs growth adequately as compared to sales. If the organization starts trending towards the high-end of the noted range, then the firm’s management may be displaying a lack of efficiency. If this happens, then other aspects of the firm may start to deteriorate due to poor oversight. However, that is definitely not the case at this point in time.
|SG&A as % of Revenues|
|Income Statement 2018|
Amazon.com 2015 to 2018 Balance Sheet Summarized
|Short Term Investment||9,500||10,464||6,647||3,918||2,859|
|LT Debt - Current||-||-||-||-||-|
|Total Current Liabilities||68,391||57,883||43,816||33,887||28,089|
|Total Equity & Liability||162,648||131,310||83,402||65,444||54,505|
Amazon.com 2018 Cash Analysis:
Amazon’s cash balance has steadily increased over the last five years. In 2014, the organization started with a cash pile of approximately $14.5 billion. Within this five-year time frame, Amazon more than doubled their cash reserves to approximately $31.7 billion. There are a couple takeaways from the situation. First, the company is holding a substantial amount of money in cash. This indicates that the firm has little potential investments to generate income from their cash holding. A second take away from this situation would be that the company is continually decreasing their cash position, as compared to, total sales. This may mean that the firm is attempting to better utilize their cash. They are just making too much money. A great problem to have.
|Cash as a % of Sales|
|% of Sales||13.6%||11.5%||14.2%||14.8%||16.4%|
|% of Total Assets||19.5%||15.6%||23.2%||24.3%||26.7%|
Amazon.com 2018 Accounts Receivable Analysis:
Amazon’s Accounts Receivable has grown substantially over the last several years. Starting in 2014, their accounts receivable was $5.6 billion. As of 2018, their Accounts Receivable reached 16.6 billion. In comparing Accounts Receivable with sales, the company has steadily increased their accounts receivable from 6.3% of sales to 7.2% of sales. This shows that the firm may be loosening their credit policies. When this happens, businesses start to accumulate bad debt. From an investor’s perspective, if the company’s profits start to fall, their accounts receivable management policy may be part of the reason.
|Accounts Receivable as a % of Sales|
|% of Sales||7.2%||7.4%||6.1%||6.0%||6.3%|
Amazon.com 2018 Inventory Analysis:
Amazon is best known as an online marketplace bringing buyers and sellers together. Over the last several years though, Amazon has continually introduced their own products and services. This has led to a significant increase in their inventory position. However, inventory, as a percentage of total assets, has fallen over the last several years. This indicates that the company is growing their marketplace sales at a faster pace as compared to their inventory. In other words, the organization is still staying true to their online marketplace business model even though they are continually increasing their inventory position.
|Inventory as a % of Sales and Total Assets|
|% of Sales||7.4%||9.0%||8.4%||9.6%||9.3%|
|% of Total Assets||10.6%||12.2%||13.7%||15.7%||15.2%|
Amazon.com 2018 Financial Ratios
|2018 Liquidity Ratios|
|Net Working Capital||3,746||(3,053)||86||1,787||2,202|
|2018 Asset Utilization|
|Total Asset Turnover||1.43||1.35||1.63||1.64||1.63|
|Fixed Asset Turnover||3.77||3.64||4.67||4.90||5.24|
|Days Sales Outstanding||26.14||27.01||22.38||21.91||23.02|
|2018 - Profitability Ratios|
|Return on Assets||6.19%||2.31%||2.84%||0.91%||-0.44%|
|Return on Equity||23.13%||10.95%||12.29%||4.45%||-2.24%|
|Net Profit Margin||4.33%||1.71%||1.74%||0.56%||-0.27%|
Amazon.com 2018 Current Ratio Analysis:
Amazon’s current ratio has fluctuated between 1.12 and 1.1. As noted above, any ratio above 1.0 is considered excellent. Amazon exceeds this expectation. This indicates that the firm has enough current assets to cover its current liabilities for one year.
Amazon.com 2018 Cash Ratio Analysis:
Amazon’s cash ratio currently sits at .46. This means that the company has enough cash to pay almost half of their short-term or current liabilities for the next 12 months. More than a little excessive. This indicates that the company needs to better utilize their cash position in order to fully optimize their asset usage.
Amazon.com 2018 Fixed Asset Turnover Analysis:
If the fixed asset turnover is decreasing, then the organization is using more fix assets to generate the same amount of revenues. Not a good situation. This may mean that the company had bought too many pieces of equipment or buildings and they are not being used that much. Or, the organization’s revenues are slowing down, and they now have access excess capacity. A great way to make this determination is through a historical review of the ratio. In other words, check out the trend.
Amazon.com 2018 Days Sales Outstanding Analysis:
Amazon’s days sales outstanding was 23.02 in 2014. Over the next five years, their days sales outstanding increased to 26.14. This increase may be due to increasingly lenient collection policies. However, the organization has sufficient liquid assets. This may allow for additional risk-taking with their credit policies.
Amazon.com 2018 Return of Assets Analysis:
Amazon’s return on assets was .91% in 2015. This increasingly improved over the next several years. As a result, the return on assets for the company in 2018 were 6.19%. As the organization becomes more efficient, investors should expect the return on assets to continually increase. However, the company does run a risk of over building their infrastructure. If this happens, then Amazon may start to trend lower in relations to return on assets. Further, correcting this issue is quite difficult due to the potential losses recognized from the need to sell excess land or equipment.
Amazon.com 2018 Return of Equity Analysis:
Amazon’s return on equity has continually increased from a 2015 starting point of 4.45% to its current 23.13%. This ratio is impressive not only because of the rapid growth of the return on equity but also because the company is increasing their equity position while increasing the return on equity. In other words, Amazon is using more equity to finance their operations and to expand. While doing this, the company is also increasing the return on equity. Often times, when equity is increased, the return on equity inevitably decreases. Not the case for Amazon.
Amazon.com 2018 Profit Margin Analysis:
In 2014, Amazon had a negative net profit margin. Over the next several years, the company would grow their net profit from .56% in 2015 to 4.33% in 2018. The steady increase shows that the company is trending higher for their net profits. Surprisingly, if any of the ratios for the company would be considered an underachiever, it would be their net profit margin. From this, the company still has work to do in relations to cost control.