Amazon - Financial Analysis - Essay Example

Amazon.Com: Financial Analysis Student Name Institutional Affiliation Amazon.Com: Financial Analysis Question No. 1 Ratios Calculations Covering:2011- Annual Report Strengths, Weakness, Neutral 1 Current Ratio (17,490/14,896) = 1.17     Neutral S,W,N Explanation -0.43 current ratio because it is higher than Apple inc which is placed at 1.6: 1 Industry Average +1.1 current ratio since the industry average is placed at 0.4 Change over time -0.05 current ratio given that the ratio stands at 1.12 in 2012 2 Quick Ratio (17,490-4,992/14,896)= 0.84 Neutral S,W,N Explanation -0.74 quick ratio since it is higher than Apple inc which is placed at 1.58 Industry Average +0.04 quick ratio against the industry average indicating that company is conducting business at a secured liquidity stand. Change over time -ratio meaning that the company is altering its liquidity stand in respect to the amount of assets owned. 3 Debt-to-Equity-Assets Ratio (255/7,757) = 0.03  Weakness S,W,N Explanation - Ratio as compared to Blockbuster’s ratio. This is associated with fewer operations of the firm. Industry Average -ratio given that the industry average is placed at 0.54 Change over time -0.57 ratio given that the ratio stands at 0.12. 4 Debt-to-Total Assets Ratio (255/25,278) = 0.01 Weakness S,W,N Explanation -ratio in comparison to Apple Inc. This is attributed to fairer management strategies of equity within the competitors’ operational activities. Industry Average -ratio in comparison to the industry average which is placed at 58.0 Change over time -0.007 ratio in comparison to 2012 financial year whose ratio stands at 0.03 5 Long-term debt-to equity ratio (2,625/7,757) = 0.34 Weakness S,W,N Explanation -ratio in comparison to Apple Inc. This means that the competitor is operating at fewer debt levels. Industry Average -0.36 ratio since the industry’s average stands at 0.6 Change over time -0.18 ratio since the 2012value stands at 53% 6 Times-interest earned ratio (862/65) = 13.26 X  Weakness S,W,N Explanation -ratio in comparison to Apple Inc. which means that the company records higher sales volume in comparison to Amazon Industry Average + 20 ratio given that the industry average stands at 33.0x Change over time -4.5 ratio value given that the proceeding year the company’s interest earned-ratio increased immensely due to higher number of loans that was borrowed. 7 Inventory turnover (48,077/4,992)= 9.6 Neutral S,W,N Explanation -ratio as compared to Apple Inc. This means that the competitors has devised efficient manner of conducting business. Its ratio stands at 70.53 Industry Average +1.2 ratio since the industry average stands at 8.4 Change over time -ratio is depicted in the preceding year. This might caused by fewer amount of sales that is recorded altogether. 8 Fixed Assets Turnover (48,077/4,417)= 10.88 Neutral S,W,N Explanation - Ratio is depicted in comparison to Apple Inc. whose ratio is placed at17.26. This might be because the company might be adjusted in respect to asset maintenance programs Industry Average + ratio is indicated since the industry average stands at 10.6 Change over time +0.18 changes is showcased in the value of ratio. The 2012 ratio is placed at 10.7 9 Total Assets Turnover (48,077/25,278) = 1.9  Neutral S,W,N Explanation -ratio change is depicted since Apple Inc. ratio stands at 1.13. This is a concise indication that both of these companies are utilizing efficient amount of assets to record higher sales Industry Average 0-ratio change is showcased. The industry average ratio is placed at 2.1 Change Overtime 0.1-ratio change is depicted given that the ratio value stands at 2.0 in 2012. This means that the company uses efficient levels of assets in order to affect higher sales-volumes 10 Average Collection Period (2,571/48,077/365)= 19 days Neutral S,W,N Explanation -ratio is depicted in comparison to Apple Inc whose average collection period is placed at 16 days. This is an indication that the company is posting fewer sales-volume Industry Average -1.3 ratio is depicted given that the industry average is placed at 20.6 Change Overtime + ratio increase is indicated since the average collection period for 2012 is placed at 20 days. This improvement is associated with higher sales volume. 11 Gross Profit Margin (48,077-37,288/48,077)= 22 % Weakness S,W,N Explanation - 18 % ratio is indicated in comparison to Apple Inc. This means that the company is incurring higher amounts of costs in order to posts less profits. Industry Average -2.75 % decrease is showcased in comparison to the industry average ratio of 24.75% Change Overtime -2 % decrease is depicted given that in 2012 the ratio stands at 24%. This is likely caused a subsequent increase in cost of goods sold. 12 Operating Profit Margin (862/48,077)=12 % Weakness S,W,N Explanation -19 % decrease is depicted when the ratio is compared to Apple Inc. This is an indication that the company sells its products and services at much lower prices hence fetching fewer levels of profits. Industry Average -20 % decrease is showcased in comparison to the expected industrial value that is stands at 32 % Change Overtime -18 % decrease is evident in the preceding year. This might be caused by significant drop of prices of both products and services. Therefore, this circumstance requires higher levels of in order to record immense levels of profits. 13 Net profit Margin (631/48,077) = 1 % Weakness S,W,N Explanation -23 % decrease in comparison to Apple Inc is indicated. This is attributed to fewer sales- volume due to higher prices of both products and services. Industry Average -19 % ratio decrease is showcased since the industry average stands at 20 % Change Overtime -21 % ratio decrease is showcased in 2012. This is due to either substantial loss of customers or higher prices set on both goods and services. 14 Return on Total Assets (631/25,278)= 2 % Neutral S,W,N Explanation -25.2 % ratio decrease is showcased in comparison to Apple Inc. This is an indication that that higher volumes of the company’s assets is used to offset sales in comparison to Apple inc. Industry Average + 0.54 ratio is showcased. The industry average stands at 1.46 % Change Overtime +0.0.5 % increase is showcased in 2012. This is indication that the company has adopted newer effective strategies of using fewer numbers of assets in order to posts substantial levels of profits. 15 ROE (631/7,757)= 8.1 % Weakness S,W,N Explanation -25.9 % decrease ratio is showcased in comparison to Apple Inc. This is an indication that the company possesses fewer equities that can be used in the course of making profits Industry Average -9.9 % decrease ratio is depicted in comparison to the 18 % industrial ratio. Change Overtime -19 % decrease is showcased within the year 2012. This is an indication that the equity-base of the company has been interfered with in order to affect levels of income. 16 Earnings per share (631/455) = 1.39 Weakness S,W,N Explanation -20 % ratio decrease is depicted in comparison to Apple inc. This is an indication that Amazon’s profits have decreased progressively. Industry Average -24.13 % decrease is showcased since the industry average ratio stands at 25.52 % Change Overtime -10.6% decrease is showcased in 2012. This is an indication that Amazon might have increased the prices for its goods and services thus attracting fewer levels of sales-volume hence lower amount of shareholders wealth. 17 Price-earnings ratio (267.7/1.39) = 192.59  Strength S,W,N Explanation +10% ratio increase is depicted in comparison to Apple Inc. This is because Netflix has attracted more investors Industry Average + 3.59% ratio increase is showcased in comparison to the industry ratio which stands at 189 X Change Overtime +3.7% increase is noted in the year 2012. This is an indication that the company has gained substantial capacities to attract more investors. 18 Earnings per share (631/455) = 1.39 Weakness S,W,N Explanation -20 % ratio decrease is depicted in comparison to Apple inc. This is an indication that Amazon’s profits have decreased progressively. Industry Average -24.13 % decrease is showcased since the industry average ratio stands at 25.52 % Change Overtime -10.6% decrease is showcased in 2012. This is an indication that Amazon might have increased the prices for its goods and services thus attracting fewer levels of sales-volume hence lower amount of shareholders wealth. 19 Dividends per share 0 % Weakness S,W,N Explanation 0 % is showcased. This is an indication that the firm plans to assimilate most of its profits as retained earnings in comparison to Apple Inc. Industry Average No data available for comparison Change Overtime O- amount of dividends were paid to the immediate shareholders 20 Accounts Receivable Turnover (48,077/2,571)= 18.69 days  Neutral S,W,N Explanation +8.62 days is evident in comparison to Apple Inc’s ratio which stands at 10.07 days. This is an indication that the company takes much time to collect revenue conducted on credit as opposed to Apple inc. Industry Average +2.69 ratio increase is noted in respect to industry average ration that stands at 16 days Change Overtime +0.81 ratio increase is depicted in comparison to 2012 ratio. This is an indication that the Amazon has remained in-effective in collecting revenue on sales made on credit. Solutions: Strengths of Amazon I) Cost leadership strategy; of the company is based on the production of both goods and services at lower levels of costs in comparison to its competitors in the market. This fundamental facet has been used to increases sales volumes which are translated to immense revenues. II) Great Economies of Scale; for this company is way above the rest within the industry. The company’s produces the largest base of products and services in respect to the potential market niches. This, in turn, has lead to immense levels of economies of scale. It is noted that the company controls about 56 % of online retail market across the globe. III) Quality levels of products and services are one of the core strengths of the company. This level of product-quality is evident in the manner for which products are distributed in reliability and convenience terms. It is also noted that Amazon provides efficient customer services. IV) Efficiency in its acquisition process; Amazon has made positive impacts in making acquisitions of both businesses and products. Given the vast strategic acquisitions process, the company controls most of the cloud services and has also developed information management processes. V) Effective logistics and distributions channels; it should be noted that the company has vast number of warehouses that are fairly placed in respect to global terms. The higher number of warehouses that are distributed across the globe provides a formidable platform upon which the company offers affordable products and services. VI) Effective economies of scope; of the company is placed highly within the industry. This is because the company produces two or more goods at the cost of one so that they are, in turn, sold at affordable prices. VII) Global market leader; skills of the company places it higher in the production of products and services and the distribution of these products to vast number of customers. VIII) The company controls about 70 % of digital content channels across the United States. This is attributed to the company’s move to invest heavily in respect to the provision of this service. IX) The total net sales of the company increased from $ 48,077M in 2011 to $ 61,093 in 2012. This is a likely indication that the company has adopted effective pricing strategies hence luring more purchases of both goods and services. X) There is a substantial increase in the value of shareholder’s equity from $ 7,757M in 2011 to $ 8,192 in 2012. This means that the company’s key goal of creating maximum wealth for stockholder’s wealth remains the number one priority. Weaknesses of the Company I) The company has a lower margin of profits that is placed at 1.31 %. This means that it is placed at the verge of unexpected loss of activities and future diversification plans. II) The datacenters that are owned by the company are costly to operate and maintain. These centers are used in the course of transmitting digital channel contents. III) The company suffers the succession instability in respect to its fundamental plans to diversify into other profitable ventures. IV) Statistically, the company reports about 23 % in respect to shipping scams and issues. The actual shipping of products is faced with challenges attributed to fake sales and fake shipping agencies. V) The fact that the company operates in an online environment is a short-coming in itself given that competitors like Wal-Mart and Target have physical addresses where potential customers can visit to purchase goods and services. VI) The lack of differentiation strategy within the operations of the firm is perceived negatively. This is because it leads to lower profit margins that are likely to be carried forward into long-term period. VII) The company is on the verge of claims that it is providing poor warehouse conditions for its workers. This has lead to immense loss of customers. VIII) The fact that the company has been a consumer monopoly over a number of years has lead to activities of price discrimination so that consumers are put of purchase dilemma. IX) Amazon has lower net profit margins that are placed at 1 % as compared to its Competitor Apple Inc whose ratio stands at 24 %. This is a likely indication that the company is incurring higher costs of goods sold. X) The long term debt to equity ratio of the company stands at 0.34 % against the industry’s average of 0.6 %. This is an indication that the company conducts most of its activities by using large number of creditors. Opportunities of Amazon Company I) The company enjoys a higher level of consumer confidence. This is a positive note to attracting newer customer into purchasing the company’s products and services II) There is the opportunity of sales increases due to forthcomings holiday buying seasons. III) Amazon’s products have already established a popular benchmark. Thus, there is the probability of increasing sales in the future. IV) The uniqueness of Amazon Prime video digital channel is competitive with other Netflix-based channels. Potential customers will likely be attracted into watching it. V) With the introduction of iOS gadgets, more consumers are likely to purchase it because of the newer friendlier map features. VI) Given that the company has already gained a substantial geographical presence, expanding into the international markets is apparent. VII) The introduction of a full-size tablet is likely to attract more customers into purchasing the product. VIII) The company diversification plans are evidently important and significant in increasing and controlling a larger customer base. IX) Recent expansion of the e-book system is positive matter that is likely going to increase the demands for other products and services within the store. X) The internet sales have been on an upward trend since the accessibility of network is now a number one priority for most citizens within and outside the country. Threats I) There is the threat the competitors might choose to offer products at their lower prices II) E-bays has developed extensively in both brick and mortar stores as well as online stores. This is likely to attract more customers in comparison to Amazon that suffices on an on-line platform. III) There is the possibility threat of Kindle Fire being off-set by Apple’s iPad Mini. IV) Such Amazon competitors as Apple and Wal-Mart create an insignificant gratification level V) Barnes & Noble’s customers enjoy in-store experiences like browsing and coffee. This is difficult to manage on an internet platform VI) Such competitors as Apple possess a stream-lined in store experience to its customers. As a result, there has been a 12 % increase in its revenue-volume. VII) There is the threat of increased online insecurity given the fact that personal information is shared amongst the different retail sites. VIII) There is the possibility of higher levels of technological costs and decreases in the prices of the products offered by the company. IX) The introduction of e-commerce taxation act the company is likely to face inadequate profits in the future. X) There is the threat of international level of competition. This is attributed to higher levels of internet penetration. SO Strategies I) The Company should embark to develop warehouse features in cities outside the UK and US. Such continents as Africa and Asia have experienced increased population which can be tapped to effect sales. II) Develop physical store facilities in order to offset competition put forth in the industry. Such store are likely to increase the level of sales and reduce shipping scams III) Increase competitive-price strategies in order to off-set the lower levels of margins.pro-competitive actions improve working relations within the industry. IV) Amazon should embark on distributing products and services to other already existing market niches. These might be affected by the numerous numbers of products. WO Strategies: I) The company should provide healthy working environments in order to counter the negative publicity. II) Engage in vast Research & Development activities in order to figure out the true challenges and needs of both existing and potential consumers III) The company should decrease online activities and develop physical store facilities in order to decrease the level of challenges facing the customers in respect to shipping scams. IV) The company should adopt a differentiation strategy. This is expected to affect the levels of sales positively to include newer services. ST Strategies: I) Amazon should deploy discount-based strategies in order to cut-down on price discrimination which depicts negative publicity for the company. II) The company should embark on adopting tax-payment efforts in order to develop positive relations in such markets as the US and UK. These markets provide extensive revenues. III) The company should cut-down on data centers in order to avoid unnecessary costs. This is likely to decrease the levels of operations costs. IV) The company should develop cordial relationships with trustworthy shipping agencies in order to counter scam claims by customers. WT Strategies: I) Physical stores can be built in both the states of New York and Washington DC in order to ease the accumulation of orders for customers. These states are considered to be US strongholds for the Company. II) The company should embark on developing different websites for purchasing different products and services. This is a way of diversifying the levels of operations hence increasing sales III) The Company should adopt efficient pricing models which are considered affordable on the part of the customers. IV) It is safe to the company to conduct annual exhibitions in order to showcase their products and services. In this manner, the company is likely to gain trust amongst its potential customers. BCG Matrix: Amazon Divisions Revenue Percent Revenues Profits Percent Profits Relative Market Share Industry Growth Rate (%) 1 The United States &International Markets(2011 Revenues) $ 48,077,000 13 % $ 631,000 9.7 % 26.8 % 75 % Sources: Forbes Magazine: http://www.forbes.com/sites/chuckjones/2013/02/02/apples-ipad-market-share-slips-farther-below-50/ References Amazon.Com. (N.d). Annual reports and proxies. Retrieved from http://phx.corporate- ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual BloombergBusinessWeek.Com. (2012). Industry ratio data: 2012. Retrieved from http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=AMZN BloombergBusinessWeek.Com. (2012). Apple Inc: ratio data analysis. Retrieved from http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=AAPL Gillmor, D. (2013). Amazon's Auto Rip: a great service – with strings attached. Retrieved from: http://www.guardian.co.uk/commentisfree/2013/jan/11/amazon-autorip-great-service-strings-attached YahooFinanace. Com. (N.d). Amazon Inc: Share price. Retrieved from http://finance.yahoo.com/q/ks?s=AMZN+Key+Statistics Read More