Final paper

FIRE 371-03

EDUARDO CARDOSO MUNIZ – GROUP 5

AMAZON.COM INC 1. Overview Amazon.com, Inc. (Amazon.com), incorporated on May 28, 1996, is an e-commerce company and the largest Internet company in the US. The Company offers a range of products and services through its Websites. The Company’s products, offered through consumer-facing Websites, include merchandise and content that the Company purchases for resale from vendors and those offered by third-party sellers. The Company offers its own products as well as third-party products across various categories, through its retail Websites and through its mobile Websites and applications. It also manufactures and sells electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, Echo and Fire phones. Amazon.com operates in two segments: North America and International. The North America segment of the Company focuses on retail sales earned through North America-focused Websites. The International segment focuses on the Company’s operations done through its international Websites. In the media segment, Amazon competes with eBay, Netflix, Time Warner Cable, Apple (iTunes), Google (Play Store) and Liberty Interactive. Amazon has several competitors in the electronics and general merchandise segment, including Best Buy, Family Dollar, RadioShack, Staples, Target, Walmart, Sears, Big Lots, Delia and Systemacs. In the electronics and general merchandise segment online competition includes Alibaba Group, LightInTheBox Holding Co., Overshock.com, PCM, Vipshop Holdings, JD.com, Wayfair Inc. and Zulily. In the other operating segment, Amazon competes with several world’s largest companies including CDW, PC Connection, Insight Enterprise, Google, Oracle, Accenture and Citrix Systems. 2. Analysis Firstly, the evaluation of the asset turnover ratios, such as accounts receivable turnover and inventory turnover, to determinate how efficiently assets are being utilized by the business. During the period from 2012 to 2014, the Receivables turnover ratios were 23.50, 24.82 and 26.97 and the Days’ sales outstanding in A/R ratios were 15.53, 14.71 and 13.54. The decrease in this last ratio means that the company is taking less days to collect revenue from credit sales. The total assets turnover ratio were 1.88, 1.85 and 1.63, it has decreased, but it is higher than 1, which indicates that the company is using its assets more efficiently. The Days’ sales inventory ratios were 49.72, 52.34 and 51.21, which indicates ups and downs, but with lower amplitude. The inventory remains in the warehouse for a stable period. The Profit margin on sales ratio has been stable (-.06%, .37% and -.27%) with narrow margins, for 2014 period every $1 sale contributed -0.06 cents towards the net profits of the business. The profitability ratios, ROA, ROE and BEP, have decreased, which means that profitability is deteriorating. In the other hand, Amazon has a lower capital intensity, it generates more revenue using less assets.

FIRE 371-03

EDUARDO CARDOSO MUNIZ – GROUP 5

Amazon.com has been having a low debt ratio (.75, .76 and .80) since 2012, the company’s assets are sufficient to meet its obligation, while it is not very low, which is good because it doesn’t indicate underutilization of resources and restricted growth. The Equity Multiplier has increased (3.97, 4.12 and 5.07), the higher the ration the lower the financial leverage. The TIE ratio in 2014 was .62, which is unfavorable. Amazon has debt-to-equity ratio higher than 1.00, more assets are financed by debt that those financed by money of shareholders’, indicating higher risk. The current ratio has been stable through these years (1.12, 1.07 and 1.12) and greater than 1.00, indicating that the company’s current assets are more than current liabilities and the company should not face any liquidity problem. The quick ratio has been stable too (.80, .75 and .82), but less than 1.00, which indicates that the company would not be able to repay all its debts by using its most liquid assets. The cash ratio has stayed below 1.00, which is appropriate for a business. The market-to-book ratio indicates that the stock is undervalued because it is above 1.00. Moving in the same direction, price-to-cash-flow ratio has decreased which means that stock is in a process of undervaluation. 3. Stock Price •

December 31, 2012 – Stock price closed in 250.87;

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December 31, 2013 – Stock price closed in 398.79;

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December 31, 2014 – Stock price closed in 310.35. Chart 1. Stock price movement.

Source: Yahoo Finance.

FIRE 371-03

EDUARDO CARDOSO MUNIZ – GROUP 5

According to Chart 1, the stock price increased from 2012 to the beginning of 2014. During 2014 year, the stock price decreased. In the beginning of this year the stock price has started to increase again, the closed price was 512.89 on August 31st. 4. Conclusion Amazon.com, Inc. has been investing a lot of money in many things, such as, Amazon’s tablet line, the TV show “Transparent”, Fire TV, the grocery delivery service expanded to Brooklyn and Amazon bought Twitch, a popular streaming site. These expenses have resulted in negative net income, it translates a loss on paper but actually strengthens the enterprise for the long term. And the market value ratios indicate undervalue stocks. With these facts on hands, the recommendation is to buy Amazon’s stocks. 5. References [1] Research Inside; [2] Yahoo Finance; [3] Reuters; [4] NY Times; [5] Investopedia.

Balance Sheets Cash Accounts receivable Inventories Total current assets Total assets Accounts payable Notes payable Total current liabilities Long-term debt Total Liabilities Common stock Retained earnings Total Equity Total liabilities and equity

2014 $17,416 $3,300 $8,299 $31,327 $54,505 $16,459 $0 $28,089 $12,489 $43,764 $5 $1,438 $10,741 $54,505

2013 $12,447 $3,000 $7,411 $24,625 $40,159 $15,133 $0 $22,980 $5,181 $30,413 $5 $2,005 $9,746 $40,159

Number of shares outstanding Stock Price

465.00 $310.35

459.00 $398.79

2014 $88,988 $59,152 $4,746 $130 $210 -$241

2013 $74,452 $51,681 $3,253 $691 $141 $274

$0 -$241

$0 $274

Income Statements Sales Cost of goods sold Depreciation EBIT Interest Expense Net income Cash dividends Addition to Retained Earnings

AMAZON.COM, INC. Ratios 2012 Liquidity $11,448 Current Ratio $2,600 Quick Ratio $6,031 Cash Ratio $21,296 Debt Management $32,555 Debt/Equity Ratio $13,318 Debt Ratio $0 Equity Multiplier $19,002 Time Interest Earned $3,830 Asset Management $24,365 Total Assets Turnover $5 Inventory Turnover $1,677 Days’ sales in inventory $8,192 Receivables turnover $32,555 Days Sales Outstanding in A/R Capital intensity 454.00 Profitability $250.87 Profit Margin on Sales Return on Assets Return on Equity 2012 Basic Earning Power $61,093 Market Value $44,271 P/E Ratio $2,159 Price/Cash Flow ratio $672 Book Value per Share $92 Market-to-Book Ratio -$39 $0 -$39

2014

2013

2012

1.12 0.82 0.62

1.07 0.75 0.54

1.12 0.80 0.60

4.07 0.80 5.07 0.62

3.12 0.76 4.12 4.90

2.97 0.75 3.97 7.30

1.63 7.13 51.21 26.97 13.54 0.61

1.85 6.97 52.34 24.82 14.71 0.54

1.88 7.34 49.72 23.50 15.53 0.53

-0.27% -0.44% -2.24% 0.24%

0.37% 0.68% 2.81% 1.72%

-0.06% -0.12% -0.48% 2.06%

-598.81 32.03 23.10 13.44

668.05 51.90 21.23 18.78

-2920.38 53.72 18.04 13.90

Balance Sheets 2014 17416 3300 8299 31327 54505 16459 0 28089 12489 43764 5 1438 10741 54505

=B3-1 12447 3000 7411 24625 40159 15133 0 22980 5181 30413 5 2005 9746 40159

=C3-1 11448 2600 6031 21296 32555 13318 0 19002 3830 24365 5 1677 8192 32555

Number of shares outstanding 465 Stock Price 310.35

459 398.79

454 250.87

=C3 74452 51681 3253 691 141 274

=D3 61093 44271 2159 672 92 -39

Cash Accounts receivable Inventories Total current assets Total assets Accounts payable Notes payable Total current liabilities Long-term debt Total Liabilities Common stock Retained earnings Total Equity Total liabilities and equity

Income Statements Sales Cost of goods sold Depreciation EBIT Interest Expense Net income

=B3 88988 59152 4746 130 210 -241

Cash dividends Addition to Retained Earnings

0 0 0 =B29-B31 =C29-C31 =D29-D31

AMAZON.COM, INC. Ratios Liquidity Current Ratio Quick Ratio Cash Ratio Debt Management Debt/Equity Ratio Debt Ratio Equity Multiplier Time Interest Earned Asset Management Total Assets Turnover Inventory Turnover Days’ sales in inventory Receivables turnover Days Sales Outstanding in A/R Capital intensity Profitability Profit Margin on Sales Return on Assets Return on Equity Basic Earning Power Market Value P/E Ratio Price/Cash Flow ratio Book Value per Share Market-to-Book Ratio

=B3

=C3

=D3

=B7/B11 =(B7-B6)/B11 =B4/B11

=C7/C11 =(C7-C6)/C11 =C4/C11

=D7/D11 =(D7-D6)/D11 =D4/D11

=B13/B16 =B13/B8 =B8/B16 =B27/B28

=C13/C16 =C13/C8 =C8/C16 =C27/C28

=D13/D16 =D13/D8 =D8/D16 =D27/D28

=B24/B8 =B25/B6 =365/G14 =B24/B5 =B5/(B24/365) =B8/B24

=C24/C8 =C25/C6 =365/H14 =C24/C5 =C5/(C24/365) =C8/C24

=D24/D8 =D25/D6 =365/I14 =D24/D5 =D5/(D24/365) =D8/D24

=B29/B24 =B29/B8 =B29/B16 =B27/B8

=C29/C24 =C29/C8 =C29/C16 =C27/C8

=D29/D24 =D29/D8 =D29/D16 =D27/D8

=B20/(B29/B19) =B20/((B29+B26)/B19) =B16/B19 =B20/G27

=C20/(C29/C19) =C20/((C29+C26)/C19) =C16/C19 =C20/H27

=D20/(D29/D19) =D20/((D29+D26)/D19) =D16/D19 =D20/I27