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Financial Health
Company Overview
Amazon is the worlds leading online retailer. The Seattle-based company started in 1994, selling mainly things like books and music, but it has expanded its products steadily since then. Today, Amazon is not only a retailer but also a media company, as they produce and market streaming content. They have long been an innovator in digital merchandising, and their techniques are widely-copied by competitors today. Amazon today is one of the worlds largest companies, with a vat product line. They compete against all other retailers a consumer is often faced with a decision to go to a store to buy something, or buy it from Amazon, and this owes to their position as the default online retailer.
The following is a review of the past three years of Amazons financial statements. During this period, the company has extended its lead as the number one online retailer (BI Intelligence, 2017), and started to grow into other businesses, including building out its streaming content business. It has continued to build out its international presence, most recently adding Australia to its list of countries (Westbrook & Kaye, 2017).
Horizontal Analysis
2014
2015
%
2016
%
Revenue
88988
107006
120%
135987
153%
COGS
62572
71651
115%
88265
141%
Gross Income
26416
35355
134%
47722
181%
Other Expenses
26238
33122
126%
43536
166%
Operating Income
178
2233
1254%
4186
2352%
Non-Operating Expense
289
665
230%
294
102%
Net Income (loss)
-241
596
-247%
2371
-984%
Amazons horizontal income statement highlights the companys growth over the past few years. It has seen revenues grow 53% in two years, but its costs have grown slower, helping the company to be more profitable from the gross income level on down. The result is that where in 2014 Amazon lost money, it made $2.3 billion in net income in 2016, mainly on the strength of having a lower cost of goods sold on its revenues in recent years than it had before.
Balance Sheet
2014
2015
%
2016
%
Cash
14557
15890
109%
19334
133%
Securities
2859
3918
137%
6647
232%
Inventories
8299
10243
123%
11461
138%
Accounts Receivable
5612
5654
101%
8339
149%
Current Assets
31327
35705
114%
45781
146%
Property & Equipment
16967
21838
129%
29114
172%
Total Long-Term Assets
23178
29042
125%
37621
162%
Total Assets
54505
64747
119%
83402
153%
Accounts Payable
16459
20397
124%
25309
154%
Total Current Liabilities
28089
33887
121%
43816
156%
Long-Term Debt
8265
8227
100%
7694
93%
Other LT liabilities
7410
9249
125%
12607
170%
Total Liabilities
43764
51363
117%
64117
147%
Shareholders' Equity
10741
13384
125%
19285
180%
Total Liabilities & Equity
54505
64747
119%
83402
153%
A horizontal analysis of the companys balance sheet highlights this growth. The companys current assets have grown 46% in two years, and its total assets have grown 53% in that time the same rate at which the revenues have grown. Worth noting is that the securities have grown, where inventories grew at a slower rate than the income in either sales or cost of goods sold. This indicates that Amazon is becoming more efficient in terms...…Amazon is a good buy at this point in time, because that requires further analysis of the business, the current stock price, and that sort of thing.
What can be said here is that Amazon is in good financial condition. If an investor puts their money into Amazon, certainly the stock price could go down, but there is no reason to think that Amazon was end up insolvent in the foreseeable future. All questions of valuation and volatility aside, Amazon is a company is good financial health. There are no red flags in its liquidity ratios. Its income statements are getting stronger because revenues are growing more quickly than cost of goods sold, which has not only turned the company profitable, but substantially so. The metrics are trending in the right direction, too. All told, Amazon should be a safe investment from a solvency point of view.
I do not presently see any downside risks to Amazon, because the analysis above showed not just good financial health but that the company is trending in the right direction, lowering its long-term debt, revenues growing faster than costs, and liquidity ratios improving. If there…
References
Amazon 2014 Annual Report. In possession of the author.
Amazon 2016 Annual Report. In possession of the author
BI Intelligence. (2017) Amazon accounts for 43% of US online retail sales. Business Insider. Retrieved April 15, 2018 from http://www.businessinsider.com/amazon-accounts-for-43-of-us-online-retail-sales-2017-2
Westbrook, T. & Kaye, B. (2018) In Australia, Amazon is still finding its way. Reuters. Retrieved April 15, 2018 from https://www.reuters.com/article/us-australia-amazon-com/in-australia-amazon-is-still-finding-its-way-idUSKBN1FP0FC
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