Amazon Financial Health: 3-Year Analysis (2014–2016)
This paper examines Amazon's financial health over a three-year period (2014–2016) using horizontal analysis and ratio analysis. It reviews the company's income statement and balance sheet trends, showing how revenue grew 53% while costs rose more slowly, turning a net loss in 2014 into $2.3 billion in net income by 2016. The paper also evaluates Amazon's liquidity ratios — current, quick, and cash — concluding that the company maintains strong short-term financial stability. The analysis closes with an investment recommendation based on solvency and financial trend data, noting no significant red flags in the reviewed statements.
- Company Overview: Amazon's background and business scope
- Horizontal Analysis: Income Statement: Revenue and profit trends 2014–2016
- Horizontal Analysis: Balance Sheet: Asset, liability, and equity growth trends
- Ratio Analysis: Liquidity ratios and short-term financial health
- Investment Recommendation: Solvency outlook and investment conclusions
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What makes this paper effective
- Uses concrete percentage figures drawn directly from financial statements to support every claim, giving the analysis an evidence-based foundation.
- Moves logically from broad revenue trends to granular liquidity ratios, building a complete financial picture layer by layer.
- Maintains an appropriately cautious tone in the recommendation section, distinguishing between solvency analysis and valuation — a nuance that strengthens credibility.
Key academic technique demonstrated
The paper demonstrates multi-method financial statement analysis: it combines horizontal (trend) analysis across two dimensions — the income statement and the balance sheet — with ratio analysis. By cross-referencing results from both methods, the author avoids over-relying on any single metric and builds a more robust conclusion about Amazon's overall financial health.
Structure breakdown
The paper opens with a company overview situating Amazon in its industry context, then presents horizontal income statement data followed by horizontal balance sheet data, each accompanied by interpretive commentary. A dedicated ratio analysis section examines three liquidity ratios with a two-year comparison table. The paper closes with a recommendation section that appropriately qualifies its conclusions by separating solvency from valuation. This five-part structure mirrors a standard corporate financial health report.
Company Overview
Amazon is the world's leading online retailer. The Seattle-based company was founded in 1994, selling mainly books and music, but it has steadily expanded its product offerings since then. Today, Amazon is not only a retailer but also a media company, producing and marketing streaming content. The company has long been an innovator in digital merchandising, and its techniques are widely copied by competitors. Amazon is now one of the world's largest companies, with a vast product line. It competes against virtually all other retailers — consumers are frequently faced with the choice of visiting a physical store or purchasing from Amazon, a dynamic that reflects the company's position as the default online retailer.
The following is a review of the past three years of Amazon's financial statements. During this period, the company extended its lead as the number one online retailer (BI Intelligence, 2017) and began growing into other businesses, including building out its streaming content operations. It has continued to expand its international presence, most recently entering Australia (Westbrook & Kaye, 2017).
Horizontal Analysis: Income Statement
The table below presents a horizontal analysis of Amazon's income statement for 2014–2016 (figures in millions USD):
Amazon's horizontal income statement highlights the company's growth over the past few years. Revenues grew 53% in two years, while costs grew more slowly, enabling the company to become more profitable from the gross income level downward. The result is that whereas Amazon posted a net loss in 2014, it earned $2.3 billion in net income in 2016. This improvement was driven primarily by a lower cost of goods sold relative to revenues — a trend that reflects improving operational efficiency.
Horizontal Analysis: Balance Sheet
The table below presents a horizontal analysis of Amazon's balance sheet for 2014–2016 (figures in millions USD):
A horizontal analysis of the balance sheet underscores this growth. Current assets grew 46% over two years, and total assets grew 53% — the same rate at which revenues expanded. Notably, securities grew substantially, while inventories increased at a slower rate than either revenues or cost of goods sold. This indicates that Amazon is becoming more efficient in terms of its inventory turnover and cash conversion cycle, which is likely a contributing factor to its higher profit margins.
Also notable is that Amazon's long-term debt actually declined over the period. The company paid down debt rather than simply replacing it with new borrowing. In an environment with at least the threat of rising interest rates, this represents a shrewd financial management policy. As a result, shareholders' equity grew more quickly than both revenues and total liabilities, indicating an overall improvement in Amazon's financial health.
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
Wainwright, S. (2012). Principles of accounting, Vol. 1. Bridgepoint Education.
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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