Mary

Gillis
Amazon Financial Analysis

Amazon Financial Analyze

Amazon is a company that people would just assume was a thriving company, based on
popularity, all of the marketing that is done, and because simply everyone uses it. However,
until you really look at the numbers you may not know just how the company is going
financially. This paper is to determine just that through analyzing the companys ability to pay
current liabilities, ability to sell merchandise inventory and collect receivables, ability to pay
long term debt, their profitability, and evaluating their stock as an investment. We will compare
both years, 2012 and 2011, to not only each other but to the Industry Averages so that we can see
if they are above the average or below.
Ability to Pay Current Liabilities
If Amazon decided to end it right here and now and had to pay all of its liabilities would
it be able to? Yes it would, the current ratio is more than 1 meaning that it would have .12 left
over after all of the current liabilities were taken care of, however they would not be able to pay
off the current liabilities with cash and their more liquid assets. They would have to go into all
of there current assets to be able to pay them off. That is what the Acid Test Ratio in the table
below is referring to. It means that the company would not be able to quickly pay off their
current liabilities, they would only be able to pay off 78% which is less than they could pay last
year and is less than the industries average as well. However one up side here is that their cash
ratio, which is the companies ability to pay the current debts or liabilities from their cash, has
gone up since last year so that means more of their money is liquid instead of in inventory or in
building etc.
Ratio
Current Ratio
Cash Ratio
Acid-Test Ratio

2012
1.12
.425
.78

2011
1.17
.35
.81

Industry Average
1.54
.82

Mary Gillis
Amazon Financial Analysis

Ability to Sell Merchandise Inventory and Collect Receivables

Amazon has an inventory turnover ratio that is almost double the industries standard, this
is good, this means that Amazon sells its average level of merchandise inventory 8.3 times in one
period as compared to the 4.8 times of the industries average. However from 2011 to 2012 the
turnover rate dropped and the days that the merchandise sat on the shelf (Days sale in inventory)
went up. It wasnt a drastic change however it is something to watch out for, for the next few
years to make sure it doesnt start becoming a trend. Even though the merchandise sat on the
shelf 3.98 days longer in 2012 than it did in 2011 it is still well below the industry average (refer
to the table below). This means that Amazon is able to sell merchandise efficiently. Amazon is
also able to collect the money for the merchandise better than the industry average.
Ratio
Inventory Turnover
Days sale in inventory
Gross Profit Margin Percentage
Accounts Receivable Turnover
Ratio
Days Sale in Receivables

2012
8.3 times
43.98 days
24%
20.6 times

2011
9.1 times
40 days
22.4%
23.13 times

Industry Average
4.8 times
75.42 days
33.55%
10.11 times

17.7 days

15.78 days

36.11 days

Ability to Pay Long Term Debt

The first ratio we need to look at and understand is the Debt Ratio which is the proportion of
assets financed with debt. This ratio is extremely high for the industry average. 75% of assets,
equipment, and property are not the companies but the creditors. This is very risky and not good
for the company. Something less risky is that Amazon is able to pay its interest expense 5 times
over, meaning they can pay all of their interest expense for their debt that they have. This is a
good thing, although this number was better last year it is still close to the industries average so it

Mary Gillis
Amazon Financial Analysis

doesnt cause too much concern, however if it continues to drop like it did this last year it would
be cause for more concern and could become a greater risk.
Ratio
Debt Ratio
Debt to Equity Ratio
Times interest Earned Ratio

2012
75%
2.97
5.23 times

2011
69%
2.25
15.18 times

Industry Average
34%
52%
5.33 times

Profitability
In 2011 Amazon made 22.4% of every dollar in sales but that went down to a -.06 which means
they are not making any money off of their sales, they are actually losing money which is risky
for both investors and creditors. It is bad for investors because the less net income Amazon gets
means that the investors get less money or have to end up paying for the loss and it is bad for
creditors because Amazon could potentially not be able to pay their debts. One thing that is
really good though is the asset turnover ratio is higher than the average which is good because
they are able to turn their assets into income. What could help is for Amazon to cut expenses
and stick to a budget so that the profit margin ratio will go back up and they will be able to make
a profit.
Ratio
Profit Margin Ratio
Assets Turnover Ratio
Rate of Return on CS Equity
Earnings Per Share

2012
-.06%
2.11 times
-.48%
-.09

2011
22.4%
2.18 times
8.63%
-.09

Industry Average
2.87%
1.66 times
11.39%

Evaluation of Stock as an Investment

In the table below it has a ratio of price/earning share, which is the value the stock market places
on the companys earnings. Since this year Amazon lost money, this ratio is negative and is not
a good sign. It is better to have a higher Price/Earning Share like in 2011, which is above the
industry average. Based on the information below investing in this company is risky.

Mary Gillis
Amazon Financial Analysis

Ratio
Price/Earning Share

2012
-2,854.7

2011
131.37

Industry Average
47.17

In general 2012 was a difficult year for Amazon in terms of earning money. Amazon had
no problem making sales and having income however the expenses they had took more money
than they were bringing in. With 2012 and 2011 having big differences in most of the numbers I
wonder if this could simply be more of a transition year. They may not be profitable in some
areas and more of a risk they are still selling and able to get inventory in and out quickly, if
Amazon was to cut back on some of the expenses and cut back on debt they would make a
considerable profit and be a wise investment. To get a better idea of if this a good investment we
would need to take these 5 areas and look at them in a 5-10 year period so we could see if it is
just a down year or if it is consistently declining.