The purpose of this essay is to perform financial statement analysis on Amazon.com, Inc. (NASDAQ: AMZN ). We start with an introduction of Amazon and its industry. We then evaluate the company’s financial position, liquidity, operating capability and financial flexibility using different ratios. To evaluate the financial performance of Amazon.com, Inc we disclose recurring NICO and do full ROE disaggregation.
Amazon.com’s stock price increased from $44.29 per share at the end of fiscal year 2004 to $134.52 per share at the end of fiscal year 2009. Earnings per share increased from $0.63 to $2.06. The stock closed at $118.87 on 02/01/2010.
Amazon.com is a fast growing E-Commerce company. Although facing the recent U.S. and global economic down turn and intense competitions from various industries, its sales increased 28% in 2009, diluted earnings per share increased 31%. Based on our analysis, we project the company to continue maintain the high growth rate. We project the two year target price range of Amazon’s stock to be $193 to $209. The stock is currently undervalued. Consequently, our recommendation of Amazon.com is BUY.
Amazon.com, Inc. is an American-based multinational electronic commerce company. Headquartered in Seattle, Washington, Amazon was founded in 1994. As one of the largest online retailers in the world, Amazon claims to offer “Earth’s Biggest Selection”. In addition to online retailing, Amazon also offers programs that enables seller to sell their products on Amazon.com and to fulfill orders through Amazon. It earns fixed fees and revenue share fees etc. though those transactions.
Amazon turned its first profit in the fourth quarter of 2001 and maintained high growth rate since then. We believe that the below are the key factors important to the future success of Amazon.com: * Successful in efforts to expand into international market segments – Amazon needs to further expand internationally to maintain its sustainable growth. * Successful in optimizing fulfillment process and operating its fulfillment centers – Amazon needs to continue to expand and optimize the operation of its fulfillment centers. * Successful in finding new revenue streams – Amazon needs to seek new ways to diversify revenue generation and drive its overall growth. * Manage growth effectively – Amazon’s global expansion increases the complexity of the business.
Financial position, liquidity, operating capability and financial flexibility
Financing structure of Amazon.com
Table 1 summarizes how Amazon.com was financed as of each of the last 6 fiscal year ends.
As of December 31:(in millions) | | | | | |
| 2009| 2008| 2007| 2006| 2005| 2004|
Operating liabilities| $ 8,447 | $ 5,233 | $4,006 | $ 2,685 | $1,929 | $ 1,620 | Financing liabilities| 109 | 409 | 1,282 | 1,247 | 1,521 | 1,855 | Equity| 5,257 | 2,672 | 1,197 | 431 | 246 | (227)| Total Assets| $13,813 | $ 8,314 | $6,485 | $ 4,363 | $3,696 | $ 3,248 | | | | Table 1| | | |
Amazon’s fixed assets additions steadily increased between fiscal year 2004 and 2009. Its possession of marketable securities increased each year other than 2007, which was due to the anticipation of an acquisition in 2008. At the same time, Amazon.com has been aggressively paying off its long term debt. Its debt continues to decrease between 2004 and 2009. The debt to total assets ratio dropped from 57% in 2004 to only 1% in 2009. Between 2006 and 2008, Amazon repurchased total 17 million shares of common stocks. Overall, Amazon.com shows good financing structure and operating capability over the past five years. Buy decreasing its debt level, Amazon’s management team shows well out looking of the company.
Three liquidity ratios of...