Financial Study on Amazon

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A Research Paper on Amazon.com, Inc.
Author: Oskar Joelsson
North Park University
School of Business and Nonprofit Management
BSE2310 – Foundations of Finance
Professor Alvin Kamienski

Table of Contents

Executive Summary of Business3
Income Statement Analysis4
Gross Margin4
EBITDA5
Return on Equity6
Net Profit Margin7
Balance Sheet Analysis8
Cash and Cash Equivalents8
Current Ratio9
Long-Term Debt Ratio10
Debt-to-Equity11
Statement of Cash Flows Analysis12
Cash Flows from Operation Activities12
Cash flows from Investing Activities13
Capital Expenditures13
Net Change13
Financing Activities14
Changes in Debt14
Changes in Common Stock14
Dividends14
Market Returns Analysis15
Performance on a $100 Investment15
Earnings per Share16
Conclusion and Projections17
Sources18
Appendix A – Income Statement19
Appendix B – Balance Sheet20
Appendix C – Statement of Cash Flows21

Executive Summary of Business

Amazon.com, Inc. was founded in 1994 by the American entrepreneur Jeffrey Bezos. It started small scaled in the founder’s garage, with a business plan that he wrote while travelling across the United States. Today Amazon.com, Inc. is the World’s largest online retailer and employs over 65,000 employees, and has a product line including books, music CDs, videotapes and DVDs software, consumer electronics, kitchen items, tools, lawn and garden items, toys & games, baby products, apparel, sporting goods, gourmet food, jewelry, watches, health and personal-care items, beauty products, musical instruments, clothing, industrial & scientific supplies, and groceries. The company did not start off with such a broad product line though; it started off as an online bookstore. The largest “brick-and-mortar” bookstore and mail-order catalogs could during this time offer 200,000 titles, but as an online based company as Amazon they could sell far more than that. Amazon was incorporated in the state of Washington the same year as it was founded, and on May 15, 1997Amazon issued its first stocks on the NASDAQ market. The business plan of Amazon.com, Inc. was different; profit was not expected until after four or five years of operations. This upset a lot of stockholders that wanted to get money back for their investment; they would get their money back though… When the famous dot-com bubble burst, Amazon manage to stay alive when a lot of other online based companies went bankrupt, this was partly because of the business model and structure that Amazon was built on. So Amazon continued to grow, and when the launch of its kindle family (e-readers) a few years ago there would be a rapid growth within the company. This will be explained more in the company, and high numbers of the company’s recent peak in 2010 will be discussed. Today, Amazon’s global headquarter is placed in Seattle, in the state where it once was founded. There are other smaller headquarters in other places too, such as Luxembourg City in Europe, and Miami, Florida. There a ton of software development centers and warehousing centers as well, located all over the World. There is separate retail websites for 10 countries, and more are planned to be launch soon. One of those countries is Sweden.

Income Statement Analysis
Gross Margin
The following table displays Amazon.com, Inc.’s Gross Margin trend over the last three years compared to eBay Inc.’s. Table 1 – Amazon’s Gross Margin, 2009-2011

As the table shows, Amazon’s Gross Margin has been fairly unchanged over the last three years. With small changes in percentage (-0.22% in 2009-2010, 0.09% in 2010-2011) they have managed to maintain a good Gross Margin. Since eBay and Amazon work as different kinds of online based retailers, the comparison between the two companies’ gross margin is not completely fair. Gross margin is the difference between cost and original sell price of a product or service, which means the...
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