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Amazon Company Analysis

1335 words - 6 pages

Based on the calculations, it is clear that Amazon generated more revenue during 2010 to 2013. The revenue increased from 34.204 billion to 74.452 billion. However, the revenue growth rate dropped from 39.56% in 2010 to 21.90% in 2013, which means that the revenue growth was slowed down during this period. Amazon’s gross margin remained stable during ths same period. These facts indicate that Amazon’s cost of goods sold grew faster than its revenue. The income statement in figuer 1 shows that the net income shrank a lot during this four years, it even hit negative 39 million in 2012. The decline value of net income states that Amazon suffered from low or even negative profit. It’s easy to ...view middle of the document...

49% and 22.74% of the industry average and 13.4% and 13.44% of ebay. However, amazon’s net profit margin was 0.37%, which was much lower than eBay 22.20% and the industry 2.23%. It’s obvious that amazon’s ROA and ROE were lower than the industry. In the other hand ebay was successfully in maintaining high return on asset and return on equity over the five years period, where five years average ROA was 10.30% and five years average ROE was 15.50%.

Liquidity and leverage

The current ratio measures company’s liability to pay back its short-term debt by using short-term asset. The calculation shows that Amazon is quite liquidity in 2010, since its current ratio was 1.33. Nevertheless, amazon’s current ratio droped all the way to 1.07 in 2013, which indicates that company’s ability to pay back short-term obligations decreased from 2010 to 2013. The quick ratio gives the idea a company’s ability to meet its short-term obligations with its most liquid assets. Amazon had $1 liquidity asset to cover each $1 current liability in 2010 compared to 2013, where it had $0.75 liquidity asset to cover each $1 current liability. As it shows in figure 2, that Amazon’s current liability increased a lot from 10372 million to 22980 million, which led to Amazon faced lower liquidity and higher liquidity risk than previously.
The debt ratio is equal to total debt divide by total asset. Amazon remained low debt ratios from 2010 to 2013, which were lower than 1%. The low debt ratios proved that Amazon had low financial risk, high financial flexibility. The equity ratio represents that the amount of a company's liabilities are eating into its net worth. Amazon’s equity ratio dropped from 37% in 2010 to 24% in 2013, which illustrated that Amazon had to pay a higher value of ongoing fixed expenses.

Comparing Amazon’s liquidity to the industry and Ebay. The industry average current ratio was 1.27 and quick ratio was 0.92; Ebay’s current ratio was 1.84 and quick ratio was 1.74. It is clear that Amazon had lower current ratio and lower quick ratio than Ebay and the overall industry. Amazon had higher liquidity risk than Ebay, which indicated that Amazon had higher inability to convert a security or hand asset to cash without a loss of profit.
Dupont analysis
Using Dupont analysis to break down the return on equity into three element, net profit margin, total asset turnover and total leverage. Net profit margin measures the company’s profitability. Based on the data, Amazon’s net profit margin declined from 3% to nearly 0 in 2013, which indicated that Amazon had earned nothing and not profitable during these years. The total asset turnover ratio shows how efficiency the company operates. Amazon...

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