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Financial Analysis Of Amazon

641 words - 3 pages

Amazon was founded in 1994 in Seattle, Washington, and since then they have grown into the world’s largest online retail business. Amazon concentrates on long term goals to succeed, such as providing goods to the public at fair prices, offering businesses an online outlet to sell products, along with video streaming, cloud storage, and an innovative drone delivery service. After operating for nearly twenty years, Amazon has proven that an online retail business can be successful. Recently there have been observations of whether Amazon is steadily keeping up with the fast pace of the online retail industry, or if they have hit their peak of innovation and will slowly dwindle away. A financial analysis of Amazon can prove that they are steadily keeping up in the fast paced online retail industry and that their long term goals are indicative to their new innovations.
Amazon’s long term goals are set fifteen to twenty years into the future. As an ...view middle of the document...

Amazon did not predict back in 1994 that in 2014 they would be selling streaming television. Therefore, their long term goals are able to incorporate new innovations adequately. The ability to set long term goals while adjusting for new innovations gives Amazon the advantage in competing in the fast paced online retail industry.
Amazon’s current research and development of new video streaming and innovative drone delivery services comes at a high cost. These costs are expensed as incurred, which directly negatively impacts their financial statements and financial position. These expenses are required to be classified and reported as such because of SEC accounting regulations, but if they could be considered as an investment into an asset, then those costs would reflect positively on their financial statements. Besides, the expenses that they have incurred are being controlled better each year. Their technology and content expense increased by 57% from 2011 to 2012, then by 44% from 2012 to 2013. This shows an improvement in controlling expenses while retaining some investment in research and development for new innovations and services.
Since the expenses negatively affected their financial statements, Amazon’s stock fell in price by 7% the day after the release of their 2013’s financial statements. Aside from the current drop, Amazon’s stock has steadily increased in value over the years. When comparing price earnings ratios to competitors, Amazon’s ratio of 595.48 is better than Ebay’s ratio of 25.92, since a higher ratio usually means that investors are anticipating higher growth in the future. The stock market still favors Amazon even though they have reported large amounts of expenses, and can rationalize those expenses by viewing how uniquely Amazon operates on long term goals. Another upcoming competitor, Shoprunner, Inc., should be used in comparing Amazon’s stock value, if or when they enter the stock market. For now, Amazon is the leader in the online retail industry. Their recent large expenditures are paving the way for new services and innovations to be implemented. After all, a business can only be successful if it takes risks to expand and innovate.

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