annual report analysis

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PURPOSE:

Analyze the financial condition and performance of a corporation using several financial analysis techniques. This project will enable you to make a judgement about the liquidity, profitability, solvency and investment worthiness of Amazon.Com Inc.

TASKS:

STEP #1:

Print out the “Consolidated Balance Sheet”, the “Consolidated Statement of Operations” and the “Consolidated Statement of Cash Flows” of Amazon.Com, Inc. for the years of 2017 and 2018. The annual reports that contain these financial statements can be found at this website. The financial statements for the year 2017 can be found on pgs. 37-40 of the annual report and the financial statements for the year 2018 can be found on pgs. 36-39 of the annual report.

STEP #2: (15 pts.)

Complete a “Horizontal Analysis” of Amazon.Com Inc’s. Consolidated Balance Sheet and Consolidated Statement of Operations. Use 2018 as the “Analysis Period” and 2017 as the “Base Period”. Use Word or Excel to complete this horizontal analysis.

Provide an analysis of what your horizontal analysis reveals about Amazon.Com Inc.’s financial position and profitability.

EXAMPLE

(See pg. 500 of your textbook)

“POOR/FAIR” ANALYSIS EXAMPLE

Cash decreased by $195 from 2017 to 2018. Total Assets were 16.7% higher in 2018 than 2017. Liabilities increased by 24.7% from 2017 to 2018. Net income increased by 5.8% from 2017 to 2018.

“GOOD/EXCELLENT” ANALYSIS EXAMPLE

Cash decreased by $195 from 2017 to 2018 due to the company’s increased investment in short-term marketable securities and their buildup of inventory. The buildup of inventory seemed necessary as Net Sales increased by 6.3%. Operating Income increased by only 2.2% as the company seemed to have trouble controlling its operating expenses which increased by 10.7%. Further expansion may not be advisable until the operating expenses can be controlled. Long-term Debt increased by 28.9% and Long-Term Marketable Securities increased by 14.2%. A favorable stock market and low interest rates on long-term debt may have the company adopting the strategy of borrowing capital and then investing that capital in stock.

STEP #3: (15 pts.)

Complete a “Vertical Analysis” of Amazon.Com Inc’s Consolidated Balance Sheet and Consolidated Statement of Operations for both 2017 and 2018. Provide an analysis of what your vertical analysis reveals about Amazon.Com Inc.’s financial position and profitability.

EXAMPLE

(See pgs. 503 – 504 in your textbook)

STEP #4: (10 pts.)

Calculate the following Liquidity and Efficiency ratios for Amazon.Com, Inc. for both 2017 and 2018. Provide an analysis of what these ratios reveal about Amazon.Com Inc.’s liquidity and efficiency. (See pgs. 506 – 508 of your textbook)

Current Ratio

Acid-Test Ratio

Accounts Receivable Turnover

Inventory Turnover

Days’ Sales Uncollected

Total Asset Turnover

“POOR/FAIR” ANALYSIS EXAMPLE

The current ratio was higher in 2018 than 2017. The Accounts Receivable Turnover was lower in 2018 than 2017. The company sold its inventory at a faster pace in 2018 than 2017.

“GOOD/EXCELLENT” ANALYSIS EXAMPLE

The current ratio was higher in 2018 than 2017 due to increases in cash and accounts receivable. These increases were directly related to the increased net income generated by the company. The “cash flow from operations” on the Statement of Cash Flows increased from 2017 to 2018 accounting for the increase in the cash account. The increase in accounts receivable is directly related to the increase in revenues on the Income Statement. Revenues increased by 10% with the Accounts Receivable account increasing by 8% from 2017 to 2018. This increase in liquidity enabled the company to pay off a large portion of its long-term debt which is reflected in the Statement of Cash Flows in the Financing Section.

STEP #5: (10 pts.)

Calculate the following Solvency ratios for Amazon.Com, Inc. for both 2017 and 2018. Provide an analysis of what these ratios reveal about Amazon.Com Inc.’s ability to meet its long-term obligations. (See pgs. 508 – 509 in your textbook).

Debt to Equity Ratio

Times Interest Earned

STEP #6: (10 pts.)

Calculate the following Profitability ratios for Amazon.Com, Inc. for both 2017 and 2018. Provide an analysis of what these ratios reveal about Amazon.Com Inc.’s ability to earn profit. (See pgs. 509 – 510 in your textbook)

Profit Margin

Return on Total Assets

Return on Common Stockholder’s Equity

Step #7: (10 pts.)

Calculate the following Market Prospect ratios for Amazon.Com, Inc. for both 2017 and 2018. Provide an analysis of what these ratios reveal about Amazon.Com Inc.’s market performance. (See pg. 510 of your textbook)

Price-Earnings Ratio (You can find the current stock price here)

Dividend Yield

PARTICIPATION: (30 pts.)

I’ll assign these points by looking at the activity on each team’s discussion board and in the “comment history” on each team’s GoogleDoc.

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