The purpose of this paper is to highlight the capital structure of Amazon.com, Inc., one of the fortune 500 firm and a global leader in online retails. The capital structure encompasses how firms finance their operations and growth by utilizing different sources of funds (Hoskin, Fizzell, & Cherry, 2014; Martani & Khairurizka, 2009). The main funding sources are ether debt or equity. Debt usually comes from a bond issues or even long-term notes payable (Hoskin e al., 2014; Martani & Khairurizka, 2009). On the other hand, as the researcher posit, equity is mainly classified as a common stock, retained earnings, or preferred stock. In addition, aspects such as short term debt are usually included in the capital structure.
Equity Capitalization
The capital structure is a calculation of the amount of debt in relation to the amount of equity that the business holds in the balance sheet, which can be derived from the annual report (Carmichael, 2016; Downie, 2016). The equity statistics mainly indicate the portion of the firm that the shareholders contribute and is obtained by adding retained earnings, additional paid-in capital, and common stock less the accumulated other comprehensive income and treasury stock. For the 2017 financial year, Amazon had a common stock of USD 5 million, an additional paid-in capital of USD 21,389 million, and retained earnings of USD 8,636 million. The treasury stock was USD 1,837 million while the accumulated other comprehensible income was USD 484 million (Morningstar Financials, 2017a; Morningstar Financials, 2017b; Morningstar Financials, 2017c). This implied that the total stakeholder’s equity was USD 27,709 million.
Delegate your assignment to our experts and they will do the rest.
Debt Capitalization
The other factor for the capital structure is the debt, which captures the total amount that is owed to the Amazon’s creditors (Carmichael, 2016; Downie, 2016). Just like the assets and equity, it is divided into categories, which are two. These are the current liabilities, which usually mature in a year, as well as the other non-current liabilities that take longer to mature, particularly in a period more than a year (Carmichael, 2016; Downie, 2016). The difference between the two is vital as current liabilities can be an immediate and direct threat to the company’s solvency.
For Amazon, the 2017’s total current liabilities were USD 57,883 million, which were broken down into accounts payable (USD 34,616 million), accrued liabilities (USD 18,170 million), and deferred revenues (USD 5,097 million). The total non-current liabilities were USD 45,718 million, broken down into long-term debt (USD 24,743 million), capital leases (USD 13,183 million), deferred taxes liabilities (USD 1,994 million), as well as other long-term liabilities (USD 5,798 million) (Morningstar Financials, 2017a; Morningstar Financials, 2017b; Morningstar Financials, 2017c). As such, the total liabilities totalled USD 103,601 million.
Financial Health based on Debt and Equity
The debt was more compared to the equity, which implies that Amazon was mainly financed by debts more compared to the equity. This implies that the company’s operations are mainly run by debt, which is not viable for any company. For this reason, the attractiveness of investors to invest in the company is compromised, which highlights the need of a paradigm shift from debt to equity financing.
Enterprise Value
The enterprise value is utilized in measuring the price of the company if it was sold in the market. It is usually determined by adding Amazon’s market capitalization and total debt, less liquid assets and total cash. In 2017, the market capitalization was USD 566,023.48 million. Preferred stock was 0, while long-term debt and capital lease obligation totalled USD 37,926 million, current portion of long-term debt was 0, minority interest 0 (Guru Focus, 2017). The amount to be subtracted was marketable securities and cash, which totalled USD 30,986 million. This implied that the enterprise value was USD 572,963 million. The primary driver of the growth of the enterprise value is the common stock’s market value (Downie, 2016).
References
Carmichael, C. (2016). Understanding Amazon's Capital Structure (AMZN). Retrieved from https://www.investopedia.com/articles/investing/082516/understanding-amazons-capital-structure-amzn.asp
Downie, R. (2016). Amazon Stock: Capital Structure Analysis (AMZN). Reetrieved from https://www.investopedia.com/articles/markets/050616/amazon-stock-capital-structure-analysis-amzn.asp
Guru Focus (2017). A mazon.com, Inc. (NAS: AMZN) Enterprise Value: $762,490 Mil (as of Today). Retrieved from https://www.gurufocus.com/term/ev/AMZN/Enterprise-Value/Amazon.com%20Inc\
Hoskin, R.E., Fizzell, M.R. & Cherry, D.C. (2014). Financial accounting: a user perspective . New York, NY: Wiley Global Education.
Martani, D. & Khairurizka, R., (2009). The effect of financial ratios, firm size, and cash flow from operating activities in the interim report to the stock return. Chinese Business Review , 8 (6), 44-50.
Morningstar Financials (2017a). Amazon.com, Inc.: Balance sheet. Retrieved from http://financials.morningstar.com/balance-sheet/bs.html?t=AMZN®ion=usa&culture=en-US
Morningstar Financials (2017b). Amazon.com, Inc.: Cash flow. Retrieved from http://financials.morningstar.com/cash-flow/cf.html?t=AMZN®ion=usa&culture=en-US
Morningstar Financials (2017c). Amazon.com, Inc.: Income statement. Retrieved from http://financials.morningstar.com/income-statement/is.html?t=AMZN®ion=usa&culture=en-US
