Amazon is an electronic commerce company that is located in the United States which has dominated the internet business. Founded in the year 1994 by Jeff Bozos, the company was able to launch its online bookstore in the year 1995. Now it is considered to be among the largest internet retailing companies around the world that sells many items from books to electronics to buyers. It is well known for having cheaper prices for their items and having high-level expertise in ensuring that the needs of the consumers are met every time. The company is in the retail industry where it dominates. The industry faces competitors such as Target,eBay, and Walmart to grow its sales.
Analysis of the company’s 10A Annual Financial Results
An analysis of the company’s 10K Annual Financial Results, the company had a profit of $384 million in the year 2015 which is an improvement from the previous year when it got a loss of $567 million. Further analysis includes calculating the current ratio. The current ratio analyses the liquidity of the company ( Ryan, 2004) . In other words, it looks at the ability of the company to meet its financial obligations.
Delegate your assignment to our experts and they will do the rest.
Current ratio= Current Assets ÷ Current Liabilities
2015 = 36,474÷ 33,899
= 1.1:1
A comparison with eBay which is a close competitor in the industry shows a current ratio of;
2015= 7.704 ÷2.263
= 3.4:1
The competitor has a higher ratio which means that it has more assets as compared to Amazon or it can mean that the company utilizes its assets well as compared to its competitors. The next crucial analysis is the profit margin which is calculated by dividing the net income by the revenues.
Profit margin= Net Income ÷ Revenue/ Net Sales
2015= (596 ÷107, 006) x 100
= 0.56%
Ebay’s profit margin= (195÷859) x 100
=22.70%
The company’s profit margin in the year 2015 is very low which is an indication that its profitability is insecure. The margin is even lower than that of its competitor eBay that operates in the same market. The low-profit margin is an indication that the company has a low ability to manage its expenses. It is always vital for companies to maintain their costs under control. While analyzing the financial condition of the company, it is crucial to look and the debt to equity ratio.
Debt to equity ratio= (Short-term debt + long-term debt + bank overdrafts) ÷ Shareholders’ equity
Debt to equity ratio of 2015= 8,235 ÷ 13,384
=0.62
Ebay’s debt to equity ratio for 2015= 0.84÷ 6.58
= 0.13
The total debt to equity ratio at Amazon is more than what is recorded at eBay which means that the company relies more on debt than equity when compared to its competitor. The situation can raise an alarm to investors who might feel that the company is riskier. In addition, if the ratio increases in the future, the company will become unstable.
Recommendations to increase and maintain profitability
The main objective of any company including Amazon is to improve and maintain their net margins. The profitability of the company is considered to be one of the most vital aspects of the company because it determines how well the company is performing. In addition, an increase in the profitability of the company helps the company in having a competitive advantage, which means that it gets to be more successful as compared to other business that operates in the same industry. From the analysis of Amazon’s 10K report, it is evident that there has been an improvement of the company’s profits from a negative balance of $567 million in 2014 to a profit of $384 million in the year 2015. The company still has an opportunity to improve its profitability and maintain the profits at high levels if it is able to take some measures. The most popular measure that is taken by most companies is increasing the revenue. The company is said to be selling its products at cheaper prices and thus it can improve its sales income by increasing the prices of its products. If it fears that it would lose customers to the competitors because of increased prices, the company can also opt to sell more products. An analysis of the customers is vital before increasing the prices of products because if increases in the prices are ill-times then valuable inventory can remain depreciating in the warehouse because of a decrease in demand. However, it is not enough for the company to increase the sales of the products because, at the same time, the business needs to focus on ways of decreasing the expenses so that they do not negatively affect the profits. Some of the expenses that are incurred by companies like Amazon are often from the day-to-day running of the business and also from the production of the goods for sale. Operating expenses of the company can be reduced by reducing the number of employees and leasing smaller office and warehouse space. However, these measures are likely to affect the intangible assets of Amazon such as its brand and reputation. Another way of reducing the expenses of the company is finding cheaper suppliers but there is the risk of the company getting products that are of inferior-quality when compared to those being sold by competitors. The other way of improving profitability is reducing the cost of production without having to compromise the quality. However, considering the fact that Amazon is not a manufacturing company and mainly deals with retailing then this may not be the best action. However, it can use the concept of economy of scales by buying goods in bulk so that it can get discounts and this method can also reduce the transport costs that are related to constantly transporting goods in small amounts. However, the option is effective if the demand of goods remains high because if the demand reduces then the company will have to store the goods for longer periods and thus increasing the storage and warehouse costs.
Conclusion
Overall, the company is performing well considering that it is big and has a large market share as compared to its competitors like eBay. The company was chosen for this analysis because of its innovative ways of doing business. More specifically, unlike other retail companies such as Target, Amazon was innovative in terms of doing its business through the internet and has been able to reach most parts of the world. Considering the improvement in the profits of the company, it is evident that Amazon will continue to operate within the foreseeable future. However, even if it is a big company that has a good reputation and is expected to remain in operation, it needs to improve on its debt to equity ratio so that it does not lose its investors who are afraid that it is becoming more reliant on debt financing and thus riskier. Everally, Amazon is a good company that anyone would like to be part of because its activities are innovative in terms of operating an online store. The way the company does its operations challenges employees to be innovative in attracting customers around the world.
References
Ryan, B. (2004). Finance and accounting for business . London: Thomson Learning
