The Amazon Company’s Financial Statement

Introduction

Amazon is an American technology corporation that operates in different countries around the globe. Its business line encompasses cloud computing, ecommerce, artificial intelligence, and digital streaming. Currently, its brand is well known in the market following the nature of its services to the customers. The company is consumer-centric, and it serves its clients through both its online platform and its physical stores. Most of the firms offering are accessible using mobile applications, websites, and Alexa devices. The business organization has over 1,500,000 million employees permanent and part-time workers. It relies on intellectual property, whereby it regards trademarks, trade secrets, copyrights, and patents.

The company encounters stiff competition in the market from several competitors that offer similar products and services to the target customers. Some opponents include publishers, distributors, manufacturers, vendors, and producers of goods the company produces. Furthermore, the physical, omnichannel, and ecommerce retailers are a threat to the success of the firm in the industry. Similarly, organizations that offer web development services and other relevant technological facilities provide effective competition. The well-known business organization that offers such goods and services include Wal-Mart Wholesale, Google, Costco, Alibaba, JD, Flipkart, eBay, Rakuten, Netflix, Apple TV, and Hulu (Hahn et al., 2018). The company operates in over 240 countries worldwide, with most of its services offered in North, South, and Central America, Europe, Asia, and Africa.

Amazon Chart Stock Price

Week Number Date Closing Price ($) Stock Value ($)
(1,000 Shares)
Profit / Loss ($)
1 2/28/2022 2,912.82 2,912,820 0
2 3/7/2022 2,910.49 2,910,490 (2,330)
3 3/14/2022 3,225.01 3,225,010 312,190
4 3/21/2022 3,295.47 3,295,470 382,650
5 3/28/2022 3,271.20 3,271,200 358,380
6 4/4/2022 3,089.21 3,089,210 176,390
7 4/11/2022 3,034.13 3,034,130 121,310
8 4/18/2022 3,162.31 3,162,310 249,490

(“Amazon.com Balance Sheet”, 2022)

Income Statement

Amazon

Comparative Income Statement

For the Year Ended December 31, 2020 and 2021

(In million US Dollar)

2021 2020
Total net sales 469,822 100% 386,064 100%
Cost of goods sold 272,344 58% 233,307 60.43%
Technology and content 56,052 11% 42,740 11.07%
Marketing 32,551 7% 22,008 6%
Fulfillment 75,111 16% 58,517 15.16%
General and administrative 8,823 2% 6,668 2%
Other operating expenses 62 0.01% (75) 0.02%
Total operating expenses 444,943 95% 363,165 94%
Income from operations 24,879 5.3% 22,899 6%
Other revenue 14,633 3.11% 2,371 1%
Income before income tax 38,151 8.12% 24,178 6.26%
Income tax expense 4,791 1.02% 2,863 1%
Net income 33,364 7.10% 21,331 5.53%

(Amazon Corporation, 2022)

Based on the table above, the total net sales of Amazon Company increased from $386,064 million in 2020 to $469,822 million in 2021. This translates to a 21.70% sales increase, indicating the adequate performance of the business organization in the industry. According to the data, the cost of goods sold increased from $233,307 million to $272,344 million between the years 2020 to 2021. Moreover, the total expense incurred by the corporation increased by $81,778 million (Amazon Corporation, 2022, p. 37). Its net income improved from $21,331 million in 2020 to $33,364, which shows how the firm is viable and the management knows how to convert the available assets into more profits. Lastly, the general and administrative expenditure has slightly increased, indicating the ability of the organization to manage its operations.

Balance Sheet (In Millions)

Over the two financial periods, Amazon experienced an increase in its total assets, from $321,195 in 2020 to $420,549. The massive growth results from having adequate operating leases that bring more income treated as an asset to the organization. Leasing is the release of a property to be rented by another party who pays the usage fee while the firm maintains its ownership. Similarly, the company’s total debt has increased by $6,626 over the duration (Amazon Corporation, 2022, p. 39). The long-term lease liabilities have contributed to the increase in debts of the business organization. The firm’s stockholders’ equity increased from $93,404 in 2020 to $138,245 in 2021. This was caused by the company’s growth in the price per share, which attracted more investors to the organization. Amazon authorized about 5,000 million shares and issued 527 and 532 million shares during the period. Furthermore, the business organization has outstanding shares of 503 and 509 million.

Statement of Cash Flows (In Millions)

Statement of financial cash flows is categorized into three sections: operating, investing, and financing activities. From operations segments, the major cash flow is amortization and depreciation of properties and equipment, which constituted about $34,296. In the investing activities, sales and maturities of marketable securities contribute the largest share of cash flow to the business organization, which is $59,384. Moreover, in financing operations, the proceeds from the short-term and long-term debts are the biggest cash flow for the business entity (Amazon Corporation, 2022, p. 36). During the two financial periods, the cash flows of the business organization have decreased from $42,377 in 2020 to $36,477 in 2021.

Stockholders’ Equity Statement

Amazon has issued both preferred and common shares to its shareholders at $0.01 par value. It authorized 5,000 shares, and it has outstanding shares of 509 (Amazon Corporation, 2022, p. 40). The company also has treasury stock amongst its equity products. Over the past two years, the company had no outstanding preferred shares. Amazon has stock-based compensation and issuance of workers’ benefit plan stock. Furthermore, the business organization paid $85,915 in stock to its shareholders.

Liquidity and Solvent Ratios

The information used in the evaluation of ratios was extracted from the Amazon Corporation 10-K report in millions.

Current Ratio = Current Assets / Current Liabilities

2021: 161,580 / 142,266 = 1.14

2020: 132,733 / 126,385 = 1.05

From the analysis above, the current ratio of amazon increased from 1.05 in 2020 to 1.14 in 2021. The 0.09 increase indicates the ability of the company to settle its obligation using the available current assets.

Accounts Receivable Turnover: Net Sales / Average Accounts Receivable, Net

2021: 469,822 / 28,716.5 = 16.36

Average accounts receivables = (24,542 + 32,891) = 57,433 / 2 = 28,716.5

2020: 386,064 / 22,679 = 17.02

Average accounts receivables = (20,816 + 24,542) = 45,358 / 2 = 22,679

Over the past two years, the accounts receivable turnover reduced by 0.66. This indicates the ability of Amazon to collect the sales made on credit is low. However, the value of the ratio can also imply that the industry has a conservative policy of credit or its customers are of high quality hence prompt payment.

Debt Ratio: Total Liabilities / Total Assets

2021: 282,304 / 420,549 = 67.12%

2020: 227,791 / 321,195 = 70.91%

The debt ratio reduced from 70.91% in 2020 to 67.12% in 2021. This decrease in turn indicates an increase in the ability of the company to access more borrowing.

Debt-to-equity ratio: Total Liabilities / Total Equities

2021: 282,304 / 138,245 = 2.04

2020: 227,791 / 93,404 = 2.44

From the analysis above, the company reduced its debt-to-equity ratio by 0.4. This indicates amazon is lowering the amount of borrowing to finance its business operations. Taking into consideration the above ratios, Amazon has appositive financial health; thus, it does not face possible liquidation due to excessive loans. The company’s management uses the assets and equities at an average rate, making it able to settle all possible obligations using its available resources.

Profitability Ratios and Conclusions

The details used were taken from the Amazon Corporation 10-K Report. All the figures are in millions apart from the values per share.

Profit margin ratio: Net income / Net sales

2021: 33,364 / 469,822 = 7.1%

2020: 21,331 / 386,064 = 5.5%

Return on total assets: Net sales / Average total assets

2021: 469,822 / 370,872 = 1.27 times

Average total assets = (321,195 + 420,549) = 741,744 / 2 = 370,872

2020: 386,064 / 273,222 = 1.41 times

Average total assets = (225,248 + 321,195) = 546,443 / 2 = 273,222

Return on Equity: Net income / Average shareholder’s equity

2021: 33,364 / 115,824.5 = 29%

Average shareholder’s equity = (93,404 + 138,245) = 231,649 / 2 = 115,824.5

2020: 21,331 / 77,732 = 27.44%

Average shareholder’s equity = (62,060 + 93,404) = 155,464 / 2 = 77,732

Basic earnings per share: Net income – Preferred dividends / weighted-average common shares outstanding

2021: 33,364 – 0 / 0.9881 = 33,765.81

Weighted average of common shares outstanding = (500 / 506) = $0.9881

2020: 21,331 – 0 / 0.988 = 21,590.08

Weighted average of common shares outstanding= (494 / 500) = $0.988

Based on the ratio analysis above, the profit margin increased by 1.6%, and the return on equity improved by 1.56%. These changes indicate how Amazon is properly utilizing its resources to generate an excellent return to the shareholders. Similarly, the basic earnings per share increased from 21,590.08 to 33,765.81, showing the ability of the corporation to make more profits and increased dividends to the stockholders.

Notes to the Financial Statements

Fulfilment is one of the notes included in Amazon’s financial statement report. It details the agreement the company has with all its suppliers. According to the note, vendors are to receive consideration following their effort to cooperate in marketing, incentives, and promotions (Amazon Corporation, 2022, p. 43). Similarly, the financial statements contain leases as part of its note. The business organization groups its leases based on the contracts longer than 12 months as either finance or operating.

Auditor’s Opinion

Based on the information provided by the auditors of the financial statements, Amazon maintained an effective financial reporting whereby all the material respects were adhered to. The business organization used the framework provided by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO) (Amazon Corporation, 2022, p. 69). According to the auditor’s opinion, the financial positions, cash flows, and income statement complied with the generally accepted accounting principles (GAAP).

Conclusion

The annual report provides sensitive insight into the overall business operations. The information is essential in facilitating an understanding of how the company is thriving in the industry. The aspect of identifying the values from different financial statements using them to draw conclusions about an organization’s performance and financial health was fascinating. The least interesting part of the annual report is making sense of the notes provided from the statements. Based on the financial ratios analysis, Amazon has the potential to be one of the firms in the market following the capability of its management to use the equity and other resource to generate income. Therefore, the company will excel in the industry despite the increasing competition rate from other firms.

References

Amazon Corporation. (2022). 2021 Annual Report.

Hahn, Y., Kim, D., & Youn, M. K. (2018). A brief analysis of Amazon and distribution strategy. Journal of Distribution Science, 16(4), 17-20.

Amazon.com Balance Sheet. Yahoo! Finance. (2022).

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