Corporate finance order Essay
Amazon.com is a Web based retail company engaged in retail sales of a number of products from books and electronics to gourmet foods and all types of entertainment media. Amazon.com was formed in 1995 and currently employs over 20,000 people. Amazon.com serves its customers through their retail websites and their major focus is on selection, price and convenience. Amazon.com also offers programs that enable seller customers to sell their products on Amazon’s websites and their own branded websites and to fulfill orders directly through Amazon.
Amazon.com is in a very competitive business. Their rivals include physical-world retailers, publishers, vendors, distributers and other on-line retail websites. Amazon.com competes against these rivals by offering a wider range of products, lower prices, free shipping on some items and by filling orders faster. Like all retailers, Amazon’s business is affected by seasonality, which historically has resulted in higher sales volumes in the fourth quarter and especially around the Christmas shopping season.
Below are summaries of Amazon.com’s income statements and balance sheets for years 2006 – 2008:
$ In Millions (Except EPS)
2008 2007 2006
Net Sales $19,166 $14,835 $10,711
Gross Profit 4,270 3,353 2,456
Operating Expenses 3,428 2,698 2,067
Income From Operations
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Net Interest Income 59 5 (12)
Net Income 645 476 190
Diluted Earnings Per Share 1.49 1.12 0.45
2008 2007 2006
Total Assets $8,314 $6,485 $4,363
Long-Term Debt 409 1,282 1,247
From Amazon.com’s income statement it is clear that Amazon has been performing very well over the past three years. Net sales have increase by 38% for 2007 and 29% for 2008. Operating expenses as a percent of net sales have decreased from 19.3% in 2006 to 17.8% for 2008. This shows that Amazon is progressively reducing its cost of sales and, thus, using its capital more efficiently. For 2008 Amazon’s return on equity is a healthy 24.1%. Earnings per share have increased by 148.8% for 2007 and 33% for 2008 making Amazon.com a very profitable company.
Amazon.com’s balance sheet shows that their debt to equity ratio has declined from 7.1% in 2007 to .15% in 2008. Debt as a percentage of total assets has declined from 19.7% in 2007 to 4.9% in 2008. Amazon is clearly using its rising income from operations to pay off long-term debt, another sign of a healthy company.
Amazon.com’s stock price is up 30% YTD versus the S&P 500’s -12% return. Amazon.com is clearly rated a buy and would be a good addition to anyone’s stock portfolio.
Reference: http://www.sec.gov/Archives/edgar/data/1018724/000119312509014406/d10k.htm Amazon.com’s 10K statement sent to the SEC