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Research Report on Amazon Financial Analysis
The company I have decided to research and complete my financial analysis on is Amazon. Amazon is the world’s largest online retailer with over 750,000 employees. Their company’s main focus is e-commerce, digital streaming, cloud computing, and artificial intelligence. Along with Google, Microsoft, and Apple, Amazon is considered one of the “Big Four” tech companies. They were originally a book seller but have vastly expanded into a highly respected online retailer. Jeff Bezos is the founder and current CEO and first launched the website in 1995. Amazon had a net revenue of $280.522 billion in the year 2019. There are 3 financial corporate statements that are key to an organization’s financial structure. They are a balance sheet, income statement, and a cash flow statement. Each financial statement plays a specific and important role within an organization or corporation.
A balance sheet is one of the most popular and well known financial statements in all of accounting. A balance sheet is designed to show exactly what a company owns, what it owes, and how much money has been invested into the company by owners and investors. (Fool.com) By definition a balance sheet is a statement of the assets, liabilities, and owners equity. Assets are things that are owned and have value to a specific person or company. Examples of assets include cash accounts, cash equivalents, accounts receivable, inventory, furniture, and stock. (Fool.com) Assets are usually divided into two categories on your balance sheet, current assets and long-term assets. Current assets are considered anything that can be converted into cash quickly.(Fool.com) Liabilities are considered debts or things that you owe to an organization or specific person. For example, liabilities include accounts payable, interest payable, wages and salary payable, and customer deposits. (Fool.com) Similar to assets, liabilities are broken down into two categories: current and long term liabilities. Equity represents the amount of money that you or your investors have invested in the business. Also called capital, the equity account represents a company’s net worth. Added together with the liability total, it should match or balance with your total assets. (Fool.com) The formula for a balance sheet is: assets = liabilities + equity. In 2019 Amazon reported total assets of 225,248,000. They reported total liabilities of 163,188,000. The total equity reported on the balance sheet was 62,060,000. ( For Amazon: Assets (225,248,000) = liabilities ( 163,188,00) + equity (62,060,000) ) As it should be, Amazon does have a balanced balance sheet.
An income statement (also known as a profits and losses statement) is a summary of a company’s profit or loss during any one given period of time, such as a month, three months, or one year. An income statement consists of revenue, expenses, and net income. The numbers used to calculate that bottom-line figure are cumulative, meaning that they are a total of all activities from the beginning of the chosen time period until the end of the chosen time period. (Study.com) The formulas used in an income statement is revenue – expenses = net income (Study.com) Revenue is the amount of money that a company brings in. Revenue is the income generated from normal business operations and includes discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income. Expenses are the amount of money that a company pays out. They are specific expenses that are incurred in order to earn normal operating revenues. Net income occurs if the amount of revenue that came in was more than the amount of expenses that went out. Net loss occurs if the amount of expenses that were paid were more than the amount of revenue that came in. (Study.com) When analyzing Amazon, they reported a total revenue of $280,522,000. Their total operating expenses totalled to $268,934,000 The net income reported on their balance sheet was $11,588,000 (Revenue $280,522,000 – Expenses $268,934,000 = Net Income $11,588,000)
Cash flow statements are one of the most important financial pieces for a business. These statements show how money moves through your organization during a given period of time. It ends up being a very easy way to keep track of where your money is coming from and where your money is going. When preparing cash flow statements there are two different methods that can be used: indirect method and direct method. The indirect method uses net income as the base and does the adjustments needed, i.e adding and subtracting the variables to convert the total net income to cash amount from operations. The direct method of cash flow in operating activities includes the cash being received from the customers and the cash paid to the suppliers, employees, and others. The cash can also be paid for income tax, interest, and other variables. The direct method of cash flow starts with cash transactions such as cash received and cash paid while ignoring the non-cash transactions.Indirect cash flow method, on the other hand, the calculation starts from the net income and then we go along adjusting the rest. Amazon uses an indirect method to prepare their cash flow statement. We know this because the company starts the section with net income, and reconciles net income to net cash through the increase or decrease of non cash items.
There are 3 financial corporate statements that are key to an organization’s financial structure. They are a balance sheet, income statement, and a cash flow statement. Each financial statement plays a specific and important role within an organization or corporation. There is a vast amount of information that breaks down each financial statement. Looking at Amazon’s financial statements, they continue to grow and expand each year. Their revenue and profits continue to climb, but their expenses do as well. The year 2019 has been the best year financially for the company and they are nicknamed the “king of revenue” given their unbelievable revenues from year to year. They are projected to jump up double their current revenue in the next 3 years.
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