Amazon.com Inc. Financial Statements and Financial Ratios Analyzed from 2015 to 2019

Amazon.com 2019 Financial Statements and Financial Ratios: Defined, Discussed, and Analyzed for 5 Years” was written by, Paul Borosky, MBA. and owner of Quality Business Plan.  In this summarized book, the author researched Amazon.com 10k, Amazon.com 2017 10k annual report, Amazon's 2016 10k annual report, Amazon's 2015 10k annual report, and Amazon's 2014 10k annual report as the basis for information gathering.  Once all Amazon.com's 10k annual statements were collected, the author then inserted Amazon.com's income statement information and Amazon.com's balance sheet information into a customized financial template. 

Amazon.com: Brief Summary

Amazon.com's stock price, in February 2020, was at $2,155.67.  The previous year, its stock price was $1,601.  This is a growth rate annually of 34.65%.  From an investor’s perspective, this growth rate well exceeds overall market returns.

Amazon.com has not paid out dividends in the last five years.  The zero dividend payment policy may be due to the company’s need for internal growth.  However, over the next several years, investors should expect some type of dividends to be paid once the organization reaches the mature phase of their business cycle. 

Amazon Financial Analysis

Amazon.com Financial Statements and Ratios

Page Count: 90

Table of Contents

  • Disclaimer       3
  • Acknowledgments      4
  • Forward          5
  • About the Author        7
  • Company Summary    8
  • Financial Statement Introduction       11
  • Income Statement       12
  • Amazon.com’s Income Statement – Summary Analysis       13
  • Income Statement Discussion 13
  • Balance Sheet 24
  • Balance Sheet – Summary Analysis   25
  • Balance Sheet Discussion       25
  • Financial Ratios          45
  • Liquidity Ratios          46
  • Liquidity Ratios - Summary Analysis            46
  • Liquidity Ratios Discussion    47
  • Current Ratio  47
  • Quick Ratio     48
  • Cash Ratio      49
  • Other Liquidity Ratios            50
  • Net Operating Working Capital          50
  • Asset Ratios    52
  • Asset Utilization Ratios - Summary Analysis            53
  • Asset Utilization Ratios Discussion    53
  • Total Asset Turnover  53
  • Fixed Asset Turnover  54
  • Days Sales Outstanding         55
  • Inventory Turnover     56
  • Accounts Receivable Turnover           57
  • Accounts Payable Turnover    58
  • Other Asset Ratio Calculations           59
  • Working Capital Turnover      59
  • Average Days in Inventory    60
  • Average Days Payable            60
  • Profitability Ratios     61
  • Profitability Ratios - Summary Analysis        62
  • Profitability Ratios Discussion           62
  • Return on Assets (ROA)         62
  • Return on Equity (ROE)         63
  • Profit Margin  64
  • Gross Profit Margin    65
  • Operating Profit Margin         66
  • Basic Earnings Power 67
  • ROCE 68
  • Capital Employed       68
  • Debt Ratios     69
  • Amazon.com’s Debt Ratios - Summary Analysis      69
  • Debt Ratios Discussion           70
  • Long-Term Debt Ratio           70
  • Debt to Equity Ratio   71
  • Times Interest Earned 72
  • WACC            74
  • Book Value of WACC           74
  • Free Cash Flow (FCF)            76
  • Amazon.com’s Free Cash Flows – 2015 - 2019         76
  • Free Cash Flows – 5 Year Projections            77
  • Income Statement – Projections for 5 years   78
  • Income Statement – 5 Year Projections          78
  • Balance Sheet – Projections for 5 years         80
  • Balance Sheet – 5 Year Projections    80
  • Company Valuation and Intrinsic Stock Price           83
  • Appendix 1: Summarized Income Statement 84
  • Appendix 2:  Income Statement – Percent of Sales    85
  • Appendix 3:  Income Statement – Year over Year Growth   86
  • Appendix 4:  Summarized Balance Sheet      87
  • Appendix 5:  Balance Sheet as Percent of Total Assets         89
  • Appendix 6:  Summarized Financial Ratios   90

Section 1: Amazon.com Income Statement Analyzed 2015 to 2019

In this section, I walk through a broad definition as to what an income statement is and why it is important.  From this, I then discuss and define income statement line items, such as revenues, gross profits, etc. in detail.  After each line item is defined and discussed, I finally offer a summary analysis of Amazon.com’s important income statement line item trends from 2015 to 2019, in most cases.

Revenue Growth:  Amazon ended 2015 with $107 billion in sales.  As of 2019, the organization more than double its sales to approximately $250 billion.  This is an annual growth rate of approximately 27%.  As the organization matures, investors should expect this growth rate to level off.

Cost of Goods Sold:  Amazon’s cost of goods has ranged from 59% of sales to 67% of sales.  The 59% of sales were registered in 2019.  This shows that the company is doing a better job of negotiating prices for raw materials.  Also, such a good showing in this line item may be a result of Amazon passing on raw material cost increases to their customers through higher prices.  Regardless, the organization seems to have found a functional business model that allows for continued improvement in the cost of goods area.

Amazon.com's Income Statement 2019

Column1 2019 2018 2017 2016 2015
Revenues                  280,522                  232,887                  177,866                  135,987                    107,006
COGS                  165,536                  139,156                  111,934                    88,265                      71,651
Gross Profit                  114,986                    93,731                    65,932                    47,722                      35,355
SG&A                      5,203                      4,336                      3,674                      2,432                        1,747
Depreciation                    21,789                    15,341                    11,478                      8,116                        6,281
R & D                    35,931                    28,837                    22,620                    16,085                      12,540
Other                         201                         296                         214                         167                           171
Operating Expenses                  265,981                  220,466                  173,760                  131,801                    104,773
EBIT                    14,541                    12,421                      4,106                      4,186                        2,233
Other Income                         203                        (183)                        (300)                           90                         (256)
Interest Expense                      1,600                      1,417                         848                         484                           459
EBT                    13,976                    11,261                      3,806                      3,892                        1,568
Taxes                      2,374                      1,197                         769                      1,425                           950
Net Income                   11,588                   10,073                     3,033                     2,371                          596

Section 2: Amazon.com Balance Sheet Analyzed 2015 to 2019

For Amazon.com's balance sheet, I again go through each important line item from the balance sheet.  In reviewing each line item, I will define Amazon.com’s balance sheet line item, such as cash, property, plant and equipment, and liabilities between 2015 to 2019.  Next, I then offer an analysis of Amazon.com’s balance sheet important line items.

Cash:  Amazon’s cash position ended in 2015 at $15.8 billion.  In the next five years, the company would more than double this number to approximately $36 billion.  Such a huge amount of cash shows that the company is not fully optimizing this asset.  A better strategy would be to increase its short-term investments.  Or, even better, the organization could use some of the cash to buy back stocks.  Finally, the organization could even start paying out dividends if no other operational opportunities are available.  Regardless, holding so much cash is a poor decision on so many levels.

Short-term Investments:  The company ended 2015 with $3.9 billion in short-term investments.  In the next five years, the firm would grow this line item to $18.9 billion.  This is a substantial increase.  However, because the company has such a huge stockpile of cash, its short-term investments should be significantly higher.

 

Amazon.com's Summary Balance Sheet 2019

Column1 2019 2018 2017 2016 2015
Cash                      36,092                  31,750                  20,522                  19,334                  15,890
Short Term Investment                      18,929                    9,500                  10,464                    6,647                    3,918
Account Receivable                      20,816                  16,677                  13,164                    8,339                    6,423
Inventory                      20,497                  17,174                  16,047                  11,461                  10,243
Other                              -                         -                         -                         -                         -
Current Assets                    96,334                75,101                60,197                45,781                35,705
Net PPE                      96,334                  61,797                  48,866                  29,114                  21,838
Goodwill                      14,754                  14,548                  13,350                    3,784                    3,759
Other                      16,314                  11,202                    8,897                    4,723                    3,445
Total Assets                  225,248              162,648              131,310                83,402                65,444
Accounts Payable                      47,183                  38,192                  34,616                  25,309                  20,397
Accrued Expense                      32,439                  23,663                  18,170                  13,739                  10,372
Accrued Taxes                              -                         -                         -                         -                         -
Notes Payable                              -                         -                         -                         -                         -
LT Debt - Current                              -                         -                         -                         -                         -
Other                              -                         -                         -                         -                         -
Total Current Liabilities                      87,812                  68,391                  57,883                  43,816                  33,887
LT Debt                      23,414                  23,495                  27,743                    7,694                    8,227
Other                      12,171                  27,213                  20,975                  12,607                    9,249
Total Liabilities                  163,188              119,099              103,601                64,117                52,060
Common Stock                               5                           5                           5                           5                           5
Treasury                      33,658                    1,837                    1,837                    1,837                    1,837
Retained Earnings                      31,220                  19,625                    8,636                    4,916                    2,545
Other                              -                         -                         -                         -                         -
Total Equity                    62,060                43,549                27,709                19,285                13,384
Total Equity & Liability                  225,248              162,648              131,310                83,402                65,444

Section 3: Amazon.com Financial Ratios Analyzed 2015 to 2019

For this final section, I have chosen about 16 different financial ratios to calculate for Amazon.com from 2015 to 2019.  I also review some important Amazon.com's financial ratios. I first start with defining the financial ratio.  Next, I supply the financial formulas for calculating the specific ratio.  Finally, I offer a brief analysis of important financial ratios.

Current Ratio:  Amazon’s current ratio in 2019 was 1.1.  This is the same number as its current ratio for 2018.  This indicates that the company has enough current assets to cover its current liabilities.  As a result, the company has little to fear from short-term insolvency.

Total Asset Turnover:  Amazon's total asset turnover in 2015 was 1.64.  As of 2019, this ratio fell to 1.25.  This indicates that the company is not utilizing its assets as efficiently as in previous years.  To mitigate this issue, Amazon needs to do something with its cash.  This idle asset is not making them any money.  As stated previously, they can buy back stocks or pay out dividends.  Either action should improve its total asset turnover ratio.

Return on Equity:  The company’s return on equity has increased from 4.5% in 2015 to 18.7% in 2019.  Their return on equity could be substantially higher if the organization takes on more debt.  By using debt for future growth, not only is the firm making money on borrowed money, but they are also able to return some of the funds to investors or conduct a stock buyback.

Debt Ratio:  Amazon’s debt ratio in 2015 was 12.6%.  In 2019, their debt ratio declined to 10.4%.  This decline, from an investor’s perspective, is unacceptable.  The company should be taking on more debt.  This is because of its inherent benefits.  By taking on debt, the company may write off interest payments for tax purposes.  Also, Amazon could use debt funding to buy back stocks.  Not only would this lead to higher stock prices for shareholders, but it would also improve the company’s return on equity ratio.

 

Amazon.com's Liquidity Ratios 2019

Ratios 2019 2018 2017 2016 2015
Current Ratio                           1.10                    1.10
Cash Ratio                           0.41                    0.46
Quick Ratio                           0.86                    0.85
Net Working Capital                       (2,217)                  3,746

Amazon.com Asset Utilization 2019

Ratios 2019 2018 2017 2016 2015
Total Asset Turnover                           1.25                    1.43
Fixed Asset Turnover                           2.91                    3.77
Days Sales Outstanding                         27.08                  26.14
Inventory Turnover                         13.69                  13.56
Accounts Receivable Turnover                         13.48                  13.96
Working Capital Turnover                     (126.53)                  62.17
AP Turnover                           5.95                    6.10
Average Days Inventory                           0.04                    0.04
Average Days Payable                           0.02                    0.02                        -                        -                        -

Amazon.com Profitability Ratios 2019

Ratios 2019 2018 2017 2016 2015
Return on Assets 5.14% 6.19%
Return on Equity 18.67% 23.13%
Net Profit Margin 4.13% 4.33%
Gross Profit Margin 40.99% 40.25%
Operating Profit Margin 5.18% 5.33%
Basic Earning Power 6.46% 7.64%
ROCE 10.58% 13.18%
Capital Employed                     137,436                94,257
ROIC 12.83% 16.94%

 

Amazon.com Long-term Debt 2019

Ratios 2019 2018 2017 2016 2015
Debt Ratio 10.39% 14.45%
Debt/Equity 37.73% 53.95%
Times Interest Earned                           9.09                    8.77