Amazon's Financial Statements

Amazons Financial Statementsacc 561amazons Financial Statementsdeter

Amazons Financial Statementsacc 561amazons Financial Statementsdeter

Amazon’s Financial Statements ACC 561 Amazon’s Financial Statements Determine the net income for the current fiscal year (FY). Is this income up or down from the prior year? Explain the relevance of changes in net income to investors. Amazon is a publicly traded US company that is founded by Jeff Bezos and originally started off as a bookstore and is now the largest internet retailer in the world. The net income for the company as of 12/31/2017 was $3,033,000, which is up from the previous year’s net income of $2,371,000. This is a net income increase of $662,000 within one year of operation. Net income indicates to investors how Amazon is deploying its assets and whether or not it is a wise investment. Investors favor profitable businesses, and changes in net income influence their decision-making process.

Determine the ending balance in shareholders' equity. Why would organizations such as labor unions be interested in this? Shareholders’ equity is the owners' claim to assets. The ending balance of shareholders' equity for 12/31/2017 was $27,709,000, up from $19,285,000 in the previous year. Labor unions are interested in stockholders’ equity to support proposals that increase their negotiating leverage over corporate management. This leverage enables negotiations for higher wages and benefits for unionized employees (Kimmel et al., 2013).

Determine the total value of assets. Discuss the relevance of the total value of assets to potential creditors and why this is important. The total value of assets for Amazon in 2017 was $60,197,000, up from $45,781,000 in 2016. This information is significant to creditors because it demonstrates the company’s financial stability and capacity to meet debt obligations.

Compute the return on assets. Discuss the relative profitability of the company based on your results. Return on assets (ROA) indicates the amount of net income generated by each dollar of assets; the higher the ROA, the more profitable the company (Kimmel et al., 2013). ROA = (Net Income / Average Total Assets) x 100%. For 2017, ROA = ($3,033,000 / $52,989,000) x 100% ≈ 5.7%. Amazon’s ROA of 5.7% indicates steady growth and profitability.

Compute the working capital and current ratio. Evaluate the relative liquidity of the company based on your results. Working capital is the excess of current assets over current liabilities, indicating short-term financial health. Working capital = $60,197,000 - $57,883,000 = $2,314,000. A positive working capital suggests that the company can meet its short-term obligations.

The current ratio measures the company’s ability to pay maturing obligations; a ratio above 1 indicates good liquidity. Current ratio = $60,197,000 / $57,883,000 ≈ 1.04:1, signifying that Amazon has sufficient current assets to cover current liabilities, reflecting adequate liquidity.

Compute the debt to assets ratio and the free cash flow for your company. Analyze the results and comment on the relative solvency of the company. The debt to assets ratio measures the percentage of total assets financed by creditors. Debt to assets ratio = ($57,883,000 / $60,197,000) ≈ 96%. A high ratio suggests reliance on debt financing, indicating lower solvency.

Free cash flow represents net cash provided by operating activities after capital expenditures. For Amazon, free cash flow = $18,434,000 - $11,955,000 = $6,479,000. Despite high leverage, positive free cash flow indicates that Amazon maintains sufficient cash flow to pursue investment opportunities and service debt. The high debt to assets ratio of 96% reflects significant reliance on debt, which entails higher financial risk but is common among large tech companies leveraging growth.

Discuss how the financial statements are used in your current role or a position you would like to hold. How might these aid you in managerial decision-making? In the future, aspiring to own and operate a childcare center, I would be an internal user of financial statements. They would enable me to assess profitability, manage cash flow, determine capacity for employee raises, evaluate service offerings, and set appropriate pricing strategies. Accurate financial analysis guides resource allocation, monitors financial health, and supports strategic planning, ultimately improving decision-making and ensuring business sustainability.

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Financial statements are critical tools for analyzing the financial health of a company, and their interpretation is vital for effective managerial decision-making and investment analysis. In Amazon’s case, the 2017 fiscal year presented robust financial results, reflecting its growth and dominance in the e-commerce sector.

Net Income and Its Relevance to Investors

Amazon’s net income for 2017 was $3,033,000, representing an increase of $662,000 from 2016’s net income of $2,371,000. This upward trend in net income demonstrates that Amazon was successfully increasing its profitability, which is a key indicator for investors. Net income essentially signals how efficiently a company manages its expenses and utilizes its assets to generate profit. For investors, sustained or increasing net income signifies a potentially lucrative investment, whereas declining net income may raise concerns about operational efficiency or competitive pressures. Hence, changes in net income influence investor confidence, stock valuation, and decisions regarding buying, holding, or selling shares (Healy & Palepu, 2012).

Shareholders’ Equity and Organizational Interests

The ending shareholders’ equity rose from $19,285,000 in 2016 to $27,709,000 in 2017. Shareholders’ equity represents the residual interest in the company’s assets after liabilities, indicating the net worth attributable to shareholders. Labor unions have a vested interest in shareholders’ equity because it reflects the company's financial stability and profitability, which impact employees’ wages, benefits, and job security. Higher equity levels often enable organizations to negotiate better wages and benefits, as unions aim to ensure that the company’s profitability translates into improved employee compensation (Kimmel et al., 2013). Additionally, healthy equity balances provide a safety cushion that reassures labor unions about the company’s ability to sustain operations and meet obligations.

Total Assets and Creditors’ Perspective

Amazon’s total assets grew to $60,197,000 in 2017 from $45,781,000 in 2016. Total assets encompass current and non-current resources that can generate future economic benefits. For potential creditors, the total asset value provides insight into the company's size, resource base, and capacity to cover debts. Lenders assess the total assets to determine the collateral available and the firm’s ability to withstand financial stress. A substantial asset base signals stability and reduces the risk of default, making the company a more attractive borrowing candidate (Ross, Westerfield, & Jaffe, 2016).

Return on Assets and Profitability

The ROA calculation for Amazon in 2017 yielded approximately 5.7%. This was achieved by dividing net income ($3,033,000) by the average total assets ($52,989,000). A higher ROA indicates more efficient utilization of assets to generate earnings. While Amazon’s ROA may appear modest compared to some traditional manufacturing firms, it is commendable within the technology and e-commerce sectors where heavy asset investments are not as prevalent. This level of profitability signifies effective management of assets and consistent revenue generation, which is attractive to investors and stakeholders concerned with volatility and return (Brigham & Houston, 2015).

Liquidity Ratios: Working Capital and Current Ratio

Amazon’s working capital for 2017 is $2,314,000, calculated by subtracting current liabilities ($57,883,000) from current assets ($60,197,000). A positive working capital indicates that the company can meet its short-term obligations, which reduces liquidity risk. The current ratio, at 1.04:1, further confirms this liquidity position, suggesting Amazon has just enough current assets to cover liabilities. In a competitive, fast-paced industry like e-commerce, maintaining such liquidity levels is vital for operational flexibility and financial stability (Weygandt, Kimmel, & Kieso, 2018).

Debt-to-Assets Ratio and Free Cash Flow

Amazon’s debt-to-asset ratio of approximately 96% reflects a high reliance on debt financing. While this level is high, it is typical for large tech firms that leverage debt to finance expansion and innovation. The high debt ratio implies elevated financial risk; the company’s ability to generate positive cash flow supports ongoing debt servicing. Amazon’s free cash flow for 2017, computed as $6,479,000, stems from operating cash flows minus capital expenditures. Positive free cash flow indicates that Amazon can finance growth initiatives, pay down debt, or pursue other strategic goals without needing external financing, thus maintaining a degree of solvency despite high leverage.

Application in Managerial Decision-Making

Financial statements serve as foundational tools for internal decision-making. For instance, as an aspiring owner of a childcare facility, I would utilize these statements to evaluate profitability, manage cash flows, plan expenditures, and set pricing strategies. Understanding financial health helps in making informed decisions about resource allocation, cost control, and investment opportunities. Monitoring financial metrics ensures that the business remains financially sustainable and competitive, guiding strategies that respond to operational challenges and market opportunities.

Conclusion

Analyzing Amazon’s financial statements reveals a company experiencing growth in profitability, assets, and equity, alongside manageable liquidity levels but high leverage. These insights aid stakeholders—including investors, lenders, employees, and management—in assessing financial stability, evaluating risk, and making strategic decisions. For internal business applications, such as future entrepreneurial ventures, mastery of financial statement analysis will enable proactive management and help ensure long-term success.

References

1. Brigham, E. F., & Houston, J. F. (2015). Fundamentals of Financial Management (13th ed.). Cengage Learning.
2. Healy, P. M., & Palepu, K. G. (2012). Business analysis & valuation: Using financial statements (5th ed.). Cengage Learning.
3. Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2013). Financial Accounting: Tools for Business Decision Making (7th ed.). Wiley.
4. Ross, S. A., Westerfield, R. W., & Jaffe, J. (2016). Corporate Finance (11th ed.). McGraw-Hill Education.
5. Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting (10th ed.). Wiley.