Amazon Case Study: Historical Financial Analysis (Case Study Sample)

Amazon Case Study: Historical Financial Analysis
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Amazon Case Study: Historical Financial Analysis
Horizontal and Vertical Analysis
The horizontal analysis of the statement of cash flows indicates that Amazon's cash and cash equivalents have been increasing for the period under consideration. The increase is attributable to the rise in net income, which increased by 15.04% from 2018 to 2019 and rose by 84.08% in 2020. Thus, the net cash provided by operating activities has grown by 25.36% and 71.53% from 2018 to 2020. However, the net money spent in the investing activities also rose by 96.31% and then by 145.50% from 2018 to 2020, indicating that the firm has conducted numerous investing activities. Similarly, the financing activities increased by 30.97% from 2018 to 2019 but reduced by 89% to 2020. The vertical analysis of the cash flow indicates that the firm's main cash flow component is from its operating activities.
The horizontal analysis of the statement of operations suggests that the sales revenues have increased by 20.45% in 2019 and 37.62% in 2020. However, some expenses have also increased, resulting in the total operating expenses by 20.64% in 2019 and 36.54% in 2020. Despite the increase in costs, the firm's operating income rose by 17% in 2019 and 57.48% in 2019 (Amazon, 2020). The vertical analysis in Appendix 4 reveals the relations between the sales and the income statement items. The expenses have remained stable relative to sales generated. Most of the sales go to operating expenses which account for over 94% of revenues. Further, the firm's net income as a proportion of sales has increased from 4.33% to 5.53% from 2018 to 2020.
The consolidated balance sheet in Appendix 5 indicates that most asset items have increased in value over the period. For instance, the current assets increased by 28.27% in 2019 and by 37.78% in 2020. The long-term liabilities decreased in 2019 by 30.70% but later rose by 39.82% in 2020. The retained earnings have also increased by 59.08% and by 68.32% as the firm has not paid a dividend over the period. The increase in retained earnings has increased the stockholder's equity and the total equity and liabilities. As a proportion of total assets, the current assets have reduced from 46.17% in 2018 to 41.32 in 2020 (Appendix 6). The decline is due to reduced cash and cash equivalents, inventories, and accounts receivable as a proportion of total assets.
Similarly, the firm holds more current liabilities than long-term liabilities. However, the proportion of current liabilities has reduced slightly from 42.05% in 2018 to 39.35% in 2020. The stockholder's equity, contrastingly, has increased from 26.77% to 29.08% of total assets.
Financial Ratios
Profitability Analysis
The Gross Profit Margin (GPM) indicates what the firm leaves behind after deducting the cost of sales (Thompson et al., 2020). For instance, Amazon GPM has reduced from 40.25% to 39.57%, indicating that in 2020, the firm left behind 40 cents for every dollar of sales made. It left more than Walmart, which retained 25 cents, and the industry remained with 31 cents for a dollar of sales. It also infers that the firm is more profitable than its competitors. The Operating Profit Margin (OPM) follows up on GPM and determines what the firm remains with after deducting the operating costs (Thompson et al., 2020). Amazon's OPM has increased from 5.33% to 5.93%, suggesting that it has reduced the operational costs relative to sales. It also shows that the firm remains with 5.33 cents for every dollar of revenue, almost the same as Walmart's 5 cents. The firms have higher OPM than the industry, which remains with four cents on average.
The net profit margin indicates the amount that a firm remains with after deducting all expenses and costs of sales (Thompson et al., 2020). Amazon's net margin has increased from 4.33% to 5.53%, indicating that it has reduced its expenses relative to sales. The firm retained 5.53 cents for every dollar of sales while Walmart and the industry retained 2.40 cents and 2.5 cents, respectively. The Return on Assets (ROA) indicates the firm's use of assets in generating profits. Amazon's ROA reduced from 6.91% to 6.64%, meaning that its efficiency in using assets to generate returns has improved. In 2018, a dollar invested in assets yielded 6.19 cents, while in 2020, the same dollar yielded 6.64 cents. The ratio is also higher than Walmart's 5.50 cents and