Financial Analysis: Amazon Inc.
The primary source of revenue for the company is the sale of wide range of products it offers on its consumer facing website. Apart from revenue earned from the sale of merchandise, the company also earns revenue from services like AWS, advertising, publishing etc.
In terms of trend in sales of the company, the same have consistently increased over the years. As the graph indicates, Amazon has been successful in increasing its revenue, courtesy, increasing online demand from its customers. With increasing time spent by adults surfing online, the sales revenue of the company has shown a steady growth. During 2010, the company recorded sales growth of 39% and since then the demand for consumer merchandise increased and so does the revenue of the company. In 2011, the increase in sales was recorded to be 40.55%. However, during 2012, the sales experienced a downfall as the growth in sales revenue was recorded only to be 27%. By the end of 2012, total sales for the company amounted to $61093.
In tandem with growth in sales figure of the company, Amazon also witnessed high gross profits year over year. Since 2009, the gross profit of the company has increased by 173% which was primarily because of continuous increase in sales revenue and marginal increase in cost of goods sold. As a result, gross profit of the company has increased consistently. During 2010 and 2011, the increase in gross profit was 38% and 41%, respectively.The trend continued during 2012 also and a 40% increase in Gross Profit was recorded. Thus, growth rate in Gross Profit of Amazon inc . has been steady which is primarily resultant of increasing sales revenue and controlled costs.
Since, Amazon is a web based company, it do not have any physical store to sell its products to the customers.
Trend in Net Income:
Unlike the trend in Gross Profits of the company, the bottom line profits of the company seems a matter of serious concern . Over the years, the Net Income of the company has been consistently reducing and by the end of 2012, it ended with the Net Loss of ($39) Million. Although, during 2010, Net Profit of the company increased by 27.71% but later during 2011, the Net Profit of the company decreased by -45.22%. Thus, the growth in the previous year was completely eroded by poor sharp decline in bottom line profits during 2011. The decrease in net profits was a result of significant increase in the operating expenses which increased by 59.16% during 2011.
The trend got worsened during 2012, when the company ended with a net financial loss of $39 Million. The negative earnings of the company was a consequent of slow increase in sales revenue and high increase in operating expenses during an year. During 2012, while the sales revenue improved only by 20%, the operating expenses of the company increased by 45.52%. The graph below is a clear indication about the decreasing net profit margins of the company which can pose serious threat to the company in the near future.
Trend in Cash Flow:
The trend in cash flows confirms of strong liquidity of Amazon Inc. During 2011, the amount of cash flow increased to $1492 Million in comparison to $333 Million cash flow during 2010. However, referring to the cash flow statement of the company, it was found that this increase was a result of net cash inflow of $586 from the sale of investments and because of high depreciation expense of $1083. The trend of increase in cash flow continued during 2012 when the cash flow amounted to 2815, recording an increase of 88.67%. Just as the previous year, the increase in cash flow was attributed to net cash inflow of $935 from sale of investments and high depreciation expense of $2159.
Analyzing the sustainability of increase in cash flow of the company, it was found that the ending cash flows increased consistently year over year with high growth rates but Cash flow from Operations of the company was on a constant growth rate. During 2011 and 2012 , Cash Flow from Operations increased by 11% and 7.10% only as against high growth rates in total cash flows. Thus, it can be concluded that the increase in cash flow of the company is not sustainable.
Amazon Inc. SEC 10-K Filing, 2011. Annual Filing. North Seattle: Amazon Inc, 2011.
Amazon Inc. SEC 10-K Filing, 2012. Annual Filing. North Seattle: Amazon Inc, 2012.