Financial Statements

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Financial Statements

University of Phoenix, School of Business Accounting

ACC/561

Introduction

This is a compilation of the Income Statement, Statement of Shareholders’ Equity, Balance Sheet, and Statement of Cash Flows regarding a publicly traded, U.S. Corporation in which I am familiar with. I was tasked with researching the company and providing an examinations of the above financial statements. The compiled messages below are examples provided from the course textbook along with other outside sources describing each.

Net Income of Amazon

2018 was a busy, profitable year for Amazon.com Inc. E-retailing’s leader generated

$141.92 billion in product sales in 2018, up 19.7% from $118.57 billion in 2017. Product sales in the fourth-quarter holiday period accounted for 31.5% of 2018 product sales, coming in at

$44.70 billion, up 8.2% from Q4 2017. Product sales account for goods sold by Amazon and exclude revenue from service sales, such as Amazon’s computer power business (AWS) and commissions paid by Amazon marketplace sellers. The number of units of goods sold worldwide, by Amazon and by marketplace sellers, during the quarter increased 14%.

Amazon’s revenue across all business segments totaled $232.89 billion in 2018, up 30.9% from $177.87 billion in 2017. Amazon’s net income was $10.07 billion, up 232.3% from

$3.03 billion in 2017, with Amazon deriving about half of its operating income from AWS and half from its North American segment. International operations continue to lose money. (Enright, 2019)

In general, earnings is important because it has information about future earnings which then contains information about future cash flows and these future cash flows are used to value the firm. In case of Amazon, it is a great growth company that has to keep raising equity to finance its growth. So investors should be more concerned about growth rather than earnings. I don’t think you will see earnings accumulation until Bezos thinks he has dominated the whole retail area. Until then investment is going to continue and not much will be left for shareholders. (Quora, 2014) Amazon.com Inc.’s Total Stockholders’ Equity for the quarter that ended in Dec. 2018 was $43,549 Mil.

Total Stockholders’ Equity is used to calculate Book Value per Share.Amazon.com Inc.’s Book Value per Share for the quarter that ended in Dec. 2018 is

Book Value per Share

= (Total Stockholders’ Equity

– Preferred Stock)

/ Shares Outstanding (EOP)

= (43549- 0)/ 491.00

= 88.69

The ratio of a company’s debt over equity can be used to measure how leveraged this company is.

Amazon.com Inc.’s Debt-to-Equity for the quarter that ended in Dec. 2018 is

Debt-to-= Total Debt/

Equity

Total Stockholders’ Equity

(Current Portion of

Long-Term Debt & Capital

Total

= Long-Term Debt+ Lease Obligation)/

Stockholders’ Equity

= (0+ 39787)/ 43549

= 0.91

Corporate financial statements are useful to labor unions and other employee representatives because they provide important information that may be used in salary or employment benefit discussions with top management. Labor representatives typically evaluate corporate profitability, expense levels and business trends by appraising data included in financial statements and subsidiary reports. (Codjia, 2017)

Assets of Amazon

Assets are resources controlled by the company as a result of past events and from which future economic benefits are expected to flow to the entity. The graph below is a summary overview of Amazon’s consolidated statement within five years, including Assets:

https://www.coursehero.com/file/39718974/Financial-Statementspdf/

Businesses often rely on loans or credit accounts to launch or expand. When you apply for credit, the lender typically wants to take a look at your financial records. In reviewing your credit-worthiness, the bank typically looks at your assets. In particular, creditors want to see that you have enough to provide financial stability when you take on new debt obligations. Several common liquidity ratios are used to compare assets and debts. (Kokemuller, n.d.)

Return on assets is calculated as Net Income divided by its Total Assets. Amazon.com Inc.’s annualized Net Income for the quarter that ended in Dec. 2018 was $12,108 Mil.

mazon.com Inc.’s Total Assets for the quarter that ended in Dec. 2018 was $153,172 Mil. Therefore, Amazon.com Inc.’s annualized return on assets (ROA) for the quarter that ended in Dec. 2018 was 7.90%. (GuruFocus, 2018)

Amazon.com Inc.’s annualized Return on Assets (ROA) for the fiscal year that ended in Dec. 2018 is calculated as:

RO= Net Income (A: Dec. A2018)

/ ( (Total Assets (A: Dec. 2017)

+ Total Assets (A: Dec./ 2 2018)))

= 10073/ ( (131310+ 162648)/ 2

)

= 10073/ 146979

= 6.85 %

Amazon.com Inc.’s annualized Return on Assets (ROA) for the quarter that ended in Dec. 2018 is calculated as:

RO= Net Income (Q: Dec. A2018 )

/ ( (Total Assets (Q: Sep. 2018 )

+ Total Assets (Q: Dec./ 2 2018 )))

= 12108/ ( (143695+ 162648)/ 2

)

= 12108/ 153171.5

= 7.90 %

Working Capital is measure of company efficiency and operating liquidity. The working capital is usually calculated by subtracting Current Liabilities from Current Assets. It is important indicator of the firm ability to continue its normal operations without additional debt obligations. The graph below is Amazon’s working capital based on a 5 year period:

Amazon.com Inc.’s current ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level:

Current and historical debt to equity ratio values for Amazon (AMZN) over the last 10 years. The debt/equity ratio can be defined as a measure of a company’s financial leverage calculated by dividing its long-term debt by stockholders’ equity. Amazon debt/equity for the three months ending December 31, 2018 was 0.54. (Macro Trends, n.d.) Amazon.com Inc.’s total free cash flow for the months ended in Dec. 2018 was $12,743 Mil. Its total free cash flow for the trailing twelve months (TTM) ended in Dec. 2018 was $17,296 Mil. During the past 12 months, the average Free Cash Flow per Share Growth Rate of Amazon.com Inc. was 166.10% per year. During the past 3 years, the average Free Cash Flow per Share Growth Rate was 31.10% per year. During the past 5 years, the average Free Cash Flow per Share Growth Rate was 49.00% per year. (GuruFocus, 2018)

Amazon.com Inc.’s Free Cash Flow for the fiscal year that ended in Dec. 2018 is calculated as:

Free Cash Flow (A: Dec. 2018)=Cash Flow from Operations+Capital Expenditure

= 30723 + -13427
= 17,296  

Amazon.com Inc.’s Free Cash Flow for the quarter that ended in Dec. 2018 is calculated

as:

Free Cash Flow (Q: Dec. 2018)=Cash Flow from Operations+Capital Expenditure

= 16477 + -3734
= 12,743  

Free Cash Flow for the trailing twelve months (TTM) ended in Dec. 2018 was -4889 (Mar. 2018) + 4206 (Jun. 2018) + 5236 (Sep. 2018) + 12743 (Dec. 2018) = $17,296 Mil.

Conclusion

In conclusion, familiarity with the basic types of financial statements and the ability to interpret the numbers behind them are essential to sound business decision-making. Financial statements are important reports. They show how a business is doing and are very useful internally for a company’s stockholders and to its board of directors, its managers and some employees, including labor unions. Externally, they are important to prospective investors, to government agencies responsible for taxing and regulating, to lenders such as banks and credit rating agencies, and to investment analysts and stockbrokers. They are especially useful to managers, investors and creditors. (Quyen, 2011)

References

Codjia, M. (2017, September 26). Why Are Financial Statements Important to Labor Unions? Retrieved from BizFluent: https://bizfluent.com/about-6626115-financial-statements- important-labor-unions-.html

Enright, A. (2019, January 31). Amazon’s product sales climb nearly 20% in 2018, but only 8% in Q4. Retrieved from Digital Commerce: https://www.digitalcommerce360.com/article/amazon-sales/

GuruFocus. (2018). Amazon.com Inc (NAS:AMZN) ROA %. Retrieved from GuruFocus: https://www.gurufocus.com/term/ROA/AMZN/ROA/Amazon.com%2BInc

Kokemuller, N. (n.d.). Why Creditors Are Interested in the Total Assets of a Company. Retrieved from Chron: https://smallbusiness.chron.com/creditors-interested-total-assets-company- 78242.html

Macro Trends. (n.d.). Amazon Debt to Equity Ratio 2006-2018. Retrieved from Macro Trends: https://www.macrotrends.net/stocks/charts/AMZN/amazon/debt-equity-ratio

Quora. (2014, July 25). Retrieved from Quora: https://www.quora.com/Why-is-net-income-so- important-to-investors-of-Amazon-AMZN-when-we-know-that-investors-are-not-going- to-get-any-dividends-and-corporate-income-will-be-taxed

Quyen, D. T. (2011, June 26). Importance of Financial Statements to Managers, Investors and Creditors. Retrieved from Bartleby: https://www.bartleby.com/essay/Importance-of- Financial-Statements-to-Managers-Investors-PKAWTSXH3U4Y




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