ACCOUNTING

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 book store 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 difference of $662,000 within 1 year of operation.  Net income tells investors how Amazon is deploying its assets and whether or not it is wise to invest in the company. Investors want to invest in a profitable business and changes in net income will 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 is $27,709,000 and in the previous year was $19,285,000. Labor unions are interested in the stockholders’ equity to sponsor proposals that would increase their negotiating leverage over corporate management .This leverage gives the labor union the ability to negotiate higher wages and benefits for the 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 is for 2017 was $60,197,000 and $45,781,000 in 2016. This information is important to creditors because creditors want to see that you have enough to provide financial stability when you take on new debt obligations.

Compute the return on assets. Discuss the relative profitability of the company based on your results.

Return on assets indicates the amount of net income generated by each dollar of assets. Thus, the higher the return on assets, the more profitable the company (Kimmel et. al., 2013). .

Return on assets = 5.7%

Net income, 2017 $$3,033,000

Total assets 12/31/17 $60,197,000

Total assets 12/31/16 $45,781,000

Average of total assets $ 52,989,000

Net income 3,033,000/ Average of total assets 52,989,000 = ROA 5.7%

Amazon’s return on assets is 5.7% which shows that the company is steadily growing and is proven to be profitable.

Compute the working capital and current ratio. Evaluate the relative liquidity of the company based on your results.

Working capital is when current assets exceed current liabilities, working capital is positive. When this occurs, there is a greater likelihood that the company will pay its liabilities. When working capital is negative, a company might not be able to pay short‐term creditors, and the company might ultimately be forced into bankruptcy (Kimmel et. al., 2013). . Amazons working capital is calculated as;

Working Capital: $2,314,000

Current assets: $60,197,000

Current liabilities: $57,883,000

Current assets $60,197,000 – Current liabilities $57,883,000 = $2,314,000

The current ratio measures the short‐term ability of the company to pay its maturing obligations and to meet unexpected needs for cash (Kimmel et. al., 2013). . Amazons current ratio is calculated as;

Current Ratio= 1.04:1

Current assets: $60,197,000

Current liabilities: $57,883,000

Current assets $60,197,000/ Current liabilities: $57,883,000 = Current Ratio 1.04:1

Amazon has a great overall liquidity, 2017 current ratio of 1.04:1 means that for every dollar of current liabilities, Amazon has $1.04 of current assets.

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 is one measure of solvency. It measures the percentage of total financing provided by creditors rather than stockholders. Debt financing is more risky than equity financing because debt must be repaid at specific points in time, whether the company is performing well or not. Thus, the higher the percentage of debt financing, the riskier the company (Kimmel et. al., 2013). . Amazons debt to asset ratio is calculated as;

Debt to asset = 96%

Current assets: $60,197,000

Current liabilities: $57,883,000Current liabilities $57,883,000 / Current assets $60,197,000 = 96%

Free cash flow describes the net cash provided by operating activities after adjusting for capital expenditures and dividends paid (Kimmel et. al., 2013). Amazons free cash flow is calculated as;

Free Cash Flow = Amazon does not pay cash dividends

Net Cash provided by operating activities: 18,434,000

Capital Expenditures: ($11,955,000)

Cash dividends: History not disclosed

Net Cash provided by operating activities: 18,434,000 – Capital Expenditures: ($11,955,000) – Cash dividends: = Amazon does not pay cash dividends

Long‐term creditors and stockholders are interested in a company’s solvency which is its ability to pay interest as it comes due and to repay the balance of a debt due at its maturity (Kimmel et. al., 2013). Solvency ratios measure the ability of the company to survive over a long period of time. The 2017 ratio of 96% means that every dollar of assets was financed by 96 cents of debt. The higher the ratio, the more reliant the company is on debt financing meaning that Amazons solvency appears to be low because they had a high ratio of debt to assets.

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 I would like to own and operate my own childcare center. This would make me an internal user of financial statements. Financial statements will help me answer many questions about my business to ensure its success. For internal users, accounting provides internal reports, such as financial comparisons of operating alternatives, projections of income from new campaigns, and forecasts of cash needs for the next year. I would be able to easily determine if I can give my employees pay raises, what services to continue to offer and what prices I should charge for those services. Financial statements analyzed correctly can give insight on if your business will fail or succeed.

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