Running head: AMAZON FINANCIAL REPORT

Financial Report: Amazon

Southern New Hampshire University

AMAZON FINANCIAL REPORT 2

Memo: Financial Report

TO: President

FROM: Controller

SUBJECT: Amazon Financial Health

DATE: 5/11/2018

Financial Report: Amazon

This memo is assessing the performance ratios of Amazon as well as comparing with

Alibaba’s financial performance. Amazon (AMZN) is a one of the largest online store. Amazon

is an online retail shopping services. It provides services to customers, sellers, enterprises, and

content creators. Alibaba (BABA) is another large e-commerce based in Chian. Just like

Amazon, Alibaba complemented by cloud services, digital entertainment, and media .

The five measurement categories to assess the financial ratios are profitability, balance

sheet, growth, cash flow, and performance.

The Comparison of Performance Ratios of Amazon and Alibaba.

Performance Ratios 2017

Amazon Alibaba
Profitability

Net margin 73.87% 62.46%

Return on equity 0.11 0.15

Balance sheet

Current ratio 1.04 1.93

Debt to equity ratio 3.74 0.56

AMAZON FINANCIAL REPORT 3

Growth

EPS Growth Rate 26.15% -43.04%

% Change in Sale 0.31 0.48

Cash flow

Cash flow return on 2.8% 8.82%

Asset (ROA)

Cash flow to sales 10.36% 50.77%

Performance ratios

Receivables turnover 16.54 9.15

Total asset turnover 1.35 0.32

Based on the analysis of the performance ratios, Amazon has less financially stable

business compare to Alibaba. Amazon has a slightly higher a debt to equity ratio than Alibaba. It

means Amazon is more risky to creditors and investors than Alibaba. Amazon is not doing so

well under the cash flow performance ratio. Amazon’s ROA is lower than Alibaba. Amazon has a

hard time to manage its assets to generate net income. In the growth performance ratio,

Amazon’s EPS growth rate is higher that means Amazon’s products and services has a strong

demand than Alibaba. Alibaba has ability to generate cash flow in proportion to its sales compare

to Amazon. Amazon has a higher receivables turnover that means Amazon be able to collect cash

from customers faster. Amazon also has a high number in total asset turnover, which means

Amazon is using its assets more efficiently.

Recommendation

Overall Amazon is doing well so far, but there is some area Amazon needs to improve

such as cash flow ratio. It is recommendable to the CEO to improve cash flow ratio by take a
AMAZON FINANCIAL REPORT 4

closer look for sales both individual line products and products as a whole. Amazon should

reduce asset costs and expenses to improve the cash flow return on asset ratio. The percentage

cash flow to sale is very low. Management should take a closer look of actual cash flows to be

expected from operations. Controller can improve this ratio by moving some debt into operating

leases, which are not recorded on the balance sheet (Bragg 63).

References
AMAZON FINANCIAL REPORT 5

Bragg, Steven M. Controllership: The Work of the Managerial Accountant, 8th Edition. John

Wiley & Sons P&T, 2009-08-10. VitalBook file.

Long, G. B. (2017, August 18). Alibaba Vs. Amazon: Similarities And Differences. Retrieved

May 13, 2018, from https://seekingalpha.com/article/4100340-alibaba-vs-amazon-

similarities-differences