Introduction
Ratio analysis is functional for quantitative analysis of a company’s financial health. It enables investors, managers, decision-makers, and other stakeholders to compare the financial performance of several companies in terms of value, profitability, liquidity, efficiency, and leverage (Tietz & Braun, 2018). This paper focuses on the analysis of Amazon Corporation’s financial ratios from 2020 through 2022 using data from Yahoo Finance (2023). Additionally, the paper analyzes the company’s financial performance against industry averages taken from CSI Market (2023).
Financial Performance Analysis
Amazon.com Inc. is a world-famous company operating in the e-commerce industry. While the company also manufactures consumer electronics and provides a wide variety of services, this paper assumes that the company operates in e-commerce for comparison. Amazon’s performance was analyzed in terms of Net Profit Margin (for profitability), quick ratio (for liquidity), asset turnover (for efficiency), long-term solvency (for debt-to-equity ratio), and price-to-earnings (P/E ratio for stock valuation. The results of the analysis are provided in Table 1 below.
Table 1. Financial ratio analysis
Note: Ratios calculated by the author using data from Yahoo Finance (2023). Industry averages are taken from CSI Market (2023).
The analysis of the quick ratio demonstrated that the company’s liquidity in 2022 decreased by 21 %, dropping from 0.91 in 2021 to 0.72 in 2022. However, the drop was in line with current industry trends. Moreover, it should be mentioned that the company’s quick ratio in 2022 was significantly higher than the industry average of 0.43. Thus, it may be concluded that Amazon’s liquidity performance was favorable.
The company’s profitability in 2022, however, was significantly lower than the industry average of 2.47%. Moreover, the company’s profitability in 2022 dropped significantly from 5.53% in 2020 and 7.1% in 2021 to -0.53% in 2022. Thus, the company’s profitability performance was unfavorable due to negative net profits.
Amazon’s asset use efficiency in 2022 aligned with its previous performance and the industry average. The company’s asset turnover decreased by 7.5% in 2022 compared to 2020 and only by 1% in 2021. At the same time, even though the industry’s average turnover ratio in 2022 was higher than that of Amazon’s (1.19), the difference was around 7%. Thus, although Amazon’s asset use efficiency was below its previous performance and the industry average, the difference was minor.
The company’s leverage was in line with previous years. Amazon’s debt-to-equity ratio in 2022 (2.17) decreased by 11% compared with 2020 (2.44) and increased by 6% compared with 2021 (2.04). At the same time, the company was overleveraged compared with the industry average of 0.44. However, it should be noted that the company’s position in terms of leverage was stable.
Finally, the company’s valuation measured using the P/E ratio demonstrated that, in 2022, the company had a negative P/E ratio, which demonstrated a significant decline in comparison with previous years (-3.39). This was explained by the share split conducted in 2022 and negative profits (Finance Yahoo, 2023). Additionally, the company’s P/E ratio was unfavorable compared to the industry average of 249.76.
Conclusion
The analysis provided in this paper demonstrates that Amazon’s financial performance in 2022 was controversial. On the one hand, the company demonstrated high liquidity and average efficiency. On the other hand, the company underperformed in valuation and profitability. At the same time, Amazon’s financial leverage performance was stable.
References
CSI Market. (2023). Internet, Mail Order & Online Shops Industry Financial Strength Information. Web.
Tietz, W. M., & Braun, K. W. (2018). Managerial Accounting. United Kingdom: Pearson Education.
Yahoo Finance. (2023). Amazon.com, Inc. Web.