7-2 Final project 1 corporate valuation report

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Corporate Finance 330 Addriann Huie Southern New Hampshire University October 13, 2022
Amazon has become the leading powerhouse in the industry. Its branding has led the name Amazon not only to be synonymous with the longest river but synonymous with low prices, which Amazon was named after. However, Amazon was initially going to be named Cadabra and then Relentless.com, which still leads to Amazon.com if typed in. Amazon had a modest start initially; Jefferey Bezos would have meetings out of Barns & Noble, ironic for a company that started with selling books. Amazon was founded in 1994 by Jeff Bezos. His company is based in America, and when he initially started, he ran it out of his garage in Seattle, Washington. Amazon is an e-commerce business based on the internet. The main items Amazon was selling were books when it was founded. Present-day Amazon is selling a plethora of products. From houseware, clothing, shoes, food, and numerous other categories, Amazon is a prominent brand that has found its target market with same-day or two-day delivery. This business model is helping amazon to beat out its other competitors. As Amazon continues to push into other markets, they have been into the tech industry with their Kindle Fire, Amazon Fire Stick, and Blink. Amazon has learned how to diversify the company into an all-around business versus just an eCommerce business. By keeping its 300 million active users engaged in its platform, it can connect them to its newest technology. Amazon can take more market share as it continues to beat its competitors' prices. With similar items for less cost and quicker shipping. As of June 2022, Amazon takes up 37.8% of the market, making it the leading competitor. Walmart (6.3%), Apple (3.9), eBay (3.5%), and Target (2.1%), to name a few, are Amazon's competitors. Amazon can convert its market share to $1,400 per user per year. And
$600 per non-prime member. This spending is helping Amazon to keep its market share even with outstanding competitors they are up against. Amazon's mission is to "serve consumers through online and physical stores and focus on selection, price, and convenience." Amazon's customers enjoy the benefits of this. Having 24 hours of online shopping allows their base customers to continuously shop when brick and motors stores are closed for the night. Along with this, Amazon's same-day and two-day shipping have helped its customer base stay loyal and motivate them to continue to come back. Amazon is continuing to be the number one seller of eCommerce over Walmart year over year. What motivates Amazon's customers is the convenience of getting items they can't find around their local area or not wanting to spend time searching for them. Giving back the customer their freedom as amazon closes delivery gaps that other companies have yet to be able to keep up with. From the company's onset, Amazon's founder has pushed the company's workers to the max. This is shown when the company was first founded when the workers would be pushed to work over sixty hours a week. Amazon's overworked mentality has caused a poor workplace environment and many workplace accidents. This is one major problem for the company. Amazon uses many variations to create its products and services. Firstly, Amazon has been acquiring land to build multi-story warehouses. It costs the business billions of dollars in the acquisition of land. As Amazon continues to grow, they are using entrepreneurs as their last mile to deliver packages. This is helping the company to displace using the US post office. As Amazon restructures, they are running into a big issue with labor. Amazon's retention rate warehouses turnover rate is " roughly 72%, while counties that are home to Amazon
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warehouses see an average turnover of 117%—causing them to have issues finding adequate personnel. Amazon utilizes labor, entrepreneurship, and land acquisition to help structure the company. Even though this has been helping the company to gain headwind, they have been having issues within. Using their capital has helped them stay ahead. However, Amazon is in a limbo situation. With labor and the amount spent on land when they run out of labor in Arizona by the end of the area. Capital structure is the "particular debt and equity that makes up the finances of a company." This is also known as debt to capital ratio or debt to equity. Knowing this will help us understand how amazon or other companies finances its companies' operations or take on acquisitions of other companies as they grow. This is done by using a method called Weighted average cost of capital (WACC). As we continue in this series, we will talk about the capital structure and valuation of Amazon. In this evaluation, we will examine Amazon's debt, equity, and total capital structure. Amazon has always dominated its market. From its inception twenty-seven years ago, Amazon has not paid a dividend. As stated by Amazon, "We have never declared or paid cash dividends on our common stock" (Amazon, 2022). As amazon continues to grow, they continue to return those funds to build the company and not pay shareholder cash from their earnings. However, this has not hurt their investors because the stock has always returned higher than 25% returns. Amazon has always been considered a growth stock but has sometimes hit some
uncharted waters. Total Liabilities 282,304,000, Total shareholders’ equity 138,245,000, and Total capital or Assets 420,549,000. AMZN's total current liabilities are 142,266,000. This includes deferred revenue, taxes payable, and payroll. Amazon's total non-current liabilities can include loans, bonds, deferred taxes, leases, and other obligations. Amazon's retained earnings for this quarter is 85,915,000, which is positive. Nothing that the company is earning the adequate amount of income to pay those liabilities. Looking at the past and present (Amazon announced that they are going to buy back over ten billion shares) in the past, they have bought back 2.12 billion.
As we look at Amazon's cost of capital and capital structure, we need to assess how they all blend for the company. Looking back to 2020, amazon has significantly and aggressively increased the expansion of their warehouse space, trucks, including EV, hiring etc... as demand pushed during the pandemic. As Amazon continues to grow, they also continue to get a high number of complaints from staff. Leading to the question of how amazon will make its workplace safer. This has helped maximize the corporation's value as they return the cash to the company. By financing the company with debt and equity (Durand approach), the company pays less for debt, and in return, the investors are not turned off by the debt and equity approach. As the company increases its debt, they also become more valuable. As the cost of capital is reduced, it will increase the price of the company's shares. Lastly, let us look at Amazon's Co valuation. Amazon's revenue has increased (Current yr. 469,822,000, Last year 386064000, year before last 280,522,000). However, the pandemic has dramatically boosted many of Amazon's businesses. Amazon has reported its first quarterly loss of 3.84 billion since 2015. This is due to one of its newer ventures with Ford Automotive with the creation of Rivian Automotive. Looking at Amazon's stock price over the year, it has fluctuated dramatically. Last year, in October, the stock price was $159, which currently sits at $113. Secondly, because Amazon has several new ventures, Blink, and Rivian, it has had some quarterly losses. Also, as the pandemic slows, Amazon's boost has slowed, meaning its revenue will also slow down. Because of this, I decided to slow its growth to 5% for future growth value. However, the following year I can try 10% because amazons net profit increase has been between 13% and 17% quarterly. As we make this projection, we can look at Amazon's previous years to help make future
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projections. Looking at the company's trend, we can see that amazon has had steady returns. Based on my assumption, I can see that Amazon's growth will slow, but it will be able to add value to the company. These valuations are used to determine if a company is worth the price of an investment and if an investor should invest in the company. Amazon's cost of debt ranges from 4% - 4.5%, its cost of equity ranges from 7.9%-10.3%, and its weighted average cost ranges from 7.6%- 9.9%. Amazon's ROIC has increased from last year to this year. Using these percentages can give an investor what they need to answer if they should invest in a company and what their ROIC will be if they were to invest. As we track Amazon's growth, we can assume that the company will continue to have ups and downs. From 2010 to 2012, Amazon had fantastic growth in each quarter. That started to decline in the next two to three years. We can see this pattern continue until 2022. However, we must consider specific governmental changes, market declines, and pandemics that are external drivers. Amazon has had remarkable growth in 2020 and regained considerable margins that it lost in the mid-2000s. Overall, Amazon has continuously had Roi that has met or exceeded its goal. Amazon's stock price has fallen considerably over the last year. It started at
184 at the year's peak and is now down to 106. If the company can continue to implement the changes in its CSR and make changes to its acquisitions, it will be able to rally back. Reference: Amazon. (2021, December 0).  UNITED STATES SECURITIES AND EXCHANGE COMMISSION . Inline XBRL Viewer. Retrieved October 2, 2022, from https://www.sec.gov/ix?doc=%2FArchives%2Fedgar%2Fdata %2F1018724%2F000101872422000005%2Famzn-20211231.htm  Essex, R. (2022, May 10).  Onetime EV Darling Rivian hit by report of Ford Stock Sale, Georgia governor's race fight . USA Today. Retrieved October 2, 2022, from https://www.usatoday.com/story/money/cars/2022/05/09/rivian-amazon-ford-georgia- stocks/9704607002/  Hadero, H. (2022, April 28).  Amazon suffers rare quarterly loss as Covid pandemic-induced online shopping slows . USA Today. Retrieved October 2, 2022, from https://www.usatoday.com/story/tech/2022/04/28/amazon-earnings-loss-covid-online- shopping-slowdown/9578052002/   Chevalier, S. (2022, August 26).  Largest online retailers in the U.S. 2022 . Statista. Retrieved September 11, 2022, from https://www.statista.com/statistics/274255/market-share-of-the- leading-retailers-in-us-e-commerce/  Downie, R. (2022, July 18).  The biggest risks of investing in Amazon Stock . Investopedia. Retrieved September 11, 2022, from https://www.investopedia.com/articles/markets/100215/biggest-risks-investing-amazon- stock.asp   Essex, R. (2022, May 10).  Onetime EV Darling Rivian hit by report of Ford Stock Sale, Georgia governor's race fight . USA Today. Retrieved October 2, 2022, from https://www.usatoday.com/story/money/cars/2022/05/09/rivian-amazon-ford-georgia- stocks/9704607002/2F000101872422000005%2Famzn-20211231.htmn
Hadero, H. (2022, April 28).  Amazon suffers rare quarterly loss as Covid pandemic-induced online shopping slows . USA Today. Retrieved October 2, 2022, from https://www.usatoday.com/story/tech/2022/04/28/amazon-earnings-loss-covid-online- shopping-slowdown/9578052002/   Soper, S., & Wong, N. (2022, June 13).  Amazon (AMZN) builds property empire for warehouses despite slowing sales growth . Bloomberg.com. Retrieved October 15, 2022, from https://www.bloomberg.com/news/features/2022-06-13/amazon-builds-property-empire- for-warehouses-even-as-online-sales-growth-slows?leadSource=uverify+wall  Southern New Hampshire University . Megent Online Amazon. (n.d.). Retrieved September 12, 2022, from http://www.mergentonline.com.ezproxy.snhu.edu/basicsearch.php  Young, L. (2022, July 28).  Amazon's plans for massive warehouses go forward Amid Logistics Review . The Wall Street Journal. Retrieved October 2, 2022, from https://www.wsj.com/articles/amazons-plans-for-massive-warehouses-go-forward-amid- logisticsChang, D. (2022, July 13).  The average Amazon prime member spends $1,400 a year on the site. how do you compare? USA Today. Retrieved September 11, 2022, from https://www.usatoday.com/story/money/shopping/2022/07/13/amazon-prime-member- average-spending/50481169/ 
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