Financial Accounting Module 4 Discussion of Amazon Course Hero
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Module 4 – Online Discussion of Amazon
Since I have been in this Accounting class, I now know that before I invest in a company, I will need to look at the financial statements of Amazon to see if it is worth investing in. The second thing I will do is compare Amazon with its peers like Walmart, eBay and Target to see if it is competitive or not. The third thing I am going to do is look at the industry to see the future trends
and if it is going to survive or not.
Upon examining the financial statements for Amazon over the last couple of years, I would not invest my money in Amazon’s stock. The following are my reasons. In 2021, Amazon’s stock stayed flat in price per stock at $160 to $171. In 2022, Amazon’s stock plummeted all the way from $171 to $86. Talk about a reduction in value. In 2023, Amazon’s stock has climbed from $86 up to $147 as of today. Although the pricing of stock is trending upward, there are some unique challenges that Amazon faces:
1.
Fuel Price Hikes: Amazon is the biggest eCommerce company in the world. However, one thing Amazon relies on heavily to construct its eCommerce is the delivery of goods with gas- and diesel-powered vehicles. Since the pandemic, global demand for oil decreased due to lack of travel. As a result, the countries like Saudi Arabia decreased oil production in order to control prices (Ribiero, 2022). Since the pandemic has officially been over and oil demand has rose again, the Organization of the petroleum Exporting countries (OPEC) have not increased production of oil to meet the demand. Hence, they control the market and pricing. This explains the reasoning behind the gas prices which are still at an all-time high today (Ribiero, 2022). Since Amazon’s biggest net operating income (eCommerce) heavily relies on transportation via vehicles and the operating costs due to oil pricing are not declining,
the future profits of Amazon’s eCommerce business remain in flux in terms of profitability. 2.
Goodwill and Intangible Assets: On Amazon’s balance sheet, they have $14 billion of goodwill. The net tangible assets’ equal $21 billion of which $14 billion of that is goodwill. In the accounting world, goodwill on the balance sheet is the value of the business that exceeds its total assets minus the liabilities it comes with. (Bell, 2023). It can represent value created by a particular customer base or brand recognition, etc. Amazon bought multiple technology companies for $14 billion more than their worth.
At some point Amazon feels that they will achieve the value above and beyond the $14 billion, but for now it is goodwill that they owe themselves. It is more or less a “debt”, but the good news is that if Amazon does not recoup their money, they can sell the technology companies to try to satisfy the $14 billion (Bell, 2023). Buying technology companies for $14 billion more than they’re worth while operating on razor thin profit margins seems an exceptionally risky business adventure to me. Not sure I would trust the individuals behind these decisions as a consumer.
3.
Highly Speculative Valuation: The valuation of Amazon
is shaky and risky at best. According to the last balance sheet that was reported, Amazon had liabilities of $148
Module 4 – Online Discussion of Amazon
billion due for payment within one year and $162 billion due for payment beyond a year. Offsetting the liabilities, it has cash of $64 billion and receivables of $37 billion due within one year. With these in mind, Amazon still has liabilities outweighing its receivables by $208 billion. Although Amazon has a market capitalization of $1.37 trillion, the balance sheet can change with a shift in the economy
(Wall St, 2023). If the earnings fall due to an economic shortage of goods, services or oil, the debt would/could climb and reverse Amazons course of action to take risk. Although Amazon has a low net debt to Ebitda ratio of only 0.50 (middle point of stability), its Ebit covers the interest expense 11 times over, the debt not being handled properly could send the profits down quickly. If the earnings fall, this trend could make even the most modest debt risky to the business profitability over time (Wall St, 2023). No one knows the future trends of the market. For Amazon to take some risk due to its strength in the market now, does not keep it: (In the future) from an economic crisis that will hit its balance sheet sending it into an unprofitable company.
References
Bell, C. (2023). Top 5 Reasons Why NOT to Buy Amazon (AMZN) Stock
. Chris Bell Blog. https://chrisbell.com/blog/top-5-reasons-why-not-to-buy-amazon-amzn-stock.php
Ribiero, C. (2022, March 25). 3 reasons not to buy Amazon stock right now - amazon Maven - TheStreet. https://www.thestreet.com/amazon/stock/3-reasons-not-to-buy-amazon-stock-
right-now
Wall St, S. (2023, August 1). We think Amazon.com (NASDAQ:AMZN) is taking some risk with its debt
. Yahoo! Finance. https://finance.yahoo.com/news/think-amazon-com-nasdaq-
amzn-130025468.html?
guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer
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YSeV2O4KZ52vAjw_uxTlCzKJWWYjj2NFQw_7MdPHf68PbN3HSiccejPpdpqwL-
QX4rwe-
xRwUIjDm8Lsc8p2ah3FfPCt1NSTJEBDTkpuqWAhZ76HR27o31Xu0ykuqaSO1mwbtQ
jKsUBmWsgJDPYb1I
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