Description
This is a project for the Financial Statement and Analysis class. The two companies I picked are Amazon and eBay. The attachments are instructions and my outlines.
3 attachmentsSlide 1 of 3attachment_1attachment_1attachment_2attachment_2attachment_3attachment_3
Unformatted Attachment Preview
Final Project:
The course project consists of a comparative financial statement analysis using all of the tools,
methodologies and concepts mastered during the FSA course using two publicly traded
companies (large cap and/or midcap stocks) competing in the same industry. Examples are
Home Depot and Lowes, ExxonMobil and Chevron, Pfizer and Merck, Target and Wal-Mart,
American Airlines and United Airlines, Intel and Advanced Micro Devices, Apple and Microsoft,
etc. Each project must be preapproved by the Professor no later than the third week of the
course. No project may be duplicated, i.e., once two companies are declared they are removed
from the universe. You must submit a draft of your paper by the twelfth week of the course for a
preliminary review with comments and suggestions.
The final project paper must be well organized, coherent, with a cover sheet, abstract, table of
contents, an introductory statement, statement of objective, description of companies, business
models, strategy and relevant industry, quantitative and qualitative analysis, an appendix with
exhibits, charts, footnotes, and bibliography.
The project is both historical and forward-looking and should at a minimum address the
following questions:
1) Who has been and who is the superior competitor? Why?
2) Are the companies presently valued properly and why or why not
3) What are the growth prospects for the companies and which company is a better investment
to add to an investment portfolio and why?
4) Which company has superior qualitative and quantitative accounting metrics? Why?
5) What non-accounting factors influence your prediction and decision? Why?
6) Which company exhibits superior corporate governance metrics and corporate social
responsibility and how did this influence your decision?
7) What recent activities did the companies undertake, e.g. M&A activity that influenced your
decision?
The fiscal year-end for both Amazon and eBay is on December 31.
The busiest season is on Holiday season (October, November, December)
Amazon rise up the annual membership price => should be included in the first-quarter report of
the year 2022 for both Amazon and eBay
Should show the data for the last 4-5 years to be more accurate.
Predict the move of the two companies in the future.
Amazon:
https://www.macrotrends.net/stocks/charts/AMZN/amazon/financial-ratios
https://www.wsj.com/market-data/quotes/AMZN/financials
eBay:
https://www.macrotrends.net/stocks/charts/EBAY/ebay/financial-ratios
https://www.wsj.com/market-data/quotes/EBAY/financials
6 steps to do financial statement analysis:
Identify the industry economic characteristics: First, determine a value chain analysis for the
industry—the chain of activities involved in the creation, manufacture, and distribution of the
firm’s products and/or services.
Identify company strategies: Next, look at the nature of the product/service being offered by the
firm, including the uniqueness of product, level of profit margins, creation of brand loyalty and
control of costs. Additionally, factors such as supply chain integration, geographic diversification
and industry diversification should be considered.
Assess the quality of the firm’s financial statements: Review the key financial statements within
the context of the relevant accounting standards. In examining balance sheet accounts, issues
such as recognition, valuation and classification are keys to proper evaluation. The main
question should be whether this balance sheet is a complete representation of the firm’s
economic position. When evaluating the income statement, the main point is to properly assess
the quality of earnings as a complete representation of the firm’s economic performance.
Evaluation of the statement of cash flows helps in understanding the impact of the firm’s liquidity
position from its operations, investments, and financial activities over the period—in essence,
where funds came from, where they went, and how the overall liquidity of the firm was affected.
Analyze current profitability and risk: This is the step where financial professionals can really
add value in the evaluation of the firm and its financial statements. The most common analysis
tools are key financial statement ratios relating to liquidity, asset management, profitability, debt
management/coverage, and risk/market valuation. With respect to profitability, there are two
broad questions to be asked: how profitable are the operations of the firm relative to its assets—
independent of how the firm finances those assets—and how profitable is the firm from the
perspective of the equity shareholders. It is also important to learn how to disaggregate return
measures into primary impact factors. Lastly, it is critical to analyze any financial statement
ratios in a comparative manner, looking at the current ratios in relation to those from earlier
periods or relative to other firms or industry averages.
Prepare forecasted financial statements: Although often challenging, financial professionals
must make reasonable assumptions about the future of the firm (and its industry) and determine
how these assumptions will impact both the cash flows and the funding. This often takes the
form of Pro-forma financial statements, based on techniques such as the percent of sales
approach.
Value the firm: While there are many valuation approaches, the most common is a type of
discounted cash flow methodology. These cash flows could be in the form of projected
dividends or more detailed techniques such as free cash flows to either the equity holders or on
enterprise basis. Other approaches may include using relative valuation or accounting-based
measures such as economic value added.
1
Final Project: Financial Statement Analysis of Amazon and eBay
Thao Thi Thanh Nguyen
Northeastern University – College of Professional Studies
Professor Sven Olson
Financial Statement Analysis – ACC4320
05/01/2022
2
i. Abstract
This project presents a comprehensive financial analysis of Amazon.com and eBay. The
analysis entails; company evaluation, financial statements evaluation, comparative analysis,
profitability and risk analysis, industry analysis, forecasted financial statements, the future,
the current valuation of the companies, and the future direction of the firms.
ii. Table of Contents
A. Introduction
1. Amazon.com
a. Description of company
•
An American multinational technology corporation that focuses on digital streaming,
cloud computing, e-commerce, and artificial intelligence. Amazon.com is one of the
world’s most recognized brands and is rated as one of the most influential cultural and
economic forces in the world
b. Business model: Based on three value propositions:
•
Low price
•
Fast delivery
•
A wide selection of products and services.
c. Products and services
•
Products include retail products; Amazon sells everything in a literal sense. These
include: Consumer electronics; Apparel; Baby products; Books (both digital and
physical); Gourmet food; Personal care and health items; Groceries; Kitchen items;
Industrial supplies; Accessories; Musical instruments
•
Services (Amazon Web Services) include data storage, servers, networking, email,
remote computing, security, and mobile development.
d. Strategy
3
•
Aggressive focus on customer satisfaction.
•
Thin profit margins
•
High economies of scale
•
Diversification
e. Relevant industry
•
Online retail industry
2. eBay
a. Description of company:
•
A multinational e-commerce corporation that facilitates both B2C and B2B through
its international and local websites
b. Business model
•
Auctioning of products
•
Drop-shipping
•
Retail arbitrates
•
Reselling
•
Wholesaling
•
Liquidation
•
Deep niche
c. Products and services
•
Products: Retail products ranging from consumer to industrial goods
•
Services include:
✓ The eBay marketplace
✓ Branding solutions
✓ Advertising services
4
d. Strategy
•
Cost leadership
e. Relevant industry
•
Online retail industry
B. Financial statement analysis for both companies (The fiscal year ended December
31st). For more accuracy, the data for the last 4-5 years will be analyzed.
1. Analysis of the quality of financial statements for each company:
•
Balance sheet: A financial statement that shows the financial position of a company at
a given point in time. The balance sheet analyzes the assets, liabilities, and
shareholder’s equity (capital). This information will help analyze the companies’
ability to pay short-term obligations long-term debts and make distributions to
shareholders (owners).
•
Income statements: This document shows a company’s revenues, expenditures, and
income, hence, indicating whether the company is making profits or incurring losses
for a given fiscal period. Therefore, it is a strong indicator of a company’s financial
strength.
•
Cash flow statements: This is a financial statement that provides a summary of the
cash (and its equivalents) that enter (cash inflows) and leaves (cash outflows) a
company. The cash flow statement evaluates how well a company generates cash and
manages its financial position. Lastly, this statement strongly complements the
income statement and the balance sheet.
•
Statement of shareholder’s equity: This financial statement details the changes within
the equity section of the balance sheet over a given financial period. Therefore, it
provides investors with additional information regarding capital-related activities
during a reporting period.
5
2. Analysis of current profitability and risk through financial ratios;
2a). Profitability ratios; These ratios are used to assess a company’s ability to generate
earnings against its revenue, costs, assets, and shareholder equity over a given financial
period. For both companies, the following profitability ratios will be analyzed:
•
Gross profit margin
•
Net profit margin
•
Return on assets
•
Return on equity
2b). Liquidity ratios: These ratios determine a company’s ability to pay current debt
obligations with current assets without necessarily needing additional funding or raising
external capital. The liquidity ratios to be analyzed for both companies will include:
•
Current ratio
•
Quick ratio
•
Cash ratio
•
Net working capital
2c) Management efficiency ratios/ Asset utilization ratios: These ratios evaluate the
efficiency of a company is using its available assets to make revenues and profits. The ratio
analysis for this sub-section will include:
•
Inventory turnover
•
Total asset turnover
•
Average collection period
2d) Long-term debt-paying ability ratios/ leverage ratios: These ratios evaluate the
organization’s ability to meet long-term obligations. Moreover, they give investors a picture
of how a company uses its operating expenses and how any changes might affect the
operating income. The ratios to be analyzed for both companies will include:
6
•
Debt ratio
•
Debt to Equity ratio
•
Interest coverage ratio
2e). Market ratios: These ratios evaluate a company’s current market share price of the
stock. They are useful to prospective investors to analyze the risk of buying shares.
Moreover, they show whether the company’s stock is underpriced or overpriced.
•
Price/Earnings ratio
•
Dividend payout
•
Earnings per share
3. Comparative analysis of the financial ratios
•
Amazon.com’s financial ratios
•
eBay’s financial ratios
4. Comparison of the ratios with average industry ratios.
•
Financial ratios within the online retail industry.
C. Comparative Analysis: Determining the superior company.
•
The superior competitor. Which company has superior quantitative and qualitative
accounting metrics?
•
Non-accounting factors which determine the superiority of the competitor.
•
The company that exhibits superior corporate governance metrics.
•
The company that exhibits superior corporate social responsibility (CSR) metrics
•
Recent activities undertaken by each company
•
Growth prospects of each company
D. Industry Analysis
1. Industry economic activities:
7
The industry’s value chain analysis for the following activities concerning products and
services for both firms:
•
Planning
•
Creation
•
Manufacture
•
Distribution
•
Returns
2. Competitive forces analysis:
Porter’s five forces analysis will be used to conduct the competitive forces within the online
retail industry. The five elements in this analysis model include:
•
The bargaining power of customers.
•
The bargaining power of suppliers.
•
The potential of new entrants into the industry.
•
The threat of substitute products.
•
The competition in the industry.
E. Forecasted financial statements for the next fiscal year:
Financial forecasting entails the process of predicting or estimating how a business will
perform (financially) in the future. Financial forecasting is important because it allows
managers to have valuable insights into the feasibility of future goals and strategies.
Additionally, financial forecasts enable managers to compare the firm’s past and future
performance, hence determining the entire trajectory of the business.
In this project, Amazon.com and eBay’s financial forecasts will be prepared in the form of
the following financial statements:
•
Proforma income statement
•
Proforma balance sheet
8
•
Proforma cash flow statements
F. Valuation of the firms; Amazon and eBay
•
Discounted cash flow methodology
This technique is used to evaluate the value of future investments based on estimated future
cash flows. The methodology attempts to find out the current value of an investment based on
the projections of how much cash will be generated in the future. Therefore, the discounted
cash flow will evaluate the firms’ value of future investments.
G. Conclusion
H. References
https://www.businessnewsdaily.com/5446-porters-five-forces.html
https://www.investopedia.com/terms/p/porter.asp
https://www.investopedia.com/terms/d/dcf.asp#:~:text=Discounted%20cash%20flow%20(D
CF)%20is,will%20generate%20in%20the%20future.
https://bench.co/blog/accounting/pro-forma-financial-statements/
https://www.investopedia.com/terms/p/proforma.asp
Amazon:
https://www.macrotrends.net/stocks/charts/AMZN/amazon/financial-ratios
https://www.wsj.com/market-data/quotes/AMZN/financials
eBay:
https://www.macrotrends.net/stocks/charts/EBAY/ebay/financial-ratios
https://www.wsj.com/market-data/quotes/EBAY/financials
I. Appendix
Amazon
9
•
Balance sheet
•
Income statement
•
Cashflow statement
•
Statement of shareholder’s equity
eBay
•
Balance sheet
•
Income statement
•
Cashflow statement
•
Statement of shareholder’s equity
1
Final Project: Financial Statement Analysis of Amazon and eBay
Name
School
Professor
Financial Statement Analysis – ACC4320
Date
2
i. Abstract
This project presents a comprehensive financial analysis of Amazon.com and eBay. The
analysis entails; company evaluation, financial statements evaluation, comparative analysis,
profitability and risk analysis, industry analysis, forecasted financial statements, the future,
the current valuation of the companies, and the future direction of the firms.
ii. Table of Contents
A. Introduction
1. Amazon.com
a. Description of company
•
An American multinational technology corporation that focuses on digital streaming,
cloud computing, e-commerce, and artificial intelligence. Amazon.com is one of the
world’s most recognized brands and is rated as one of the most influential cultural and
economic forces in the world
b. Business model: Based on three value propositions:
•
Low price
•
Fast delivery
•
A wide selection of products and services.
c. Products and services
•
Products include retail products; Amazon sells everything in a literal sense. These
include: Consumer electronics; Apparel; Baby products; Books (both digital and
physical); Gourmet food; Personal care and health items; Groceries; Kitchen items;
Industrial supplies; Accessories; Musical instruments
•
Services (Amazon Web Services) include data storage, servers, networking, email,
remote computing, security, and mobile development.
d. Strategy
3
•
Aggressive focus on customer satisfaction.
•
Thin profit margins
•
High economies of scale
•
Diversification
e. Relevant industry
•
Online retail industry
2. eBay
a. Description of company:
•
A multinational e-commerce corporation that facilitates both B2C and B2B through
its international and local websites
b. Business model
•
Auctioning of products
•
Drop-shipping
•
Retail arbitrates
•
Reselling
•
Wholesaling
•
Liquidation
•
Deep niche
c. Products and services
•
Products: Retail products ranging from consumer to industrial goods
•
Services include:
✓ The eBay marketplace
✓ Branding solutions
✓ Advertising services
4
d. Strategy
•
Cost leadership
e. Relevant industry
•
Online retail industry
B. Financial statement analysis for both companies (The fiscal year ended December
31st). For more accuracy, the data for the last 4-5 years will be analyzed.
1. Analysis of the quality of financial statements for each company:
•
Balance sheet: A financial statement that shows the financial position of a company at
a given point in time. The balance sheet analyzes the assets, liabilities, and
shareholder’s equity (capital). This information will help analyze the companies’
ability to pay short-term obligations long-term debts and make distributions to
shareholders (owners).
•
Income statements: This document shows a company’s revenues, expenditures, and
income, hence, indicating whether the company is making profits or incurring losses
for a given fiscal period. Therefore, it is a strong indicator of a company’s financial
strength.
•
Cash flow statements: This is a financial statement that provides a summary of the
cash (and its equivalents) that enter (cash inflows) and leaves (cash outflows) a
company. The cash flow statement evaluates how well a company generates cash and
manages its financial position. Lastly, this statement strongly complements the
income statement and the balance sheet.
•
Statement of shareholder’s equity: This financial statement details the changes within
the equity section of the balance sheet over a given financial period. Therefore, it
provides investors with additional information regarding capital-related activities
during a reporting period.
5
2. Analysis of current profitability and risk through financial ratios;
2a). Profitability ratios; These ratios are used to assess a company’s ability to generate
earnings against its revenue, costs, assets, and shareholder equity over a given financial
period. For both companies, the following profitability ratios will be analyzed:
•
Gross profit margin
•
Net profit margin
•
Return on assets
•
Return on equity
2b). Liquidity ratios: These ratios determine a company’s ability to pay current debt
obligations with current assets without necessarily needing additional funding or raising
external capital. The liquidity ratios to be analyzed for both companies will include:
•
Current ratio
•
Quick ratio
•
Cash ratio
•
Net working capital
2c) Management efficiency ratios/ Asset utilization ratios: These ratios evaluate the
efficiency of a company is using its available assets to make revenues and profits. The ratio
analysis for this sub-section will include:
•
Inventory turnover
•
Total asset turnover
•
Average collection period
2d) Long-term debt-paying ability ratios/ leverage ratios: These ratios evaluate the
organization’s ability to meet long-term obligations. Moreover, they give investors a picture
of how a company uses its operating expenses and how any changes might affect the
operating income. The ratios to be analyzed for both companies will include:
6
•
Debt ratio
•
Debt to Equity ratio
•
Interest coverage ratio
2e). Market ratios: These ratios evaluate a company’s current market share price of the
stock. They are useful to prospective investors to analyze the risk of buying shares.
Moreover, they show whether the company’s stock is underpriced or overpriced.
•
Price/Earnings ratio
•
Dividend payout
•
Earnings per share
3. Comparative analysis of the financial ratios
•
Amazon.com’s financial ratios
•
eBay’s financial ratios
4. Comparison of the ratios with average industry ratios.
•
Financial ratios within the online retail industry.
C. Comparative Analysis: Determining the superior company.
•
The superior competitor. Which company has superior quantitative and qualitative
accounting metrics?
•
Non-accounting factors which determine the superiority of the competitor.
•
The company that exhibits superior corporate governance metrics.
•
The company that exhibits superior corporate social responsibility (CSR) metrics
•
Recent activities undertaken by each company
•
Growth prospects of each company
D. Industry Analysis
1. Industry economic activities:
7
The industry’s value chain analysis for the following activities concerning products and
services for both firms:
•
Planning
•
Creation
•
Manufacture
•
Distribution
•
Returns
2. Competitive forces analysis:
Porter’s five forces analysis will be used to conduct the competitive forces within the online
retail industry. The five elements in this analysis model include:
•
The bargaining power of customers.
•
The bargaining power of suppliers.
•
The potential of new entrants into the industry.
•
The threat of substitute products.
•
The competition in the industry.
E. Forecasted financial statements for the next fiscal year:
Financial forecasting entails the process of predicting or estimating how a business will
perform (financially) in the future. Financial forecasting is important because it allows
managers to have valuable insights into the feasibility of future goals and strategies.
Additionally, financial forecasts enable managers to compare the firm’s past and future
performance, hence determining the entire trajectory of the business.
In this project, Amazon.com and eBay’s financial forecasts will be prepared in the form of
the following financial statements:
•
Proforma income statement
•
Proforma balance sheet
8
•
Proforma cash flow statements
F. Valuation of the firms; Amazon and eBay
•
Discounted cash flow methodology
This technique is used to evaluate the value of future investments based on estimated future
cash flows. The methodology attempts to find out the current value of an investment based on
the projections of how much cash will be generated in the future. Therefore, the discounted
cash flow will evaluate the firms’ value of future investments.
G. Conclusion
H. References
https://www.businessnewsdaily.com/5446-porters-five-forces.html
https://www.investopedia.com/terms/p/porter.asp
https://www.investopedia.com/terms/d/dcf.asp#:~:text=Discounted%20cash%20flow%20(D
CF)%20is,will%20generate%20in%20the%20future.
https://bench.co/blog/accounting/pro-forma-financial-statements/
https://www.investopedia.com/terms/p/proforma.asp
Amazon:
https://www.macrotrends.net/stocks/charts/AMZN/amazon/financial-ratios
https://www.wsj.com/market-data/quotes/AMZN/financials
eBay:
https://www.macrotrends.net/stocks/charts/EBAY/ebay/financial-ratios
https://www.wsj.com/market-data/quotes/EBAY/financials
I. Appendix
Amazon
9
•
Balance sheet
•
Income statement
•
Cashflow statement
•
Statement of shareholder’s equity
eBay
•
Balance sheet
•
Income statement
•
Cashflow statement
•
Statement of shareholder’s equity
Purchase answer to see full
attachment
Tags:
online marketplaces
Financial Statement
Ecommerce industry
User generated content is uploaded by users for the purposes of learning and should be used following Studypool’s honor code & terms of service.
Reviews, comments, and love from our customers and community: