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Company Analysis Report Sample

Executive Summary

In this paper, an analysis of the global retail company, Amazon.com, is conducted based on information that has been published. The organization and how it operates, its operating segments, a description of the industry it operates in, an analysis of the company with a commentary on its performance, an evaluation of the performance of the retail industry, a comparison with other organizations in the e-commerce industry, and an assessment of the company’s prospects and strategies will be provided in this paper. Amazon.com is one of the best-performing companies in the world, currently holding the top position in the e-commerce retail industry globally. This immense success of the company has only been possible through effective leadership and the utilization of effective business strategies. This report is an evaluation of how the company has been able to achieve success and its performance in recent years.

 

Introduction

This company report is a general commentary report. However, the report will include in-depth financial performance analysis of the company and the identification of the company’s critical success factors. The performance of Amazon.com will be analyzed to identify its achievements and where it has failed. In addition, the performance, strategies, and the critical success factors of the company will be compared with those of other companies in the retail industry. For the comparative analysis, Amazon.com will be compared to Walmart Inc. This company was selected for comparison since it is the key competitor of Amazon.com in the e-commerce retail segment. Walmart is arguably the top competitor for Amazon.com. Walmart provides its customers with a wide range of products of high-quality, through its retail stores and through an online platform. The company is popular for the provision of high-quality goods at low prices and the provision of friendly customer service at its stores. This report has been prepared based on information obtained from the company‚Äôs official website (Amazon.com 2019), the financial statements of the company that are provided on the internet, and journals that provide information on the company‚Äôs history and performance.

Background

Shopping on the internet is one of the most popular ways of shopping today. Its popularity can be attributed to the ease of shopping, as people can shop at their convenience, at their leisure, and at any time. The e-commerce industry has been there since the invention of computers, the internet, and electricity. Trade via the internet became a possibility in 1991 when the internet was first used for commercial use. Thousands of businesses and firms took residence on websites and started doing business on the internet. E-commerce began as simply the process of conducting commercial transactions in an electronic manner with the aid of various technologies. This gave users an opportunity to exchange business information online and carry out transactions easily.

By the year 2000, thousands of businesses in the US and Europe provided their services through the world wide web. E-commerce changed from being the process of conducting transactions electronically to being purchasing goods and services through the internet (Traver and Laudon 2008). The “dot-com collapse” of 2000 resulted in bad results for many companies in e-commerce, with most of them abandoning the business. However, retailers acknowledged the advantages and ease of providing goods over the internet. Many retailers, especially those running supermarket chains, started adding electronic commerce capabilities to their websites to enable customers to shop groceries online. The Business-to-Business (B2B) e-commerce model became the most popular form of e-commerce, having more than $500 billion in transactions by the end of 2001 (Appendix A).

Sales via the internet continued to grow over the years, accounting for more than three percent of the total sales of companies by 2007. E-commerce has grown into a huge industry owing to its benefits over the physical stores, including enabling customers to shop from a large database of services and products, view actual prices, build orders, and pay for goods to be delivered to them (Traver and Laudon 2008). Amazon.com was among the earliest companies to allow electronic transactions, along with companies such as eBay. Amazon.com has largely contributed to the growth of the e-commerce industry. It is one of the most popular and best-performing e-commerce companies in the world. The company is based in Seattle, Washington, and was founded in 1994 by Jeff Bezos. The company made its first yearly profit in 2003, which encouraged it to further invest in e-commerce.

The company started out as an online bookseller, later on extending its services to the provision of electronics, video games, software, apparel, health products, footwear, and other consumer goods. Despite being based in the United States, the company has established many separate websites in several countries, including the United Kingdom, France, Canada, Japan, China, and Germany. Today, the company operates and provides support to the retail websites of many companies, including the NBA, Marks & Spencer, Lacoste, and Target. The company has been able to set up an affiliate marketing program, earning more than forty percent of its total sales from third-party sellers and affiliates who list and sell their products on the company’s online site.

Critical Success Factors

The company’s mission is to become a company that is customer focused. This mission is the guideline of all company decisions, with the company having an obsession for customer satisfaction, a passion for invention, a passion for long-term thinking, and is committed to excellence in operations. Amazon‚Äôs critical success factors include being a low-cost provider, customer service, provision of a wide variety of goods, and efficiency of fulfillment and distribution. Becoming a low-cost goods provider is one of the company‚Äôs most important success factors, with the company attracting millions of customers with its high-quality low-priced goods on its product database. The company is able to achieve the efficiency of distribution and fulfillment through its superior distribution channel and fast fulfillment system, which enable it to achieve a high customer retention rate compared to its rivals.

Customer service and customer loyalty are greatly valued by the company. As such, customer loyalty and customer service are key success factors of the company (Spector 2000). The company offers a membership program to its customers, Prime membership, which enables customers to access faster delivery of music and video content. Members of this program are key to the growth and success of the company, as they make larger purchases and are more frequent buyers of services and products. They get to receive huge discounts for repeat or bulk purchases and are allowed to attend special events organized by the company. In order to achieve customer loyalty, the company provides high-quality services and products, and excellent customer service. It also allows customers to review and rate products on its site and has one of the best personal recommendation systems (Mudambi and Schuff 2010).

Since quick product delivery is a key barrier in e-commerce, Amazon.com utilizes a wide range of tools to ensure that delivery is fast and convenient. Through the use of algorithm, couriers, and warehouses, the company is able to deliver products to its customers within a maximum of two days and as little as an hour from the time of purchase. The company also understands that customers have different needs and motivations for shopping, as such, it provides a wide product range and expands its categories into microsites having specific product categories (Spector 2000). This enables the company to achieve success in focused competitive positioning. The key success factors of Amazon have enabled it to achieve industry leadership, customer loyalty, a competitive edge, and immense success at the global scene.

Financial Statements

Amazon has had quite a stellar financial performance over the last five years. The following financial statements of the company are provided in the Appendices section of this report:

  • Appendix B: Consolidated Income Statement.
  • Appendix C: Consolidated Statement of Financial Position, Assets.
  • Appendix D: Key Financial Ratios.

 

Financial Analysis

The company’s net sales increased from 2016 to 2017 and from 2017 to 2018. This shows that the company has been able to achieve stable financial performance. Amazon’s operating income was on a downward slope from 2016 to 2017. However, the operating income increased from 2017 to 2018 and surpassed its level in 2016. The company’s income (loss) before income taxes decreased from 2016 to 2017 but increased from 2017 to 2018. In addition, the company‚Äôs net income (loss) increased from 2016 to 2017 and from 2017 to 2018. The current assets of the company increased from 2016 to 2018. Property and equipment increased in both time periods, with the total assets also increasing in the two time periods (2016 to 2017 and 2017 to 2018). Some of the key financial ratios that the company uses include the sales growth rate and profit margins.

The net sales of the company have more than doubled from 2014 to 2018, with a record $232,887 million in sales in 2018. This has been easy to achieve, as the company has been growing throughout its business history. Amazon.com continues to establish more capital investments every year from its cash flow and a fair amount of debt. Amazon runs a huge e-commerce retailing platform, besides a publishing platform for publishers and authors, which contribute to its immense profits. The company’s gross profit increased from $47,722 million in 2016 to $65,932 million in 2017, then $93,731 million in 2018, showing steady profit growth throughout the 2016-2018 period. The Current Ratio of the e-commerce company for the past three years is an average of 1.05 (Appendix D). The Current Ratio is a measure of the ability of an organization to repay its short debts using the available current assets.

When the current ratio is less than one, a company is not able to pay its current liabilities using its current assets such as cash and cash equivalents. A current ratio of less than 1 would mean that an organization has very serious liquidity problems and is at risk of running into long-term solvency problems. In the case of Amazon.com, the current ratio remains above 1 since 2015, which means that the company is doing well and is not having any solvency or liquidity issues. For the investors of a company, the most relevant and attractive ratios of company profitability are the profit margin, the return on assets (ROA), and return on equity (ROE).

The profit margin is determined by dividing a company’s total net profit for each year with the total net sales for that year. Amazon.com had a profit margin of 2% in the year 2016, 2% in the year 2017, and 4% in the year 2018 (Appendix D). The profit margin of the company increased substantially in 2018, which means that the profit of the company increased substantially from 2017 to 2018. This trend should be maintained to ensure company growth and increased financial performance. The return on asset ratio (ROA) is determined by dividing a company’s total net profit with its average total assets. This ratio shows how an organization uses its assets to generate profit. The return on asset ratio of Amazon.com was approximately 3.2% in the year 2016 and 2.8% in the year 2017 (Amazon 2019). This was a decrease in the ROA, which means that the profitability of the company’s assets went down in 2017.

Return on equity (ROE) is another ration that is important to investors. The ROE is calculated by dividing the total net profit of an organization with the average total equity of the organization. This ratio shows how an organization uses its total equity to generate a net profit. Amazon.com had a return on equity ratio of 14% in the year 2017 and 20% in the year 2018 (Amazon 2019). This was a net increase in the ROE, which means that the company‚Äôs equity profitability is increasing. A company’s debt-equity ratio is a comparison of its total debt with its total equity. The lower the debt-equity ratio of a company, the better it is for the company. The debt-equity ratio of Amazon.com was approximately 0.78 in the year 2016 and 1.37 in the year 2017. An increase in the debt-equity ratio is not a good thing as it means that the company’s dependency on debt is increasing. The management of the company needs to control this trend to ensure that the company does not continue to incur more debt as the years go by.

The Quick Ratio indicates the short-term liquidity position of an organization while measuring its ability to meet short-term obligations using the most liquid assets or the current assets. It is also referred to as the acid test ratio. An organization with a quick ratio of 1 is considered to have a normal quick ratio, showing that it has assets that are exactly enough to be liquidated and pay off the current liabilities. An organization with a quick ratio of less than 1 or less than 100% is not able to fully pay its current liabilities in the short term. Amazon has had an average quick ratio of 79% over the past four years (Appendix D), meaning that it cannot pay off its current liabilities fully in the short term. However, the quick ratio of the company has been increasing over the years.

Walmart is Amazon’s main competitor, dominating the brick-and-mortar retail while Amazon dominates e-commerce retail. Walmart runs more than 5000 retail stores in the United States and more than 10000 stores worldwide, making the company the largest retailer in the world. In 2017, the company‚Äôs sales totaled to $485 billion, while Amazon made revenues of $178 billion in the same year (Petro 2018). The two companies are battling to become the first to reach a trillion-dollar valuation, with Amazon leading by an enterprise value of $900 billion in 2018 and Walmart having a valuation of $288 billion (Petro 2018). In terms of revenue, however, Walmart is closer to the trillion-dollar mark compared to Amazon.com.

 

 

Valuation

Amazon.com is the largest company in the world by market value. By January 2019, the market value of the company was $ 797 billion, beating that of Apple Inc. and Microsoft in the race towards the trillion-dollar value (Feiner 2019). On the basis of revenues, Amazon.com ranks lower than Walmart. This is because Walmart’s brick-and-mortar stores make sales of more valuable products, compared to the numerous small value products on the database of Amazon.com. On the basis of the company’s stocks growth potential, the price-to-earnings ratio of the company is over 900, while the price-to-book ratio is more than 30. This is unlike the ratios of other companies, which are low single digits. These high valuation numbers can only be controlled through the increase of yearly earnings and the expansion of the company’s equity base in the book. The company needs to change its business strategy to move from the present sales-focus to being earnings-focused.

Consideration

The leadership of the company needs to look at new business models, as the e-commerce model has already achieved success. There is a need for diversification and increase in the revenue streams to sustain the new capital investments of the company. By coming up with new business models and expanding the product categories that are provided on the company’s website, the capacity of the company to grow will be guaranteed. The company also needs to re-strategize and shift its focus from sales and sales growth to earnings and profits. This will enable the company to achieve growth and higher value, not just in terms of market value, but also in terms of earnings and profits. The affiliate market program is a great avenue for increasing the profits and revenues of the company.

If the company increases advertising and the number of firms that do business via its platform, the company’s revenues will increase. Through advertising, the company can also increase the membership of its Prime membership program, increasing its revenues. The leadership also needs to focus on how the growing logistics costs of the company can be controlled or reduced (Appendix E). The logistics costs of the company have been increasing, which if not controlled, may pose a huge challenge to the company in the future. more focus should be placed on the minimization of transportation costs of products and distribution of goods, so as to reduce the total logistics costs of the company.

Conclusion

In conclusion, Amazon.com is one of the best-performing companies in e-commerce and retail. The company has achieved unmatched financial performance in terms of market value and achieved continuous growth over the last five years. The company has been able to overcome various challenges in the e-commerce field, including economic hardships and stiff competition. Through an effective business strategy and good leadership, Amazon.com has become the world’s leading e-commerce company and the largest company in the world by market value.

References

Amazon.com, 2019. Online Shopping for Electronics, Apparel, Computers, Books, DVDs & more. Available at: http://www.amazon.com/ [Accessed June 28, 2019].

Amazon. Annual reports, proxies and shareholder letters | Amazon.com, Inc. Investor Relations. Available at: https://ir.aboutamazon.com/annual-reports [Accessed June 30, 2019].

Feiner, L., 2019. Amazon is the most valuable public company in the world after passing Microsoft. CNBC. Available at: https://www.cnbc.com/2019/01/07/amazon-passes-microsoft-market-value-becomes-largest.html [Accessed June 28, 2019].

Mudambi, S.M., and Schuff, D., 2010. What makes a helpful review? A study of customer reviews on Amazon. com. MIS Quarterly, 34(1), pp.185-200.

Petro, G., 2018. Walmart Vs. Amazon: The Private Label War. Forbes. Available at: https://www.forbes.com/sites/gregpetro/2018/07/15/walmart-vs-amazon-the-private-label-war/#5ca7a61f14c3 [Accessed June 28, 2019].

Spector, R., 2000. Amazon. com: Get big fast: Inside the revolutionary business model that changed the world. Random House Business.

Traver, C.G. and Laudon, K.C., 2008. E-commerce: business, technology, society. Pearson Prentice Hall/Pearson Education.

Appendices

Appendix A

Appendix B

 

Appendix C

Appendix D

Appendix E

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Company Analysis Report Sample . (2022, September 01). Essay Writing . Retrieved September 27, 2022, from https://www.essay-writing.com/samples/company-analysis-report/
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Company Analysis Report Sample [Internet]. Essay Writing . 2022 Sep 01 [cited 2022 Sep 27]. Available from: https://www.essay-writing.com/samples/company-analysis-report/
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