Amazon.com is an online retail company that is based in the United States. It is a multinational company and the world’s largest online retailer. Amazon operates different websites for different countries and has presence in North America, Europe and Asia. The company offers a wide range of products to its customers and clients. There is a wide range of goods, such as books, music Compact Disks and DVDs, software products, electronics, clothing and sports merchandise, jewelry, cosmetics, personal-care goods, and even groceries among them. Amazon customers consist of consumers, third party sellers and businesses (Amazon.com., Inc., Annual Report, 2009). Besides, the company also provides order fulfillment and warehousing services to its third-party sellers, and shipping services for some of the products sold over its website.
Amazon shares are traded in the Nasdaq, and at the end of January 2011, the company’s common shareholders number stood at 3,383. The stock’s price ranged between U.S. $151.40 and $185.65 by the end of the 2010 financial year, while the earnings per share were $2.58 and $2.08 for the fiscal years’ 2010 and 2009, respectively. In terms of dividends, Amazon is yet to declare or pay any cash dividend since its inception (Amazon.com., Inc., Annual Report, 2010).
Amazon’s sales amounted to $34,204 millions and $24,509 million for financial years, 2010 and 2009, respectively. As reflected in the above figures, there was a substantial growth in sales in year 2010. This growth appeared to be a result of increase in sales volume partly due to more aggressive marketing by the company. Owing to the rise in sales volume, the cost of sales increased significantly from U.S. $18,978 in 2009 to U.S. $26,561 in 2010. Order fulfillment costs also increased from U.S. $2,052 to $2,098. Amazon’s profit, on the other hand, grew from U.S. $902 in 2009 to U.S. $1,152 in 2010 due to the growth in sales (Amazon.com., Inc., Annual Report, 2010).
Cash and Cash Equivalents
The cash and cash equivalents of a company are disclosed in the cash flow statement which shows the sources and uses of cash by a firm over a given financial year. Cash equivalents refer to securities which can be easily converted into cash without significant loss of value. Amazon invests its excess cash resources in high quality AAA- rated investment grade securities to avoid liquidity risk. Most of these assets are categorized as available for sale and can therefore, be reported at their fair values. There are three categories of sources and uses of funds for a business namely: operating activities, investing activities, and financing activities. Operating activities relate to the core business of the company. Investing activities, on the other hand, are those business activities that entail purchase both tangible and intangible long term assets. Lastly, financing activities are concerned with acquisition of funds for the firm and repayment of funds acquired by the firm from investors or financiers.
Amazon’s cash and cash equivalents stood at $3,777 million as at the end of the 2010 fiscal year, and $3,444 million at the end of the 2009 financial year. The main source of cash for the company is its operating activities. The increase in cash and cash equivalents in year 2010 is a result of increased operations by the company. Amazon’s investing activities include: capital expenditures, sale and purchase of marketable securities and fixed income investments, software and website development expenses, costs of intellectual property, proceeds and costs of leases, etc. Its financing activities, on the other hand, include tax benefits, redeeming common shares, repaying long-term debt and capital leases, and issuing long-term debt (Amazon Annual Report, 2010).
Year 2010 2009
Cash and cash equivalents (Millions) $3,777 $3,444
Current assets refer to those assets that are expected to be converted into cash within one year or during the ordinary cycle of the business. Examples include accounts receivables, cash and inventory. In the balance sheet, current assets are supposed to be listed according to their liquidity, i.e. how easily they are convertible into cash. Accordingly, the list should be as follows:
- Cash and cash equivalents.
- Short term investments.
- Accounts and notes receivable.
- Prepayments, etc.
Current Assets (Millions):
Cash and cash equivalents $3,777 $3,444
Marketable securities 4,985 2,922
Inventories 3,202 2,171
Accounts receivable and other 1,587 988
Deferred tax assets 196 272
Total Current Assets $13,747 $9,797
As shown above, Amazon’s total current assets amounted to U.S. $13,747 as at the end of the 2010 financial year, and U.S. $9,797 at the end of 2009 fiscal year. The two largest current assets were marketable securities and cash and cash equivalents in both 2010 and 2009 financial years (Amazon.com., Inc., Annual Report, 2010)).
Total assets refer to the sum of a company’s long-term and its current assets. The company’s total assets were valued at U.S. $18,797 at the end of the 2010 fiscal year, and U.S. $13,813 at the end of 2009.
Amazon.com., Inc. (2009). Annual Report. Web.
Amazon.com., Inc. (2010). Annual Report. Web.