BEM3015DA Business Finance Assignment Sample

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Introduction to Business Finance Assignment

Ratio analysis refers to the study of line items that appear in a company’s income statement, cash flow statement, and balance sheet. It is a crucial process that helps in determining the financial health and long-term growth potential of a business entity. Investors and shareholders use this information to make informed investment decisions, minimize risks, and achieve adequate returns. The current report will include a ratio analysis of Amazon to depict the company’s overall financial, liquidity, solvency, and efficiency position. Students seeking guidance on preparing similar financial reports and analyses can benefit from expert academic support through Assignment Help UK for accurate and insightful assistance.

Overview Of Organization

Amazon is a multinational organization included in online advertising, cloud computing and digital streaming. The firm was established on July 5, 1994 by Jeff Bezos in Washington as the online market for books. Gradually company started diversifying its operation in large number of other product and services. Amazon is having annual revenue of 574.8 billion pound and has a market share of 37.6% in year 2023 (Description of Amazon, 2024). The mission statement of Amazon includes becoming the world’s largest customer centric organization. Vision statement of Amazon includes offering a market place where individual come and found every think which they required to buy online. Headquarter of Amazon is situated at Seattle and company has employed over 1525000 workers across globe. Below is the SWOT analysis of Amazon which aid in effective identifying firm’s operations:

Strength: Company is having high brand recognition and reputation which aids in attracting large number of customer towards the business entity (Charles and Uford, 2023). High brand reputation helps organization in differentiating its product from the competitors that result in higher sales. Amazon is also included towards providing diverse product and has well established distribution network which aid in fulfilling needs of customers.

Weaknesses: Amazon is highly depended on third party seller and activity of fraud and misleading has provided poor experience to customer which eventually impact on firm’s overall reputation (SWOT analysis of Amazon, 2023). Further, Amazon is facing regulatory issues which creates legal obligation on the business entity.

Opportunity: Company has opportunity to expand into emerging market and introduce physical stores which will help in attracting large number of customer. Further, organization could provide crypto current payment option which help in offering diversifying payment option to customer. Firm is also has an opportunity to acquire competitors which will help in enhancing market shares.

Threats: Company is facing high competition from both online and offline firm within the industry. Amazon is also vulnerable to customer data as firm include large amount of customer data which creates risk for the business entity.

Detailed Description Of Sectors

Amazon is operating under ecommerce sectors that are involved towards providing large number of consumer good through online platform. Below is the Pestle analysis of Amazon which aids in effectively understanding the factors that are influencing company’s performance:

Political: UK’s government has introduced tax on online shopping after 2020 which has resulted in increasing overall expenses of the business entity. With the introduction of Brexit, Amazon is not able to effectively carrying out its operation in the restricted countries. Political instability also results in continuous change in regulation which requires company to modify its policies on regular basis.

BEM3015DA Business Finance Assignment Sample

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Economical: Firm face issues in managing their overall cost due to high inflation and interest rate within the country. UK is having inflation rate of 4% which results in reducing purchasing power of customer leads to decreasing overall demand (PESTLE analysis of Amazon, 2024). Further, fluctuation in exchange rate has huge impact on international demand leading to influencing overall profitability of the business entity.

Social: There is increasing popularity of ecommerce platform which help in increasing overall sales of the Amazon. There is a continuous change in the preference and needs of the customer due to which Amazon needs to introduce new product and services according to their demand.

Technological: There are continuous changes in the ecommerce sectors and new technologies are introducing with the aim of providing effective services to the customer (Lima et al, 2023). In this context, Amazon need to spend huge amount for acquiring latest technology and for developing infrastructure which is impacting on firm’s overall profitability.

Legal: There are large number of regulation which Amazon should follow for carrying out operation in ethical and fair manner. In this context, company needs to align its actions with intellectual property law, antitrust law, cyber security law and workers’ rights legislation. Non compliance with any of the law will result in creating large number of legal obligations.

Environmental: UK’s government is laying emphasis over adopting strategies by which carbon emission and wastages could be reduced within country. This requires firm to focus on modifying its actions as to align with the government requirement.

Ratio Analysis

Following is ratio analysis of Amazon which will help in determining overall liquidity, profitability, solvency and efficiency position of the business entity:

Profitability ratio:

For identifying the overall profitability position of Amazon below mentioned ratios have been calculated:

Gross profit ratio: After analysing financial statement of Amazon, it has been identified that firm is having gross profit ratio of 47% which indicate high profitability of the business entity (Financial statement of Amazon, 2023). From the Swot analysis, it has been identified that firm is providing large variety of goods and services which help in attracting large number of customer leading higher GP ratio. This also indicates high marketing efficiency of Amazon which helps in attracting large number of customer towards the firm and support in enhancing overall profitability position. Amazon is effectively attaining industry average which denotes high profitability position of the business entity (Hei, 2023). By comparing GP ratio of two consecutive years, it has depicted that there is 3% increase in firm’s profits. This denotes that firm has introduced effective strategies by which numerous customers are attracted towards the organization. Further, for increasing overall profitability of the organization manager should include towards decreasing overall expenses. Along with this, Amazon should introduced attracting sales promotion strategies which help in attracting new customer and influences existing customers for more purchases.

Net profit ratio: Based on the ratio analysis of Amazon’s finance, it has been identified that firm’s net profit ratio is not attracting which indicates issues in managing overall efficiency of the business entity. From the pestle analysis, it has identified that there is high inflation rate in UK which result in increasing overall cost for the organization. Lack of efficient employees and infective T&D session also result in increasing wastages leading to increasing cost of production. Amazon is not having effective pricing strategies that impact on overall profitability and financial situation of the business entity. Firm is paying emphasis over using competitive pricing and focuses over providing goods and services at lower cost than competitors. Due to this pricing strategy, firm is not able to charge adequate price from customer leading to decreasing overall profitability position. After comparing the profitability ratio of two years, it has identified that firm was having negative ratio in previous year indicating inefficiency in managing cost. It has identified that Amazon has paid huge penalties in year 2022 due to non alignment with laws that also result in reducing overall profitability position.

For overcoming the situation of lower net profit ratio, Amazon should involved towards reducing overall utilities and decreasing labour cost which will help in managing cost of operation of the business entity. Moreover, regular T&D sessions should be arranged by manager which will help in developing new skill and competencies among workers leading to higher efficiency (Ali and Safaa, 2022). Based on the pestle analysis, it has depicted that there is continuous technological advancement within UK which will help in optimising the firm’s operation and support in decreasing cost. Manager in Amazon should introduce latest technology which will help in reducing wastages and support in reducing overall cost of production of the business entity. Along with this, emphasis should be paid over enhancing customer base and increasing sales by influencing customer towards the business entity.

Return on capital employed: Amazon is not effectively utilising its capital for generating profits as firm is having very low ROCE ratio. Amazon is not able to attain the industry averages which denote ineffective and poor management strategies of the organization. Additionally, from the swot analysis, it has identified that firm is investing huge mount towards acquiring new technology and inadequate investment decision also results in lowering down overall return on capital employed (Phan, 2021). By comparing current year ratio with previous years, it has identified that there is 6% increase in ROCE ratio but then also it is not able to attain the industry averages. For increasing ROCE ratio firm should decrease overall cost of operations and enhance sales which aids in gaining higher return than before.

Return on assets: From the calculation of Amazon return on assets, it has identified that firm is not using its assets optimistically for generating profit leading to creating negative impact on overall profitability. This is not an attracting ratio for investors as firm’s management is not efficient enough in effectively utilising their funds leading to reducing overall return. On the basis of comparison within two years ratio it has identified that fir is able to turn the ratio in positive which was initially negative. For increasing ROA ratio, Amazon should implement cost cutting strategies, explore new market and negotiate effective deal with supplier’s leading to reducing cost and increasing profits.

Liquidity ratio: The below mentioned ratio help in effectively understanding the overall liquidity position of the Amazon:

Current ratio: After evaluating current asset and liability of Amazon, It has identified that company is not having adequate amount of asset as compare to liabilities that indicates issues in paying off obligations. The firm should have ideal ratio of 1.5 to 2 where as the company’s current ratio is only 1.05 denotes inefficiency in paying off the entire future obligation. After comparing this ratio with past years, it has identified that firm is able to increase current ratio to some extent but then also organization needs to introduce additional strategies. In this context, Amazon should adapt a highly efficient inventory management system which helps ineffectively predicting market needs based on which unnecessary amount is not invested in such assets (Altrad et al, 2021). Further, Amazon should delay all the long term investment which will help in increasing cash in hand balance of the business entity. Along with thus, company should evaluate efficiency of neither fixed asset and sale out assets that re nor generating an adequate amount of return. Moreover, manger should determine nay loan which could be re amortised leading to decreasing overall liability and enhancing current ratio.

Liquid assets ratio: It has been identified from the ratio analysis that Amazon is not having adequate quick ratio which is resulting in creating issues in managing overall liquidity position. This situation has rose as firm have invested huge amount towards inventory and paid expenses before due date that has resulted in reducing overall quick assets. From the pestle analysis, it has identified that firm is able to provide good according to customer wish which is result in attracting large number of customer (Charles and Uford, 2023). Due to this belief, firm has invested high amount towards inventory as to fulfil customer’s need but there was fluctuation in demand which has result in decreasing quick asset. This is not a good indicator for investors as lower liquidity ratio indicates inefficiency of firm in paying its interest obligation and short term liabilities. This will create issue for Amazon in raising additional debt leading to creating obstacles in fulfilling financial requirement. However, the firm is able to increase liquid ratio by 0.12% as compared to previous year but then also organization need to implement new strategies for the improving the ratio. In this context, firm should not pay out any expenses before due date as it result in reduces firm’s cash balances. Additionally, firm should emphasis over introducing effective forecasting software which will help in effectively identifying need in the market based on which the decision regarding inventories are taken. This will help in avoiding situation of unnecessary investment in stocks leading to higher cash in hand (Qureshi and Yadav, 2020). Manager should emphasis over controlling overhead cost and sell out redundant assets that help in managing cash balances leading to higher liquidity position. Amazon should review cash payment and receivable cycle which will help in managing adequate cash flow and support in balancing over position.

Solvency ratio:

The below mentioned ratio help in determining the firm’s ability in paying off long term liabilities:

Debt to equity ratio: The debt to equity ratio of Amazon is very low which indicate firm’s high dependencies on equity funds for carrying out their operation. This also indicates lower financial risk as firm is not having high debt which decreases the interest liabilities of the business entity. However, Amazon is not able to attain the ideal debt to equity ratio denoting increase in cost of the business entity. Cost of rising debt is lower than equity and depending highly on equity leads to increasing overall expenses of the business entity (Wassan et al, 2021). This situation also result in creating dissatisfaction within shareholder as firm will not emphasis over taking additional dent for paying out expenses rather use their profits which result in decreasing overall return for the investors. On the other hand, high debt in capital structure helps in increasing returns for shareholder leading to higher satisfaction.

For instances, interest on debt is tax deductible items which help in reducing firm’s liabilities and leads to higher profits. This ratio also described that Amazon is not able to take benefit of available opportunities which hampers overall growth and development of the business entity. From the comparative analysis of ratio, it has identified that firm’s ratio has been drastically reduced which is not a good indicators for shareholder and overall firm’s performance. For improving the overall debt to equity ratio, Amazon needs to implement new strategies which help in managing risk and cost of the business entity (Rodrigues et al, 2020). Company should opt for buy back its own share from market which will help in reducing equity and support in increasing debt equity ratio. Amazon should concentrate over issuing debenture and bond for raising additional fund rather than equity. This will help in reducing cost of rising fund and does not dilute ownership of the business entity. Further, Amazon should invest in new opportunities which will help in reducing retaining earnings leading higher debt to equity ratio.

Debt to asset ratio: After analysing financial statement of Amazon, it has been identified that firm is having very low debt to assets ratio which indicates that asset is mainly acquired through equity financing. Creditors generally preferred lower debt to asset ratio which denotes that shareholder have provided large portion of fund to company which ensure that creditors will be paid on time. This reduces the risk of loan default and depicts high creditability of the organization (Ma, 2023). The ratio has been decreased by 0.4% in current year indicating reduction in use of debt fund within business entity. However, very low debt to asset ratio is not good indicator for shareholders as this denotes that organization has increased the potion of retain earning leading to lower dividend. In the context, firm should emphasis over taking additional loan and using debt for purchasing new assets.

Efficiency ratio:

Below mentioned are five crucial ratios which help in determining overall managerial efficiency of the Amazon:

Stock turnover ratio: Amazon is having high inventory turnover ratio which denote effective need of firm’s product and services within market. The company is able to effectively attain the industry averages which indicates high marketing efficiency that result in attracting customer towards the business entity. This also denotes that firm is not having access inventories in warehouse leading to reducing overall cost and expenses of the business entity. On the basis of pestle analysis, it has been identified that customer’s preferences are changing very quickly which requires organization to introduce most adequate product (Monteverde, De Sales and Jones, 2022). High inventory turnover indicates that Amazon is able to align with the need and preferences of customer that result in high amount of sales. After comparing two years ratio, it has identified that there is increases in ratio denoting; long term profitability and stability of the business entity. For managing increasing trend of inventory turnover ratio, Amazon should have an adequate relationship with their supplier which will help in timely fulfilling needs and wants of the customers. However, company should use an AI based sales forecasting software which will help in identifying adequate demand so that overall cost of the firm could be managed while attaining need and wants of the customers.

Total assets turnover ratio: On the basis financial statement analysis of Amazon, it has identified that there is firm is not able to effectively utilise its assets in generating higher sales. This indicates an urgent need for organization to review its strategies as current policies have resulted in underutilization of assets leading to lower sales (Moiseev et al, 2023). The company should have an asset turnover ratio of 1.65 whereas organization is only having asset turnover ratio of 1.16 denoting unproductive use of firm’s asset and indicates internal struggles. It has been identified that firm is having constant asset turnover ratio denoting less focus of organization towards reviewing its managerial strategies. For enhancing overall asset turnover ratio, Amazon should involve towards increasing revenue and improving inventory management system. Firm should delay buying any additional asset rather emphasis over leasing them which leads to reducing asset turnover ratio. Moreover, firm should used AI based asset monitoring system which describes the overall productivity of asset and suggest asset which are unproductive for the business entity. All such type of assets should be sold out that eventually leads to decreasing company’s assets that leads to increasing asset turnover ratio.

Fixed asset turnover ratio: On the basis of financial statement analysis of the Amazon, it has identified that firm’s fixed asset ratio is reducing over year denoting inefficiency of firm in utilizing assets. This also denotes that firm is not able to take rational investment decision which is results in gaining inadequate outcome of the investment (Jing and Li, 2023). In this context, Amazon should sell out the entire fixed assets that are generating adequate return. The technological analysis of UK denotes the continuous advancement in technology but Amazon should adopt technology after evaluating its efficiency and outcome which will help in taking rational decision.

Receivable turnover ratio: Amazon is able to collect timely from their debtor which is resulting in lower receivable turnover ratio. This indicates efficiency of firm’s strategies in collecting timely from their debtors leading to managing overall cash flow of the business entity (Liu and Wang, 2024). From the comparative analysis on two consecutive years, there is increasing debtor’s receivable ratio which is not a good indicator for firm’s liquidity position. For managing overall cash flow and reduces debtor receivables ratio, Amazon should involved towards providing additional discount on early payment and offers flexible payment option which will help in gaining regular cash inflow. Along with this, company should introduce AI technology which will automate the task for sending reminder to customers, linking invoice with purchase order and entering data which help in gaining timely payment. Further, firm should review their payment terms which aids in timely recovering from clients.

Creditor turnover ratio:

On the basis of the financial statement analysis of the Amazon, it has identified that firm is taking full advantages of credit time period. On comparing it with previous years, it has identified that there is no significant change in the ratio denoting effective utilization of avail credit period by the business entity. However, very high creditor turnover ratio results in creating negative impact on firm’s relationship with its suppliers leading to reduce overall reputation and goodwill of the business entity (Teng, 2024). In this context, firm should pay to its loan time which will help in managing effective relationship with the suppliers.

Conclusion

By summing up the report, it has identified that Amazon is having effective brand reputation provide diverse product which aids in attracting large number of consumer. There is constant change in inflation and interest rate, political instability, change in needs and preference of customer, regular technical advancement which impact on overall functioning of the business entity. From the ratio analysis, it has identified that Amazon is having effective GP ratio but lower NP ratio indicating inefficiency in managing cost. Firm’s liquidity and solvency position is not effective which result in creating obstacle in paying out obligations. To overcome the situation, Amazon should invest towards improving inventory management system; review its pricing strategy, focuses over economies of scale, improve marketing strategies and take rationale investment decision. This will aid in managing overall cash flow of the company and support in enhancing overall financial position.

References

Books and Journals

• Ali, E., & Safaa, E. (2022). Amazon's Growth in the Context of the Opportunities and Challenges of Industry 4.0. Issue 4 Int'l JL Mgmt. & Human., 5, 1456.
• Altrad, A., Pathmanathan, P. R., Al Moaiad, Y., Endara, Y. M., Aseh, K., El-Ebiary, Y. A. B., ... & Saany, S. I. A. (2021, June). Amazon in Business to Customers and Overcoming Obstacles. In 2021 2nd International Conference on Smart Computing and Electronic Enterprise (ICSCEE) (pp. 175-179). IEEE.
• Charles, I. I., & Uford, I. C. (2023). Comparative analysis and evaluation of business and financial performance of Amazon. Com: A three-year period critical review of exceptional success. European Journal of Business, Economics and Accountancy, 11(2), 69-92.
• Hei, W. H. (2023). Evaluating Amazon's Environmental, Social, and Governance Performance. Highlights in Business, Economics and Management, 19, 268-274.
• Jing, Y., & Li, X. (2023). Financial and Marketing Strategy Analysis of Amazon. Frontiers in Business, Economics and Management, 7(3), 319-323.
• Lima, M. D. F. D. B., Souza, Á. N. D., Teixeira, D. E., Souza, H. J. D., Matricardi, E. A. T., Miguel, É. P., ... & Silva, M. L. D. (2023). A SWOT analysis of AWH Project Implementation in the Brazilian Amazon as perceived by affordable housing stakeholders. Forests, 14(3), 594.
• Liu, J., & Wang, X. (2024). Analysis of How Enterprises Can Improve Market Competitiveness in the Context of Digital Transformation-Take Amazon as an Example. Highlights in Business, Economics and Management, 24, 1765-1773.
• Ma, Y. (2023). A Comparative Analysis of Amazon, Microsoft, and Apple's Stock Investment Value. Highlights in Business, Economics and Management, 13, 231-235.
• Moiseev, N., Mikhaylov, A., Dinçer, H., & Yüksel, S. (2023). Market capitalization shock effects on open innovation models in e-commerce: Golden cut q-rung orthopair fuzzy multicriteria decision-making analysis. Financial Innovation, 9(1), 55.
• Monteverde, C., De Sales, F., & Jones, C. (2022). Evaluation of the CMIP6 performance in simulating precipitation in the Amazon River basin. Climate, 10(8), 122.
• Phan, S. (2021). The effect of PESTLE factors on development of e-commerce. International Journal of Data and Network Science, 5(1), 37-42.
• Qureshi, M. M., & Yadav, S. K. S. (2020). A Comparative Financial Analysis Between World Top Two E-Commerce Companies: Amazon and Alibaba. International Journal of Trade and Commerce-IIARTC, 10(2), 256-268.
• Rodrigues, M. I., Souza, Á. N. D., Joaquim, M. S., Sanches, K. L., Araújo, J. B. C. N., Castanheira, F., & Coelho, L. M. (2020). Financial analysis of investments in forest concession for Amazon Brazilian by deterministic and stochastic methods. Cerne, 25(4), 482-490.
• Teng, Y. (2024). Foreign Exchange Risk Analysis and The Futures Hedging Strategy Construction---The Case Study of Amazon. Highlights in Business, Economics and Management, 41, 221-228.
• Wassan, S., Chen, X., Shen, T., Waqar, M., & Jhanjhi, N. Z. (2021). Amazon product sentiment analysis using machine learning techniques. Revista Argentina de Clínica Psicológica, 30(1), 695.

Online

• Description of Amazon. 2024. Online. Available through: < https://www.techtarget.com/whatis/definition/Amazon>
• SWOT analysis of Amazon. 2023. Online. Available through: < https://businessmodelanalyst.com/amazon-swot-analysis/?srsltid=AfmBOoqGdBhxAV0w0zle8IMP6swNaZGpl_wLRhOJDKaNFyBtf_61tNS0 >
• PESTLE analysis of Amazon. 2024. Online. Available through: < https://businessmodelanalyst.com/amazon-pestle-analysis/?srsltid=AfmBOopjsZ1xtceTzp8bTKp06z4R00GNHQjRaoSUQZ2krNP5y7bs12UI >
• Financial statement of Amazon. 2023. Online. Available through: < https://ir.aboutamazon.com/annual-reports-proxies-and-shareholder-letters/default.aspx>