Amazon Incorporation Harvard Case Solution & Analysis

INVENTORIES

1. All the inventories are valued using the FIFO method.
2. The inventory turnover ratio of the company has increased slightly. This is a negative signal which means that the company is taking more time to convert its inventories into finished goods.

PROPERTY PLANT AND EQUIPMENT

1. Property and equipment are depreciated using the straight line method of depreciation.
2. No impairment of tangible or intangible assets including goodwill was recorded in the current year.
3. The percentage of fixed asset depreciation has decreased by 1% from 2012 to 2013. This might be the change in the depreciation method or change in the accounting estimates. Specific reason is mentioned in the annual report.

CAPITALIZED LEASES

1. The total amount due is $555 million.
2. Imputed interest is $200 million.

OPERATING LEASE

1. The total obligation under this lease is $757 million.
2. The payment for operating leases next year would be $5 million.

LONG TERM DEBT

1. The five major long term debts are notes due on November 27, 2015 with interest rate of 0.65% and amount of $750 million, notes due on November 29, 2017 with interest rate of 1.20% and amount of $1000 million, notes due on November 29, 202 with interest rate of 2.5% and amount of $1250 million.
2. In the next 5 years, notes are due with an amount of $750 million in 2015.

INCOME TAXES

1. The income tax expense for the current year is $161 million.
2. $156 million was the amount for deferred taxes.
3. The tax rate for the corporation was approximately 32%.

STOCK OPTIONS

1. During the current year 5 million shares were purchased by exercising options.
2. The expense associated with the exercise of the options for the current year was $7 million.

SEGMENTAL & GEOGRAPHIC INFORMATION

1. The company has been organized into two segments that are North America and International.

INTERIM/QUARTERLY FINANCIAL DATA

1. The revenue for the company has increased over the four quarters of the year. This is due to the fact that the allowance for the returns was lower in 2013 as compared to the previous years. Also the sales have increased because of the new product sales.

REPORT ON THE INDEPENDENT AUDITORS

1. The auditors of Amazon are Ernst and Young.
2. They are located in United States of America.

REPORT ON THE FINANCIAL STATEMENTS

1. The auditor has stated an unqualified opinion.
2. The responsibility of the auditors with regard to the financial statements is to detect errors and omissions.
3. The auditor follows the guidelines of International Standards on Auditing.
4. The auditor believes that the financial statements are presented fairly.

REPORT ON INTERNAL CONTROLS

1. The management provides the authority for the internal controls.
2. Management is responsible to maintain effective controls over the financial statement preparation process.
3. Yes, the auditor believes that the corporation maintained adequate internal controls over financial reporting.

RATIO ANALYSIS

1. The return on assets and the return on equity are different because of the property and equipment and the current assets of the company.
2. The PE ratio of the company is 665 times. This shows that the growth potential of the company is high and the company would grow in the future.
3. The current ratio of the company is 1.07 times in 2013. This is not adequate to meet the short term obligations as they fall due. The company might face liquidity issues in the future.
4. The net working capital for the current year is $1645 million.
5. The quick ratio has also reduced as compared to the previous years. This shows that the company is going to face severe problems related to its short term obligations. The cash generation of the company is low as compared to the previous years, which is the reason for both of these ratios being lower.
6. The debt to total assets ratio has not changed as compared to the previous year.

INDUSTRY OR COMPETITOR COMPARISONS

1.  The industry of Amazon is electronic commerce industry and its major competitor is Wal-Mart Incorporation.  There are many differences in the ratios of Amazon and Wal-mart. Amazon holds a large proportion of current assets; this is due to its large investments in marketable securities and accounts receivables. The profitability ratios of Wal-mart are also much better than that of Amazon. However, the liquidity position of Wal-mart is much weaker as compared to Amazon. The solvency position as shown by the time interest earned ratio is better in the case of Wal-mart however, the operational performance of Wal-mart is low. As shown by its higher receivables turnover ratio.....................................

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