Amazon & eBay Memorandum Date: May 31, 2016 To: Towson Cornerstone Group, LLC From: ABC, Junior Analyst Subject: Report Memorandum Comparing the financial strengths of Amazon & eBay. The analysis is based on the comparison of Amazon and eBay, two competing companies in the service sector. Both the companies are direct competitors in the Specialty Retail, other industry and are considered to be two of the giants of the industry. Both the companies have more than 10,000 employees, a market capitalization in billions of US dollars, and earn revenue in billions of US dollars (Yahoo! Finance, 2016). Based on the analysis of the industry, it is found that the two companies have a great proportion of the overall market capitalization. The evaluation of the financial performance of Amazon is undertaken with the help of comparing P/E ratio for Amazon and eBay. The analysis and evaluation are beneficial to understand the company that outperformed in the industry for the fiscal year 2015. The calculation for P/E ratio uses the price per share and dividing it by the earnings per share for both Amazon and eBay (Hillstrom & Laurie, 2002). The use f P/E ratio can help to determine the future perspective and growth of the stock and helps to draw conclusions from investor’s perspective. The results show that the P/E ratio for Amazon is higher than eBay, and it means that the investors would find the stock of the company more attractive in the long run. Amazon P/E Ratio eBay 2015 566.68 15.21 The other indicators for evaluating performance are to analyze the net income, stock prices, quick ratio, and earnings per share for both companies. Net income highlights the level of financial health for the business and the comparison is beneficial if undertaken between companies within the same industry. The analysis reveals that the net income for eBay is much higher than Amazon. The in-depth analysis of Amazon and its net income reveals that the policy of Amazon is to invest the earnings in other projects in enhancing future profitability. The business operates in different fields and therefore, investments are required to enhance the performance of weak operational units (Edwards, 2015). The stock price of Amazon is consistently increasing over the past 12 months the market capitalization of the company is also higher than the competitor (i.e. Amazon 337B and eBay 27.71B). The stock prices for the year and the overall industry analysis reveal that the company is highly successful and reliable. The Specialty Retail, another industry has faced a decrease in the overall return but the returns for Amazon are consistent and positive that represents that the changes and fluctuations that have an impact on the market do not have a major impact on the operations of Amazon. In the year 2015, the overall prices of the stock increased with a total of 66.49% greater than that of eBay (i.e. a decrease of 59.07%). A quick ratio that is current ratio minus inventory for Amazon for the fiscal year 2015 is .71 less than its direct competitor. eBay had a quick ratio of 2.98 and the major reason for the increasing ratio is the absence of inventory. eBay does not have any inventory in its balance sheet whereas, Amazon has a total inventory of $10,243,000. The results show that Amazon does not maintain a satisfactory amount of quick assets to pay off the creditors. The results also show 2 that the businesses that are operational within the same industry do not majorly have same financial heads in their financial statements. The quick ratio for Amazon has not specific, and high-level impact on the performance and the company was able to succeed in their line of operations in the fiscal year 2015. The future estimations and forecasts also show that the business operations are satisfactory, and Amazon would lead the e-commerce business market in the next year. On the other hand, eBay is also showing progression in the business line and success and the company can advance its business processes and also has shown high levels of profitability. Earnings per share (EPS) are also evaluated to compare the overall performance of Amazon and eBay. The ratio is a useful indicator of profitability as it helps to determine the amount of income per share. The total outstanding shares of Amazon and eBay are 2.4 million and 4.1 million respectively. The results show that both the companies have positive EPS that is $1.25 and $0.98 for Amazon and eBay respectively. The future speculations for 2016 show that the EPS for Amazon is expected to increase in 2016 that is a positive sign. The overall comparison of the EPS reveals that Amazon is in a much better position compared to eBay in the year 2015. It means that Amazon can earn more on per share basis compared to eBay (Yahoo! Finance, 2016). Amazon had a net income of $596,000 that was divided by 471 million shares outstanding and on the other hand, eBay had a net income of $1,725,000 divided by 1.184 billion shares outstanding. Amazon eBay 596,000 1,725,000 708.33 23.98 Quick ratio 0.71 2.98 Earnings Per Share 1.25 0.98 Net Income Price Per Share 3 The overall results show that Amazon is a much better business unit compared to eBay. The conclusion is based on the analysis of stock prices, P/E ratio, Quick ratio, Earnings per share, and Net income for both the businesses. Amazon has a lower net income, but it is a strategic plan for the business to invest in another line of services. Also, quick ratio is lower, but the main reason is the inclusion of inventory within the balance sheet of Amazon. The prices, earnings per share, and P/E for Amazon are significantly high and help the business to attain a competitive advantage over its competitor. The financial position of the Amazon is satisfactory since the business can earn a profit in the year 2015 and the balance sheet also provides an insight of future growth of the business. The current position shows that the business has invested in short-term investments that are expected to pay returns in the starting to mid of the fiscal year 2016. Property plant and equipment for Amazon also show a significant increase that shows a higher level of investments in the business operations (Yahoo! Finance, 2016). The most important indices that helped to shape the overall analysis of the paper include the P/E Ratio and EPS (Earnings per share). Out of the overall indices net income, quick ratio, P/E ratio, EPS, and Stock Prices both P/E ratio and EPS shows the prospects of Amazon and both are positive and comparatively high than eBay. 4 References Edwards, J. (2015, January 30). Amazon's profit shows how few people understand the way the company works. Retrieved from http://www.businessinsider.com/analysts-wrong-aboutamazon-profit-2015-1 Hillstrom, K., & Laurie, C. H. (2002). Encyclopedia of Small Business: A-I. Michigan: Gale Group. Yahoo! Finance. (2016). AMZN Balance Sheet | Amazon.com, Inc. Stock - Yahoo! Finance. Retrieved from http://finance.yahoo.com/q/bs?s=AMZN+Balance+Sheet&annual Yahoo! Finance. (2016). AMZN Income Statement | Amazon.com, Inc. Stock - Yahoo! Finance. Retrieved from https://finance.yahoo.com/q/is?s=AMZN%20Income%20Statement Yahoo! Finance. (2016). EBAY Competitors | eBay Inc. Stock - Yahoo! Finance . Retrieved from http://finance.yahoo.com/q/co?s=EBAY+Competitors 5 Structured Review Workshop Your Writing Print this document before class. Criteria Strong Satisfactory Weak Organization ☐ ☐ ☐ ☐ ☐ ☐ Structures the document based on rhetorical situation: deductively or inductively. Organizes document (parallel) and provides transitions at all levels: document, section, paragraph and sentence level. Structures document based on rhetorical situation All paragraphs have leading topic sentences that are specific enough to foreshadow the logical content and support that follows. To meet this criterion, the writer— ☐ Uses deductive structure by placing the main idea/topic sentence toward the beginning of the document/paragraph. ☐ Uses inductive structure at times to downplay weak information/bad news. Condition Organizes document and provides transitions at all levels Explicit transitions between paragraphs and sentences that contribute to the logical flow of the document. To meet this criterion, the writer— ☐ Adheres to the known-new contract by communicating what is already known before introducing a new topic. ☐ Uses consistent transitional words that cohesively links each sentence and paragraph. Condition Evaluation Assessment (Circle One) 1 2 3 4 5 6 7 8 9 10
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