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Amazon

Name of Student

Institutional Affiliation
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Amazon

The present study will utilize Amazon's annual report for the fiscal year 2022, encompassing

its balance sheet, income statement, and cash flow statement, as a primary source of information to

address the research questions. The common stock price for Amazon on December 31, 2022, was

$3,200 per share, representing a 6% increase from $3,019 per share on December 31, 2021 (Ama-

zon, 2023). This indicates that Amazon's stock showed moderate appreciation during the year, de-

spite challenges such as heightened competition, regulatory scrutiny, and labor issues.

P/E Analysis

To conduct the P/E analysis for Amazon, I will divide its market price per share by its earn-

ings per share (EPS). The market price per share is the current price of a single stock in the market,

which stood at $3,200 as of December 31, 2022 (Amazon, 2023). The EPS is the net income di-

vided by the number of outstanding shares, which amounted to $0.03 and 5 billion, respectively, for

2022. Therefore, we can derive the P/E ratio for Amazon:

P/E ratio = Market price per share / EPS

P/E ratio = $3,200 / $0.03

P/E ratio = 106,667

The P/E ratio gauges the amount investors are willing to pay for every dollar of earnings. A

high P/E ratio suggests that investors anticipate robust future growth and profitability for the firm.

Nonetheless, it also implies that the stock may be overvalued and could experience a price correc-

tion. Conversely, a low P/E ratio suggests investor skepticism toward the company's prospects or

potentially indicates an undervalued stock that is a bargain.

Cashflow Analysis

To perform a cash flow analysis for Amazon, I must inspect its cash flow statement, which

portrays the company's cash generated and spent in a year. The statement has three sections: operat-

ing activities, investing activities, and financing activities. The operating activities section discloses

the cash generated by the company's core business operations, such as selling products and services.
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The investing activities section shows the cash expended or received by Amazon for purchasing or

disposing of long-term assets, including property and equipment. The financing activities section

represents the cash raised or disbursed by Amazon for debt and equity financing, such as borrowing

money or paying dividends.

Amazon's net cash provided by operating activities in 2022 was $40.8 billion, indicating that

it generated more cash than it spent on operations. This suggests that Amazon's operational output

is strong, allowing it to fund its growth internally. However, Amazon experienced net cash outflows

of $41 billion from investing activities, reflecting higher investment expenditures than received

cash flows. This indicates that Amazon is heavily investing in expanding its capacity and diversify-

ing its business portfolio. Finally, Amazon's net cash provided by financing activities was $1 bil-

lion, indicating it depends on external funding sources to finance its growth.

The cash flow analysis of Amazon demonstrates strong liquidity, indicating that it has ade-

quate cash and short-term assets to fulfill short-term obligations and unforeseen expenditures. Nev-

ertheless, it also reveals that Amazon's expenditures exceed its generated cash, resulting in negative

free cash flow (FCF), which reflects the difference between operating cash flow and capital expen-

ditures. FCF evaluates the cash available to the company post investments in growth. A negative

FCF suggests that the company must generate additional cash to sustain its growth and may require

raising additional debt or equity.

Common Stock vs. Government bonds

To compare Amazon's common stock with typical government bonds, I must evaluate their

corresponding rates of return. The rate of return measures the percentage of profit or loss that an in-

vestment generates over a specific duration. To calculate the rate of return for common stock, one

may divide the change in share price, plus any dividends, by the initial share price. However, to cal-

culate the rate of return for government bonds, one may divide the annual interest payment, plus

any changes in bond price, by the initial bond price.

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Amazon's 2022 annual report shows that the common stock price was $3,256.93 per share

on December 31, 2022, and December 31, 2021, indicating no change in stock price during the year

(Amazon, 2023). Nevertheless, the company's payment of a $0.40 per share dividend affects the

rate of return. Therefore, to determine Amazon's common stock rate of return for 2022, one must

consider the change in share price, plus any received dividends, divided by the initial share price:

($0 + $0.40) / $3,256.93 = 0.000123 = 0.0123%

In contrast, the U.S. Department of Treasury reported an average yield of 1.34% for a 10-

year Treasury bond in 2022. Therefore, a bond with a $1,000 face value would yield an annual in-

terest of $13.40. Under the assumption that the bond price remained constant throughout the year,

the rate of return for a typical government bond in 2022 can be calculated:

($13.40 + $0) / $1,000 = 0.0134 = 1.34%

Rate of Return

After comparing the rates of return for a typical government bond and Amazon's common

stock in 2022, it is evident that the former had a considerably higher rate of return. This suggests

that investing in government bonds was more profitable and less risky than investing in Amazon's

common stock. However, other factors such as inflation, taxes, market conditions, growth potential,

and future expectations must be considered when determining the best investment for individual in-

vestors. A detailed analysis is required to gain a more comprehensive understanding. It's worth not-

ing that Amazon is doing exceptionally well in terms of growth, as evidenced by significant in-

creases in a variety of financial metrics. Amazon's net sales rose by 9%, net income by 8%, and op-

erating cash flow by 72% in Q4 2022 compared to Q4 2021. These results show that Amazon is ex-

periencing rapid growth in revenue, profitability, and cash flow.

References
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Amazon, (2023) Amazon Annual Report. Available at:

https://s2.q4cdn.com/299287126/files/doc_financials/2023/ar/Amazon-2022-Annual-

Report.pdf (Accessed: 09 May 2023).