AMZN Analysis.docx

AMZN Analysis.docx - Table of Contents Amazon Analysis.1...

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Table of Contents Amazon Analysis : ........................................................................................................................................ 1 Calculation of Sustainable growth rate: ....................................................................................................... 2 Calculation of Realistic Growth rate: ............................................................................................................ 2 References: .................................................................................................................................................. 3 ROE of Amazon ............................................................................................................................................ 4 Revenue per Share ....................................................................................................................................... 4 What do you think will Amazon look like in 5 years? ................................................................................... 5 http://www.nasdaq.com/article/where-will-amazon-stock-be-in-10-years-cm416917 .............................. 6 Where Will Amazon Stock Be In 10 Years? .......................................................................................... 6 https://www.cnbc.com/2017/07/24/amazon-to-be-most-valuable-company-on-the-planet-analyst- predicts.html ............................................................................................................................................. 10 RELATED SECURITIES ................................................................................................................ 12 http://www.nasdaq.com/symbol/amzn/earnings-growth ......................................................................... 13 Earning Growth ...................................................................................................................................... 13 EPS ......................................................................................................................................................... 14 P/E Ratio ................................................................................................................................................ 15 P/E and Growth Rates ............................................................................................................................ 15 Forecasts ................................................................................................................................................ 16 Dividend History .................................................................................................................................... 17 Amazon Analysis : Growth estimates based on Analyst ratings : ( As per Analyst ratings – Yahoo finance) https://finance.yahoo.com/quote/AMZN/analysts/ Current Qtr: -94.20% Next Qtr: 9.70% Next 5 years (per annum) 55.50% Past 5 years (per annum) 45.52% As per AAPL Form 10-K (Last 10 years Average growth rate – 29% not realistic )
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Calculation of Sustainable growth rate: The Sustainable Growth Rate is the maximum rate at which a company can grow without taking on additional debt . ROE x (1 - dividend pay-out ratio ) (Filters out only retained earnings since only that can be used) Year Sustainable growth rate Year Sustainable growth rate 2007 76.43% 2012 3.09% 2008 44.04% 2013 0.58% 2009 25.84% 2014 0.16% 2010 22.03% 2015 0.60% 2011 13.03% 2016 12.95% **this data obtained from https://ycharts.com/companies/AMZN/sustainable_growth_rate Definition Sustainable Growth Rate is the maximum rate of growth a company can achieve without borrowing more money. Once a firm has met this rate, it must increase leverage to fuel additional growth. Formula Sustainable Growth Rate = Return on Equity * Retention Ratio Calculation of Realistic Growth rate: There is a problem with the Sustainable growth rate. We are looking for is a realistic rate at which we can expect a company to grow over the coming years, not a maximum rate.   If, for example, the company decides to take on $10 million in Long-Term Debt to generate more earnings, the amount of Shareholders' Equity would remain the same, but the ROE figure would nevertheless rise because of the higher earnings. So ROE is flawed because it does not take debt into account and because ROE is a key input for the Sustainable Growth Rate, it too is flawed. In addition, some of the Retained Earnings will have to be used for the maintenance and replacement of machines, and will therefore not directly result in growth. We add Long-Term Debt to Shareholders' Equity before calculating the return, which essentially means we are no longer using the Return on Equity but the Return on Capital . This way we take debt into account. Also, we could use Depreciation & Amortization expenses as a proxy of maintenance and replacement costs of machines, and therefore subtract this from retained earnings to get a more accurate view of the amount of money that can be used to grow the business .
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