Sunday, February 17, 2013

Amazon (AMZN) Part IV

I know.  It has taken a while to get back to AMZN.  I began to lose interest after looking at the Income Statement in my last post on the subject.  I really shouldn’t have though, because it raises the question of how is AMZN being valued so highly when they aren’t actually making any money.  Of course, the answer is the expectation of future earnings, but I wonder just how far in the future those earnings are going to be, and how much to justify the current stock price.

At any rate, today I’m looking at the balance sheet, which I’ve included a picture of at the end of this post.  I didn’t do any adjusting other than to include the breakdown between gross and net plant and equipment, and accumulated depreciation, which AMZN shows in a separate part of the 10-k from the balance sheet.  This kind of thing is annoying to me, but at least it was there.

So, to be honest here (why would I want to do that, right?), nothing really stands out in the balance sheet, except, perhaps, that things are a little TOO regular (nothing like a little paranoia).  Since 2008, the balance sheet appears to have gotten bigger at about the same rate as sales have increased, and most of the balance sheet accounts have remained at about the same proportion to the size of the balance sheet.

One thing that could be a bit troubling is the trend between long-term debt and stockholders’ equity.  Debt is becoming a more significant part of the balance sheet, while the portion of the balance sheet represented by equity is decreasing.  It’s probably not a big deal though.  They recently purchased their corporate offices so the increase in debt isn’t inexplicable, and being that AMZN is reporting losses, the decline in equity is also not surprising.

Inventories are gradually edging up as a percent of sales, which I would not really expect given that AMZN is selling more downloadable stuff, which doesn’t require much in the way of inventory.  Accounts receivable are also edging up compared to sales, which could signal some difficulty collecting, although I doubt AMZN has trouble with collections, and the amount isn’t that great anyway.  Still, the trend isn’t really something an investor wants to see.

The fact that deferred tax assets keep staying relatively constant indicates the possibility that there is some earnings management going on in order to avoid taxes.  In fact, in one of the 10-ks there was a statement that the Deferred tax assets were nearly used up and that the company would likely have to pay taxes, which didn’t actually happen because, surprise, the company reported a net loss.

Because treasury stock is growing, it appears that AMZN is repurchasing shares, but it looks like it’s more to offset share based compensation than actually returning anything to stockholders.

So, I’m not really seeing much to get excited about here.  Maybe I missed something.  Next time, though, I’ll be looking at cash flows, and being the finance guy, that’s what I’m most interested in.  Thanks for reading!

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