Perform a financial analysis on Amazoncom AMZN detailing som

Perform a financial analysis on Amazon.com (AMZN) detailing some key ratios and what they tell you.

Valuation Model-

How did you come up with a risk-free rate?

How did you come up with the cost of capital/required return?

How did you come up with growth rate?

How does it compare to the current price and what might account for the difference? (

Solution

How did you come up with a risk-free rate?

Risk free rate is a rate which is expected without any risk in investment regarding the return. these risk free investments are like 3 months treasury bills, government securities etc. Currently this rate is between 1and 2 percent.

one can find current risk free rates on official central bank and governments website.

How did you come up with the cost of capital/required return?

first of all we calculate cost of all resources of capital for the company

like comany have issued debt than cost of debt is equal to (after tax interest rates) = (interest rate on debt* amount of debt)*(1-tax rate)

How did you come up with growth rate?

growth rate is the difference in dividend paid in year1 and year 2.

for example dividend paid in 2017 is 10% and dividend paid in 2018 is 12% than the growth rate is 20%=

12-10=2

2/10*100=20%

How does it compare to the current price and what might account for the difference?

when we use dividend growth model to calculate cost of equity we use the formula

Ke=D1/P0 + g

Ke= COST OF EQUITY

D1= DIVIDEND O BE PAID AT END OF THE YEAR

P0= SHARE PRICE

g= GROWTH RATE IN FUTURE

expectation of shareholder increases with incresing value and performance of the company.

current price of the share represents the expectation of share holder .

and the dfference in price happens due to copany\'s financial and on round performance and activities ,like how effectively cmpany is manging its operations impacts directly on its current price.

NOTE:- please provide amazon balnce sheet for further analysis