10-K Project
Learning Objectives:
1. Read a 10-K for managerial strategy and information.
2. Utilize knowledge of cost behavior to analyze a company.
3. Prepare a report that communicates complex financial assumptions in a readable and logical format.
4. Use advanced Microsoft Office techniques to create a report.
This project will aid in your understanding of how cost behavior impacts income. You should be very familiar with chapters 6 and 7 prior to completion of this project. You will read through the 10-K to obtain information about Amazon's operations. You will develop a report that will make certain assumptions. Your assumptions should be developed from your knowledge based on the chapter reading and the 10-K. Please provide a clear thought process for those assumptions.
1. Download Amazon's January 2015 10-K.
2. Determine evidence that reveals the type of company (merchandiser, service, or manufacturer).
3. What, if any, costs does the company classify as inventory?
4. Use the "Description of Business" and "Management Discussion and Analysis" in the 10-K to identify some of the company's costs. How will knowledge of these costs assist the company in strategic decisions?
5. Utilize the information found in the 10-K to consider each expense on Amazon's income statement.
6. After your review of the entire 10-K determine if the expenses are mostly fixed or mostly variable. Based on your review estimate a percentage of Amazon's operating expenses that are fixed. Provide some justification for your estimate of fixed expenses.
7. Based on your estimate, what is the trend in the contribution margin ratio over the last three years?
8. What is the trend in the breakeven point for operations, measured in sales dollars over the last three years?
9. What is the trend in the margin of safety?
10. How would the results change if your estimate of the proportion of operating expenses that are fixed increases by 20%? If the proportion of operating expenses that are fixed falls to 10%?
11. Assuming that the total dollar amount of fixed costs remains the same as in your original estimate how would operating income change if sales decline by 10%? How would operating income change if sales increase by 10%?
Summarize the analysis in a Word document that incorporates/embeds the Excel calculations in the report. Include a CVP chart for the most recent year. Discuss your key assumptions and the importance of the assumptions to the analysis. How might competitors of Amazon use the information you discovered in your analysis?