Accounting Question

Continuation of previous week’s topic: Amazon

• Use 3 key financial statements to analyze the company in the areas of profitability, asset utilization, liquidity, and debt utilization.
• A full ratio analysis must be prepared using at least two ratios from each of these four areas.
• Your analysis must be over a three-year period.
• In addition to three years of ratios, you must include your observations on the company’s profitability, efficiency in asset utilization, liquidity, and utilization of debt to finance its operations plus any trends your observe (i.e., share key drivers and insights about the positive or negative impacts from the ratios).
• Graphs or charts may also be used to support your analysis.
• This section should be two to three pages in length.

Week 5 Ratio Analysis Example
Profitability
Blackrock’s profitability ratios demonstrate increased overall margins and efficiency from 2015
to 2017. This was propelled by a strong revenue increase of 10.25% in 2017, especially in BlackRock’s
“Investment Advisory Performance Fees” and “Total Investment, Advisory…Revenue”. The profit margin
held steady at 28% in 2015-2016 and swelled to 40.08% in 2017 as BlackRock stepped away from
“Distribution fees” and “Advisory and Other Revenue” streams in order to focus on more profitable
functions. Additionally, Blackrock effectively managed its expenses, seeing a 2.26% decrease in 20152016 and then an expected 9.63% percent increase in 2016-2017, as compared to its 11.98 revenue
increase in the same period. BlackRock saw its greatest expense reductions for both years in the
“Amortization of Deferred Sales” and “Amortization of Intangible Assets” categories (decrease of 50%,
and 10%, respectively in 2017). However, these are non-cash adjustments, which will require an
analysis of BlackRock’s liquidity and debt utilization ratios (see below).
BlackRock’s return on assets remained steady at 1.44% in 2016 and saw a modest increase of
2.27% in 2017. This reflects economies of scale afforded by BlackRock’s sheer size ($220B in assets), and
market reputation as an “investment management firm that offers global investment management, risk
management, and advisory services” (MarketLine, 2018, para. 2). However, these small return
percentages also reflect an increased difficulty in obtaining competitive return on investments in this
industry. GaleGroup (n.d.) reports that “mutual fund expense ratios [are] in long-term decline [where
investors saw] a movement away from actively managed funds to ones that followed an index, such as
the S&P 500” (Current Conditions Section, para. 1). Also, “another avenue of competition for
investment advisors was the increased use of software algorithms to management investment assets”
which allows firms to “offer very low fees since…overhead and labor costs are quite minimal”
(GaleGroup Current Conditions Section, n.d., para. 2).
BlackRock’s return on equity (ROE) also remained level in 2016 at 10.80%. In 2017, the ROE
increased to 15.51%, again reflecting BlackRock’s stronger revenues and greater profit margin. In the
2015-2017 period, BlackRock decreased its total liabilities from 196MM to 187MM, which rebalanced its
portfolio to 85.34% liabilities and 14.66% equities. This may indicate the BlackRock is over-leveraged,
requiring an in-depth look into its coverage ratios.