Amazon.com
◼cuddle up with a DCF model
◼critically evaluate a valuation model
◼what is the analyst assuming about profitability,
efficiency and leverage?
–2000000
–1500000
–1000000
–500000
0
500000
1000000
1500000
2000000
2500000
3000000
1995 1996 1997 1998 1999 2000
NET SALES NET INCOME
Why is the default valuation of
AMZN negative?
◼ROE is HUGE positive amount. Why?
Hitting the analyst forecasts –
clean up the financial statements
Income Statement Assumptions
Sales Revenue Growth Rate
…Is this reasonable?
◼EBITDA = “earnings before interest, taxes,
depreciation and amortization”
= gross margin –R&D –SG&A
Income Statement Assumptions
EBITDA margin
◼goodwill and intangibles written off in 2001
◼hold constant
Income Statement Assumptions
Depreciation and Amortization
(just a stop on the way to CapX)
◼Set non–operating income to –12% in
approximately at its book value
◼enter tax rates as given (although taxes
Income Statement Assumptions
non–operating income, interest and taxes