Amazon.comShort
AMZN - BEARISH(CRPT FINANCE)
Below, I will provide a very detailed analysis of AMZN using corporate finance
Discounted Cash Flow Models - "A Discounted Cash Flow (DCF) model estimates the value of an investment by predicting its future cash flows and adjusting those amounts to their present value using a discount rate. Essentially, it calculates how much future money is worth in today’s terms and sums it up to determine the current value of the investment."
Total Variance - "Total variance in finance reflects the overall risk of an investment, combining both systematic and unsystematic risk. Systematic risk, which affects all investments due to market-wide factors, cannot be eliminated through diversification. Unsystematic risk, specific to individual investments or sectors, can be reduced by diversifying a portfolio."
I have applied various types of Cash Flow Models so to provide a very broad view as to where the price of AMZN will reside. I applied a DCF model using data that I believed should be altered, and one in which was barely altered. Below are my results:
DCF: 86.016(Firm Valuation), 67.40(Equity Valuation)
ECF: 86.016(Firm Valuation, 92.92(Equity Valuation)
Unaltered DCF: -366.23(Firm Valuation), 2.55(Equity Valuation)
Firm and Equity Valuation simply refer to how the figure is obtained. Firm refers to the valuation of the company as a whole, and equity refers to the value of equity alone.
An Excess Cash Flow model(ECF) differs in that it focuses solely on cash flows available to equity holders, whilst a DCF uses cash flows to represent the whole firm.
As you can see, the unaltered DCF represents very different valuations. A negative value and a very low equity valuation. The reason I believe this occurred was because the unaltered DCF used a lower Beta, different risk free rate, and the absolute Working Capital.
My data reflected a higher beta(higher movement aligned with the market), higher risk free rate(which should lower valuations), and I smoothed out the Working Capital. I noticed that in the year of 2022, (-8,602,000) AMZN's working capital was negative by a large margin. I assumed this may be an outlier and was potentially safe to manually alter the data so to reflect a data figure closer to the mean(7434000000).
Models will obviously hold bias to a degree, though if we are very conscious of such bias, I believe it is okay, as long as its within sound judgement. I believe such is the case because a higher beta and a higher risk free rate would only provide a larger discount rate allowing a fairly generous valuation.
Total Variance Model -
Covariance between stock and market returns: 0.00010
Variance of market returns: 0.00007
Beta: 1.53875
Variance of stock returns: 0.00043
Systematic Risk: 0.00016
Unsystematic Risk: 0.00027
Systematic Risk as a Percentage of Total Variance: 37.46%
Unsystematic Risk as a Percentage of Total Variance: 62.54%
Our systematic and unsystematic risk helps us understand the risk that we are exposed to.
Our risk is greater exposed to the companies business decisions(Unsystematic Risk %).
Discounted Cash Flow Models - "A Discounted Cash Flow (DCF) model estimates the value of an investment by predicting its future cash flows and adjusting those amounts to their present value using a discount rate. Essentially, it calculates how much future money is worth in today’s terms and sums it up to determine the current value of the investment."
Total Variance - "Total variance in finance reflects the overall risk of an investment, combining both systematic and unsystematic risk. Systematic risk, which affects all investments due to market-wide factors, cannot be eliminated through diversification. Unsystematic risk, specific to individual investments or sectors, can be reduced by diversifying a portfolio."
I have applied various types of Cash Flow Models so to provide a very broad view as to where the price of AMZN will reside. I applied a DCF model using data that I believed should be altered, and one in which was barely altered. Below are my results:
DCF: 86.016(Firm Valuation), 67.40(Equity Valuation)
ECF: 86.016(Firm Valuation, 92.92(Equity Valuation)
Unaltered DCF: -366.23(Firm Valuation), 2.55(Equity Valuation)
Firm and Equity Valuation simply refer to how the figure is obtained. Firm refers to the valuation of the company as a whole, and equity refers to the value of equity alone.
An Excess Cash Flow model(ECF) differs in that it focuses solely on cash flows available to equity holders, whilst a DCF uses cash flows to represent the whole firm.
As you can see, the unaltered DCF represents very different valuations. A negative value and a very low equity valuation. The reason I believe this occurred was because the unaltered DCF used a lower Beta, different risk free rate, and the absolute Working Capital.
My data reflected a higher beta(higher movement aligned with the market), higher risk free rate(which should lower valuations), and I smoothed out the Working Capital. I noticed that in the year of 2022, (-8,602,000) AMZN's working capital was negative by a large margin. I assumed this may be an outlier and was potentially safe to manually alter the data so to reflect a data figure closer to the mean(7434000000).
Models will obviously hold bias to a degree, though if we are very conscious of such bias, I believe it is okay, as long as its within sound judgement. I believe such is the case because a higher beta and a higher risk free rate would only provide a larger discount rate allowing a fairly generous valuation.
Total Variance Model -
Covariance between stock and market returns: 0.00010
Variance of market returns: 0.00007
Beta: 1.53875
Variance of stock returns: 0.00043
Systematic Risk: 0.00016
Unsystematic Risk: 0.00027
Systematic Risk as a Percentage of Total Variance: 37.46%
Unsystematic Risk as a Percentage of Total Variance: 62.54%
Our systematic and unsystematic risk helps us understand the risk that we are exposed to.
Our risk is greater exposed to the companies business decisions(Unsystematic Risk %).
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.