Financial Analysis Report- Amazon and Walmart

Financial Analysis Report- Amazon and Walmart

Kisha Barrett

FIN621- Advanced Corporate

Park University

Dr. Miller

December 4, 2020

Table of Contents

1. Executive Summary……………………………………………………………………3
2. Company Summary………………………………………………………………………4
3. Walmart Financial Statement……………………………………………………………5

Balance Sheet……………………………………………………………………………..5

Income Statement…………………………………………………………………………6

Cash Flow Statement…………………………………………………………………….7

1. Amazon Financial Statement……………………………………………………………8

Balance Sheet……………………………………………………………………………..8

Income Statement…………………………………………………………………………9

Cash Flow Statement……………………………………………………………………10

1. Ratio Calculation……………………………………………………………………….11
2. Company Evaluation Amazon…………………………………………………………13

Amazon Financial Ratio Interpretation……………………………………………….14

Comparison with Benchmark Competitor……………………………………………14

Forecast………………………………………………………………………………….15

1. Future Stocks and Recommendations…………………………………………………15

Executive Summary

The purpose of this paper is to analyze the financial operations and performance of Amazon.com, Inc. and Wal-Mart. The analysis will provide ratio calculations, ratio analysis, and projected financial statements including income statements, balance sheets and statements of cash flows for both companies.

Amazon

Amazon.com is an online or internet-based enterprise that is multi-faceted offering various services; the company is an online book store for both eBooks and print, a music hosting platform where one can buy different music albums hosted by the platform and an online retailer where commodities such as electronics, toys, housewares and many other goods. Amazon either acts as the middleman between the customer and the retailers or sells directly if the product is its own. Amazon also provides web services called cloud computing that entails database management, storage provision networking, software-vending, intelligence and analytical services (Hall, 2017).

Walmart

Walmart Inc. is the largest retailer of consumer goods in the world, having a market presence in both supercenters and e-commerce as an online retailer. Founded in 1962 by Sam Walton, Walmart focused its market in rural areas to avoid competition with high-end stores at the time. Walmart grew and introduced new strategic retail layouts, such as discount warehouses and supercenters. In ten years of introducing the combined merchandise supercenters with grocery, the company was rated among the top U.S grocers. Walmart implemented strategic measures that drove it to become the largest retailer in 1990; the company emphasized on customer attention through direct email advertising, cost control, and good distribution networks through establishing regional warehouses (“Walmart | History & Facts”, 2019)

Financial Statement

Walmart

Walmart is a leading multinational retail outlet and is based in the United States. The company has been able to remain competitive in the market due to the ability to invest in innovation to ensure customer needs are fulfilled. The summary of the financial statements can be very effective in indicating a company’s position in the market (“Financial statements,” 2015). The analysis of the financial statements over the last five years will help determine the company’s financial health. The analysis will involve summarizing the balance sheet, statement of cash flow, and income statement.

Balance sheet

A balance sheet is very important and helps to indicate a business’s position in terms of assets and liabilities. The balance sheet indicates a good performance over the past five years. The balance sheet indicates an increase in the cash on hand. The total assets in the company have gradually increased from 2016 to 2020. The increment is mainly on long-term assets, which is an indication that Walmart has continued to work tirelessly in the market. The balance sheet indicates that the financial position of the company improves throughout the period.

Annual Data	2020-01-31	2019-01-31	2018-01-31	2017-01-31	2016-01-31
Cash on hand	9465	7722	6756	6867	8705
Receivables	6284	6283	5614	5835	5624
Pre-paid expenses	1622	3623	3511	1941	1441
Other current assets	–	–	–	–	–
Total Current assets	61806	61897	59664	57689	60239
Property Plant and equipment	105208	104317	107675	107710	110171
Long term investment	–	–	–	–	–
Goodwill and Intangible Assets	31073	31181	18242	17037	16695
Other Long-Term Assets	16567	14822	11798	9921	6131
Total Long-Term Assets	174689	157398	144858	141136	139342
Total Assets	236495	219295	204522	198825	199581
Total Current Liabilities	77790	77477	78521	66928	64619
Long Term Debt	59885	50203	36825	42018	44030
Other Non-Current Liabilities	–	–	–	–	–
Total Long Term Liabilities	77153	62184	45179	51362	51351
Total Liabilities	154943	139661	123700	118290	115970
Common Stock Net	284	288	295	305	317
Retained Earnings (Accumulated Deficit)	83943	80785	85107	89354	90021
Comprehensive Income	-12805	-11542	-10181	-14232	-11597
Share Holder Equity	81552	79634	80822	80535	83611
Total Liabilities And Share Holders Equity	236495	219295	204522	198825	199581

https://www.macrotrends.net/stocks/charts/WMT/walmart/balance-sheet

Income Statement

The income statement is very important in illustrating the profitability of a company in the market. Walmart’s income statement indicates that the company has been performing and improving in terms of sales and profits realized over the period. The revenue indicates an increment in 2018. The gross profit also improved throughout the period. The income gained after deducting the expenses have also increased in the company. The income earned in the company through retail operations has increased greatly in the market. For example, from 2018 to 2019, the income increased from 7179 to 15201 dollars.

Annual Data	2020-01-31	2019-01-31	2018-01-31	2017-01-31	2016-01-31
Revenue	523964	514405	500343	485873	482130
Cost of Goods of Sold	394605	385301	373396	361256	360984
Gross Profit	129539	129104	126947	124617	121146
Research and Develop	–	–	–	–	–
SG&A Expenses	108791	107147	106510	101853	97041
Other operating income or expenses	–	–	–	–	–
Operating Expenses	503396	492448	479906	463109	458025
Operating Income	20568	21957	20497	22764	24105
Total Non-Operating Income/Expenses	-452	-10497	-5314	-2267	-2467
Pre-Tax Income	20116	11460	15123	20497	21638
Income Taxes	4915	4281	4600	6204	6558
Income After Taxes	15201	7179	10523	14293	15080
Other Income	–	–	–	–	–
Income From Continuous Operations	15201	7179	10523	14293	15080
Income From Discontinued Operations	–	–	–	–	–
Net Income	14881	6670	9862	13643	14694
EBITDA	31555	32635	30966	32844	33559
EBIT	20568	21957	20437	22764	24105
Basic Shares Outstanding	2850	2929	2995	3101	3207
Share Outstanding	2868	2945	3010	3112	3217
Basic EPS	5.22	2.28	3.29	4.40	4.58
EPS-Earnings Per Share	5.19	2.26	3.28	4.38	4.57

https://www.macrotrends.net/stocks/charts/WMT/walmart/income-statement

Cash flow statement

The cash flow statement indicates the amount of cash that is leaving or entering a company at any given time. The cash flow statement helps to indicate how well a company is able to meet its financial obligations (Paolone, 2020). Over the last five years, Walmart’s cash flow statement indicates a weakness in the company’s ability to settle its financial obligations. The cash flow from operating activities indicates a decrease over the period, with 2019 recording the lowest, indicating that the organization’s cash management is poor and needs to be improved; it makes it more efficient.

Annual Data	2020-01-31	2019-01-31	2018-01-31	2017-01-31	2016-01-31
Net Income/ Loss	15201	7179	10523	14293	15080
Total Depreciation and Amortization-Cash Flow	10987	10678	10529	10080	9454
Other Non-Cash Item	-2587	7867	2832	761	-672
Total Non-Cash Items	8400	18545	13361	10841	8782
Change in Accounts Receivable	154	-368	-1074	-402	-19
Change In Inventories	-300	-1311	-140	1021	-703
Change in Accounts Payable	-274	1831	4086	3942	2008
Change In Assets/Liabilities	–	–	–	–	–
Cash Flow from Operating Activities	25255	27753	28337	31673	27552
Net Change in Property, Plant and Equipment	-10384	-9825	-9673	-10163	-10842
Net Change in Intangible Assets	–	–	–	–	–
Net Acquisitions/Divestitures	-56	-14656	-375	-2463	–
Net Change in Short Term Investments	–	–	–	–	–
Net Change in Long-term Investment	–	–	–	-1901	–
Net Change in Investment-Total	–	–	–	-1901	–
Investing Activities-Other	1312	445	969	631	167
Cash Flow from Investing Activities	-9128	-24036	-9079	-13896	-10675
Net Long-Term Debt	3585	12088	-5585	-1918	-4393
Net Current Debt	-4656	-53	4148	-1673	1235
Debt Issuance/Retirement Net-Total	-1071	12035	-1437	-3591	-3158
Net Common Equity Issued/Repurchased	-5717	-7410	-8296	-8298	-4112
Net Total Equity Issued/Repurchased	–5717	-7410	-8296	-8298	-4112
Total Common and Preferred Stock Dividends Paid	-6603	-6533	-6814	-6695	-7013
Financial Activities-Other	-908	-629	-3328	-488	-2002
Cash Flow From Financial Activities	-14299	-2537	-19875	-19072	-16285
Net Cash Flow	1759	742	-130	-1747	-430
Stock Based Compensation	–	–	–	–	–
Common Stock Dividends Paid	-6603	-6533	-6814	-6695	-7013

https://www.macrotrends.net/stocks/charts/WMT/walmart/cash-flow-statement

Amazon

Amazon is an American multinational company based in Washington and focuses on cloud computing, e-commerce, and other digital business platforms. Amazon is one of the companies that have been to maintain their position in the ever-changing technology market. The company has been able to indicate good performance in the financial statements as the company has been able to keep up with customer demands. The analysis of the financial statements will help to understand the positioning of the company in the market.

Balance Sheet

The balance sheet in the organization indicates a good financial position for the organization. The balance sheet indicates the level of assets and liabilities that an organization has (Ferranti, 2017). The organization indicates a very positive improvement for the organization from 2016 to 2020. The company indicates a drastic increment in the organization’s asset level. The company’s assets shot to a high value in indicating that the company has continued to perform well in the market. The level of shareholders’ equity has also increased in the market. The improvement of the organization indicates the company has the potential to grow and expand in the market.

Annual Data	2019-12-31	2018-12-31	2017-12-31	2016-12-31	2015-12-31
Cash on hand	55021	41250	30986	25981	19808
Receivables	20816	16677	13164	8339	5654
Inventory	20497	17174	16047	11461	10243
Pre-paid expenses	–	–	–	–	–
Other current assets	–	–	–	–	–
Total Current assets	96334	75101	60197	45781	35705
Property Plant and equipment	72705	61797	48866	29114	21838
Long term investment	–	–	–	–	–
Goodwill and Intangible Assets	14754	14548	13350	3784	3759
Other Long-Term Assets	16314	11202	8897	4723	3445
Total Long-Term Assets	128914	87547	71113	37621	29042
Total Assets	225248	162648	131310	83402	64747
Total Current Liabilities	87812	68391	57883	43816	33887
Long Term Debt	23414	23495	24743	7694	8227
Other Non-Current Liabilities	12171	17563	20975	12607	9249
Total Long Term Liabilities	75376	50708	45718	20301	17476
Total Liabilities	163188	119099	103601	64117	51363
Common Stock Net	5	5	5	5	5
Retained Earnings (Accumulated Deficit)	31220	19625	8636	4916	2545
Comprehensive Income	-986	-1035	-484	-985	-723
Other Share Holders Equity	–	–	–	–	–
Share Holder Equity	62060	43549	27709	19285	13384
Total Liabilities And Share Holders Equity	225248	162648	131310	83402	64747

https://www.macrotrends.net/stocks/charts/AMZN/amazon/balance-sheet

Income Statement

The income statement analyzes the kind of revenues and expenses made by the company in the market. The consistency of making profits indicates that the company is in a position to retain the ability to maintain its customers (Arya, 2019). The income statement for the five years indicates the Amazon is a company that is doing extemporal well in the market. The company has continued to increase the number of revenues realized from the operations, with the highest being realized in 2019. The company’s level of profits has also increased over the period, indicating that the business is healthy.

Annual Data	2019-12-31	2018-12-31	2017-12-31	2016-12-31	2015-12-31
Revenue	280522	232887	177866	135987	107006
Cost of Goods of Sold	165536	139156	111934	88265	71651
Gross Profit	114986	93731	65932	47722	35355
Research and Develop	35931	28837	22620	16085	12540
SG&A Expenses	64313	52177	38992	27284	20411
Other operating income or expenses	-201	-296	-214	-167	-171
Operating Expenses	265981	220466	173760	131801	104773
Operating Income	14541	12421	4106	4186	2233
Total Non-Operating Income/Expenses	-565	-1160	-300	-294	-665
Pre-Tax Income	13976	11261	3806	3892	1568
Income Taxes	2374	1197	769	1425	950
Income After Taxes	11602	10064	3037	2467	618
Other Income	–	–	–	–	–
Income From Continuous Operations	11588	10073	3033	2371	596
Income From Discontinued Operations	–	–	–	–	–
Net Income	11588	10073	3033	2371	596
EBITDA	36330	27762	15584	12302	8514
EBIT	14541	12421	4106	4186	2233
Basic Shares Outstanding	494	487	480	474	467
Share Outstanding	504	500	493	484	477
Basic EPS	23.46	20.68	6.32	5.01	1.28
EPS-Earnings Per Share	23.01	20.14	6.15	4.90	1.25

Link: https://www.macrotrends.net/stocks/charts/AMZN/amazon/income-statement

Cash flow Statement

The cash flow statement helps to indicate the flow of cash to an organization and outside the organization. The amount that is moving to the business is more than the amounts that are moving from the business to facilitate investments. The amount of cash realized from operating activities and the amount of cash that is spent in the investing activities is increasing over the five years. The increment in an investment indicates that the company has been keen on ensuring significant investment over time. However, the company has guaranteed there is available cash to facilitate any financial obligations.

Annual Data	2019-12-31	2018-12-31	2017-12-31	2016-12-31		2015-12-31
Net Income/ Loss	11588	10073	3033	2371	596
Total Depreciation and Amortization-Cash Flow	21789	15341	11478	8116	6281
Other Non-Cash Item	7411	6078	3894	2709	2450
Total Non-Cash Items	29200	21419	15372	10825	8731
Change in Accounts Receivable	-7681	-4615	-4780	-3436	-1755
Change In Inventories	-3278	-1314	-3583	-1426	-2187
Change in Accounts Payable	8193	3263	7100	5030	4294
Change In Assets/Liabilities	1711	1151	738	1955	1292
Cash Flow from Operating Activities	38514	30723	18365	17203	12039
Net Change in Property, Plant and Equipment	-12689	-11323	-10058	-6737	-4589
Net Change in Intangible Assets	–	–	–	–	–
Net Acquisitions/Divestitures	-2461	-2186	-13972	-116	–795
Net Change in Short Term Investments	–	–	–	–	–
Net Change in Long-term Investment	-9131	1140	-3054	-2663	-1066
Net Change in Investment-Total	-9131	1140	-3054	-2663	-1066
Investing Activities-Other	–	–	–	–	–
Cash Flow from Investing Activities	-24281	-12369	-27084	-9516	-6450
Net Long-Term Debt	-10066	-7686	9928	-3716	-3882
Net Current Debt	–	–	–	–	–
Debt Issuance/Retirement Net-Total	-10066	-7686	9928	-3716	-3882
Net Common Equity Issued/Repurchased	–	–	–	–	–
Net Total Equity Issued/Repurchased	–	–	–	–	–
Total Common and Preferred Stock Dividends Paid	–	–	–	–	–
Financial Activities-Other	–	–	–	–	–
Cash Flow From Financial Activities	-10066	-7686	9928	-3716	-3882
Net Cash Flow	4237	10317	1922	3759	1333
Stock Based Compensation	6864	5418	4215	2975	2119
Common Stock Dividends Paid	–	–	–	–	–

https://www.macrotrends.net/stocks/charts/AMZN/amazon/cash-flow-statement

Ratio Calculation

Financial Diagnostic Categories	Primary Company (Amazon Company)	Benchmark Competitor (Wal-Mart)
1. Liquidity of short-term assets	Current ratio Current Assets/ current liabilities FYR 2019 = 96,334/87812 = 1.09 FYR 2018 = 75,101/68,391 = 1.0981 FYR 2017 =75,101 /57,883 = 1.04 FYR 2016 = 45,781/43.816 = 1.0448 FYR 2015 = 35,704/33,887= 1.0536	Current ratio Current assets / current liabilities FYR 2019 = 61,806/77,970 = 0.7989 FYR 2018 = 61,897/77,477 = 0.7598 FYR 2017 = 59,664/78521 = 0.862 FYR 2016 = 57,689/66,928 = 0.9322 FYR 2015 = 56,678/63,456 = 0.9697
	Quick ratio Current assets – inventory / current liabilities FYR 2019 = (96,334-17,174)/87812 =0.86 FYR 2018 = (75,101-16047)/68,391 = 0.76 FYR 2017= (57,883-16047)/ 57,883 =0.78 FYR 2016 = (45,781 – 11,461)/43.816= 0.75 FYR 2015 = (35705 – 10,243/33887) = 0.75	Quick ratio Current assets – Inventory /current liabilities FYR 2019 = (61,806 -29479)/77,970 = -0.90 FYR 2018 = (61,897-17174)/77,477 = -0.18 FYR 2017 = (59,664 – 16047)/78521 =1.10 FYR 2016 = (57,689 -11461)/66,928 = 1.60 FYR 2015 = (63,278 -45,141)/65,253) = 0.28
2. Long-term debt-paying ability	Debt ratio Total debts/ total assets FYR 2019 (163,188 /225,248) = 86 FYR 2018 (119,099/162,648) = 76% FYR 2017 (103,601/131,310) = 78% FYR 2016 (64,117/83,402) = 75% FYR 2015 (51,363/64,747) = 82%	Debt ratio Total debts/ total assets FYR 2019 (139,661/219.295) = 92% FYR 2018 (123,700/204.522) = 56% FYR 2017 (118,290/198.825) = 75% FYR 2016 (115,970/ 199,581) = 76% FYR 2015 (117,553/204,751) = 68%
	Debt-equity ratio Total debts / total equity FYR 2019 (163,188/62,060) = 0.3773 FYR 2018 (119,099/ 43,549) = 0.5395 FYR 2017 (27,709/102,601) = 0.893 FYR 2016 (19,117/64,117) = 0.399 FYR 2015 (13,384/ 51,363) = 0.6147	Debt-equity ratio Total debts / total equity FYR 2019 (139,661/79,634) =0.7287 FYR 2018 (123,700/80,822) = 0.5752 FYR 2017 (118,290/80,535) = 0.5704 FYR 2016 (115,970/83,611) =0.5984 FYR 2015 (117,553/85,937) =0.5837
	Times interest earned EBITDA/ interest expense FYR 2019 (36,330/-565) = – 9.73 FYR 2018 (27762/-1160) = -8.95 FYR 2017 (15,584/-300) = – 5.48 FYR 2016 (12,302/ -264) = -8.84 FYR 2015 (8514/-665) = –4.37	Times interest earned EBITDA / interest expense FYR 2019 (32,635/-10,497) = – 7.93 FYR 2018 (30,966/-5,314) = -6.59 FYR 2017 (32844/-2267) = – 4.58 FYR 2016 (33,559/-2467) = – 4.88 FYR 2015 (36,320/ -2348) = –4.37
3. Profitability	Net income/sales (profit margin) FYR 2019 – 11,588/280,887 x100 = 4.12% FYR 2018 -10,023/232,887 x100 = 4.30% FYR 2017- 3,023/177,866 x100 = 1.70% FYR 2016- 2,371/135,987 x100 =1.74% FYR 2015 –596/107,006 x100 = 5.70%	Net income/sales (profit margin) FYR 2019 –6,670/514,405 x100 =1.29% FYR 2018 -9,862/500,345×100=1.97% FYR 2017-13,643/485,873×100= 2.81% FYR 2016- 14,694/482,130×100=3.05% FYR 2015 –16,363/485,651×100=3.37%
	Net income/assets (ROE) FYR 2019 – 11,588/225,248 x100=5.14% FYR 2018 -10,023/162,648 x100 =6.16% FYR 2017-3,033/135,987-x100 = 2.23% FYR 2016- 2,371/83,402×100=2.84% FYR 2015 –596/64747×100= 9.87%	Net income/shareholder equity (ROE) FYR 2019 – 6,670/79,634 x100=8.38% FYR 2018 –9,862/80,822×100=12.29% FYR 2017- 13,643/80,535×100=16.94% FYR 2016- 14,694/83,611×100=17.57% FYR 2015 –16,363/85,937×100=19.04%
	Net income/assets (ROA) FYR 2019 – 11,588/62,060 x100=18.67% FYR 2018 -10,023/43,549 x100= 23.02% FYR 2017-3,033/27,709×100= 10.95% FYR 2016- 2,371/19,285×100=12.29% FYR 2015 –596/13,384×100= 4.45%	Net income/assets (ROA) FYR 2019 –6,670/219,295 x100 =3.04% FYR 2018 -9,862/204,522×100=4.82% FYR 2017-13,643/198,825×100= 6.86% FYR 2016- 14,694/199,581×100=7.36% FYR 2015 –16,363/203,490×100=8.04%
4. Asset utilization/management efficiency	Total asset turnover = Assets/sales FYR 2019 –225,248/ 280,252 x100= 8.04% FYR 2018 -162,673/232,887 x100 =6.99% FYR 2017- 131,310/177,866×100 = 7.38% FYR 2016-83,402/135,987 x100 = 6.13% FYR 2015 –64,747/107,006 x100=6.05%	Total asset turnover FYR 2019 –219,295/514,405 x100 =42.63% FYR 2018 -204,522/500,343 x100=40.88% FYR 2017-198,825/485,873×100= 40.92% FYR 2016- 199,581/482,130 x100=41.40% FYR 2015 –203,490/485,651 x100=41.90%
	Inventory turnover = inventory /sales FYR 2019 –20,497/280,252 x100 = 7.31% FYR 2018 -17,174/232,887 x100= 7.37% FYR 2017- 16,047/177,866 x100=9.02% FYR 2016- 11,461/135,987×100= 8.43% FYR 2015 –10,243/107,006 x100 = 9.57%	Inventory turnover=inventory/ sales FYR 2019 –44,269/514,405 x100 =8.60% FYR 2018 -43,783/500,343 x100=8.75% FYR 2017-43,046/485,873×100= 8.86% FYR 2016- 44,469/482,130 x100=9.20% FYR 2015 –45,141/485,651 x100=9.29%
	Accounts receivable turnover= Accounts receivable/sales FYR 2019 – 20,816/280,252 x100 =7.43% FYR 2018 -16,667/232,887 x100 = 7.16% FYR 2017- 13,163/177,866 x100 =7.4% FYR 2016-8,339/135,987 x100 = 6.13% FYR 2015 –5,654/107,006 x100 = 5.28%	Accounts receivable turnover FYR 2019 –6,283/514,405 x100 =1.22% FYR 2018 -5,614/500,343 x100=1.12% FYR 2017-5,835/485,873×100= 1.20% FYR 2016- 5,624/482,130 x100=1.17% FYR 2015 –6,776/485,651 x100=1.40%
5. Market measures Note: Market measures have been obtained from company annual reports.	Price/earnings ratio FYR 2019 – 80.31 FYR 2018 -74.61 FYR 2017- 190.16 FYR 2016- 152.72 FYR 2015 –244.30	Price/earnings ratio FYR 2019 – 8.31 FYR 2018 -7.61 FYR 2017- 19.16 FYR 2016- 15.72 FYR 2015 –24.30
	Earnings per common share FYR 2019 – 23.96 FYR 2018 -7.94 FYR 2017- 5.31 FYR 2016- 23.96 FYR 2015 –2.44	Earnings per common share FYR 2019 – 3.96 FYR 2018 -6.94 FYR 2017- 3.31 FYR 2016- 2.96 FYR 2015 –2.44
	Dividend payout FYR 2019 – $30 FYR 2018 -$19 FYR 2017- $18 FYR 2016- $16 FYR 2015 –$17	Dividend payout FYR 2019 – $21 FYR 2018 -$19 FYR 2017- $23 FYR 2016- $29 FYR 2015 –$24

Company Evaluation – Amazon

Amazon’s Financial Ratios Interpretation

Liquidity ratios show a company’s ability to offset its short-term obligations. These are the current and quick ratios. From the analysis conducted, Amazon’s current ratio during the FYR 2019 was 1.09 and has been greater than one for the past five years. The findings show that Amazon has had enough liquid assets for the past five years to cover its short-term liabilities. The company recorded a quick ratio of 0.86 during the FYR 2019. The ratio has also been on an increasing trend from 0.75 in the FYR 2015. However, a quick ratio below one means that Amazon has not been able to offset all its current liabilities without selling its inventory.

Long-term debt ratios measure the amount of leverage used by a company. These are the debt ratio, debt to equity ratio, and times interest earned. Amazon had a debt ratio of 86% in the 2019 FYR from 76% in 2018 FYR. The company’s debt ratios are all less than one, which indicates that the company has had more assets than debt for the past five years. The same trend is extended to its debt to equity ratio and times interest earned, which has been below 1 for the past five years.

Profitability ratios measure a company’s ability to its resources to generate profits. These are the profit margin, ROA, and ROE. Amazon’s profit margin was 4.12% in 2019 FYR, 4.3% in 2018, 1.7% in 2016, and 9.87% in 2015. The profit margins for the company have been greater than one for the five years analyzed. These results are extended to ROA and ROE, an indication that Amazon was able to make profits during the five years

Asset utilization measures how efficient a company utilizes its assets. These are the asset turnover, inventory turnover, and the accounts receivables turnover ratios. The higher the rates, the more efficient a company is in utilizing its assets. Amazon’s turnover ratio had been increasing from 6.05% in 2015 to 8.04% in 2019. The trend is similar to the company’s accounts receivables turnover, which rose from5.28% in 2015 to 7.43% in 2019. The findings indicate that Amazon has been efficiently utilizing its assets to generate revenue.

Market measures show the company’s value in the market. These ratios are the price/earnings ratio, earnings per share, and the dividend payout ratio. Amazon has a very high price/earnings ratio with a last reported P/E ratio of 80.31 in 2019, 74.61 in 2017, and 190.16 in 2017. The high P/E ratio indicates that Amazon investors expect higher earnings. The company is also having high earnings per share and dividend payout. The company’s dividend payout increased from $19 in 2018 to $30 in 2019. The market measures indicate Amazon’s high value in the market.

Comparison with Benchmark Competitor (Wal-Mart)

In terms of liquidity, Amazon is in a better position compared to Wal-Mart. The current ratios for Wal-Mart are below one during the five years. Wal-Mart does not have the ability to offset its current liabilities. Wall-Marts current ratio during the FYR 2019 was 0.7989 compared to Amazon’s 1.09. Wal-Marts quick ratio was -0.9 compared to Amazon’s 0.86. Amazon has a high ability to meet its short-term obligations compared to Wal-Mart. In terms of long-term debt payments, Amazon has shown similar trends with Wal-Mart. The debt ratio for Amazon vs Wal-Mart are; 86%:96% in 2019, 76%:56% in 2018, 78%:76% in 2017, 75%:76% in 2016 and 82;68% in 2015. The debt ratio trend between the two companies is extended to the debt-to-equity ratio and the times interest earned. In terms of profitability, Amazon has high-profit margins in 2019 and 2018 compared to amazon. The company ROA has also been high compared to Wal-Mart. However, Wal-Mart has had high ROE compared to Amazon. Amazon vs. Walmart’s profit margins were; 4.12%:1.29% in 2019 and 4.30%:1.97% in 2018. The ROE was 5.14%:8.38% in 2019 and 6.16%:12.29% in 2018. The ROA was 18.67%:3.04% in 2019 and 23.02%:4.82% in 2018. In terms of efficiency, Wall-Mart had a high asset and inventory turnovers compared to Amazon. But Amazon had a high accounts receivables turnover compared to Wal-Mart. In the market measures, Amazon has high P/E ratio, EPS, and dividend payout ratios compared to Wal-Mart, which indicates that Amazon has a high market value compared to Wal-Mart.

Forecasts

From the ratios analyzed, forecasts are made on the stock value of Amazon and Wal-Mart. Amazon’s liquidity, debt, efficiency, profitability ratios, and market measures indicate good trends in its financial performance. The market measures show that investors expect the company’s value to increase in the coming years. Its P/E, EPS, and dividend payout ratios have been on the rise for the past five years. These key variables indicate that Amazon’s stock is a good buy because of the expected future increase in value.

In contrast, Wal-Mart does not show clear trends like Amazon. It has a low P/E, EPS, and dividend payout ratio. The future is uncertain, based on the critical ratios analyzed. Therefore, Wal-Marts stock can be a good sell.

Pertinent information that could affect Amazon’s future stock price and recommendations

Although the company shows positive financial performance, it is critical to improve its business for better performance. The company cannot offset its short-term liabilities without selling its inventory. Therefore, Amazon must increase its liquidity levels and ensure that it can settle its short-term liabilities without having to sell its inventory. Amazon also needs to improve its efficiency levels to enhance its financial performance. The asset, inventory and accounts receivables turnovers are positive but are still low. Finally, the company’s P/E ratio has declined from 244.30 in 2015 to just 80.31 in 2019. The decline indicates that over the years, investors’ expectations about the company’s value is declining. Therefore, the company must strategize to increase its P/E, EPS, and dividend payout ratios.

References

2020 annual Report. Amazon.com Annual Report. 2020

2020 Annual Report. Walmart Annual Report. 2020

2017 Annual Report. Amazon.com Annual Report. 2020

2017 Annual Report. Walmart Annual Report. 2020

Amazon .com. Yahoo . 2020. www.finance.yahoo.com/quote/AMZN/

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