This paper will analyze Amazon and Walmart Company all of which are in the retail sector. Amazon Inc. an internet business while Walmart is a brick and motor business.
Quick Ratio = (Current assets- inventories)/ Current liabilities
Quick Ratio= (36,474-10,243)/ 33,899
Quick Ratio= 0.7738
Quick Ratio= (63,278-45,141)/ 65,272
Quick Ratio= 0.2779
Walmart has a lower ratio of 0.2779 than Amazon, which has 0.7738. These ratios indicate that Walmart has a huge stock of inventories than Amazon and it must sell its stocks in order for it to fully repay its debts. The company should improve this ratio by minimizing its inventories.
Current Ratio= Current assets/ Current liabilities
Current ratio= 36,474/33,899= 1.076
Current Ratio= 1.076
Current ratio= 63,272/65272= 0.9694
Current ratio= 0.9694
Amazon has a ratio of 1.076 and Walmart has a ratio of 0.9694. This ratio indicates that Amazon can fully repay its current liabilities using its current assets. On the contrary, Walmart cannot fully repay these liabilities. Walmart should reduce the level of its current liabilities in order to fully repay them using its assets
Debt to Equity Ratio
Debt to Equity Ratio= Total liabilities/ Total equities
Debt to Equity Ratio= 52060/13,384= 3.89
Debt to Equity Ratio= 3.89
Debt to Equity Ratio= 117,769/81,394= 1.447
Debt to Equity Ratio= 1.47
Both companies can fully repay their liabilities using their capital. Amazon has a high ratio of 3.89 while Walmart’s ratio is 1.47. Therefore, Amazon can more comfortably repay its liabilities than Walmart.
Equity Ratio= Total Equity/ Total Assets
Amazon= 13,384/65,444= 0.2045
Equity ratio= 0.2045
Walmart= 81,394/203,706= 0.4
Equity Ratio= 0.4
Both Walmart and Amazon have ratios of less than 1, which indicates that some of these companies assets are acquired through debt. Amazon has a lower ratio of 0.2045, which indicates that it relies more on debt than Walmart which as a ratio of 0.4
Debt Ratio= Total liabilities/ Total Assets
Debt ratio= 52060/65,444= 0.795
Debt ratio= 0.795
Debt ratio= 117,769/203,706= 0.578
Debt Ratio= 0.578
Both companies have a debt ratio of less than 1, which indicates that all of them have enough assets to fully cover their debts. Amazon’s has a higher debt ratio of 0.795 than Walmart’s that is at 0.578. This ratio indicates that it relies more on debt for its financing than Walmart.
Profit margin= Net income/ Net sales (Wild, Shaw, and Chiappetta, 24-45)
Profit margin= 596/107006
Profit margin= 0.00557
Profit margin= 16,363/ 485651
Profit margin= 0.0337
Amazon has a ratio of 0.00557, which is lower than Walmart’s 0.0337. These ratios indicate that the Amazon has low profits per unit than Walmart.
Return on Assets
Return on Assets= Net Income/ Average Total Assets
Return on Assets= 596/ 65,444= 0.009
Return on Assets= 0.009
Return on Assets= 16,363/ 203,706= 0.0803
Return on Assets= 0.0803
Amazon has a lower ratio of 0.009 than Walmart that has a ratio of 0.0803. This indicates that Amazon earns less from every assets that it invests than Walmart. The company should increase its sales in order to increase its return on assets.
Return on Capital
Return on Capital= Net Operating Profit/ (Total assets- Current liabilities)
Return on Capital= 596/ (65,444-33,899) = 0.0189
Return on Capital = 0.0189
Return on Capital= 16,636/ (203,706-65,272) = 0.12
Return on Capital= 0.12
Amazon has a lower return on capital than Walmart. The ratio for Amazon is 0.0189 while that of Walmart is 0.12. Accordingly, the company should increase its sales in order to increase its return on capital.
Return on Equity
Return on Equity = Net income/ Shareholder’s equity
Return on equity= 596/ 13,384= 0.0445
Return on equity= 0.0445
Return on equity= 16,363/ 81,394= 0.201
Return on equity= 0.201
Amazon has a lower return on equity than Walmart. Amazon has a ratio of 0.0445 while Walmart has a ratio of 0.201. This ratio indicates that the company makes lower profits for equity invested. The company should increase its sales in order to increase its ratio.
Assets Turnover Ratio
Assets Turnover Ratio= Net Sales/ Average Total Assets (Wild, Shaw, and Chiappetta, 24-45)
Assets turnover ratio= 107,006/ 65,444= 1.635
Assets turnover ratio= 1.635
Assets turnover ratio= 482,229/ 203,706= 2.367
Assets turnover ratio= 2.367
Amazon has a lower asset turnover than Walmart. Amazon has a ratio of 1.635 while Walmart has a ratio of 2.367. This ratio indicates that Amazon sells fewer units per year relative to its assets than Walmart.
Inventory turnover= Cost of goods sold/ Average inventory
Inventory turnover= 71,651/ ((10,243+ 8,299)/2) = 7.729
Inventory turnover= 7.729
Inventory turnover= 365,086 / ((45141+ 44858)/2) = 8.113
Inventory turnover= 8.113
Amazon has an inventory turnover of 7.729 and Walmart has an inventory turnover of 8.113. Therefore, Amazon’s buys and sells inventories fewer times than Walmart. The company should increase its sales in order to increase its turnover.
Day’s Sales in Inventory
Day’s Sales in Inventory= [ending inventory/ Cost of goods sold] * 365 (Wild, Shaw, and Chiappetta, 24-45)
Day’s Sales in Inventory= [10,243/ 71,651] * 365= 52.18
Days of Sales in Inventory= 52.18 days
Day’s Sales in Inventory= [45141/365,086] * 365= 45.13
Days of sales in inventory = 45.13
Amazon’s inventory turnover is 52.18 and Walmart has a turnover of 45.13. This ratio indicates that Amazon takes longer than Walmart to sell its stock that Walmart. The company should increase its sales efforts in order to minimize the day’s sales in inventory.
Wild, J., Shaw, K., and Chiappetta, B. Financial and Managerial Accounting: Information for Decisions (6th Ed.). McGraw-Hill Education, New York, NY. (2015). Print