Comparison of Amazon and Walmart Companies
After analyzing and reviewing both Amazon and Walmart’s annual reports to determine their financial positions, it is evident that both companies have different pros and cons in regard to investment purposes. Amazon is considered the world’s largest online retailer and service provider. Walmart is an American multinational retail corporation that operates a chain of many markets (Bureau, 2016). Both companies are constantly battling for retail dominance.
Amazon profitability determined by the gross profit percentage is 37.07 for the current year meaning that this is the percentage of money made from selling goods after you’ve subtracted the cost of producing the goods. The higher the gross profit percentage, the more profit you make. When looking at Walmart, it’s gross profit percentage is 25.37 and is lower than showing that Amazon is more profitably than Walmart. Another aspect we can look at to compare profitability is the net profit margin. Amazon has a net profit margin of 1.71 where Walmart’s is 2.10. This shows us that Walmart is better able to effectively control its costs comparted to Amazon meaning it can price their goods higher than its cost although it is not a significant difference. Lastly, we can look at the return on equity which can be a bit tricky when comparing companies. Amazon’s ROE is 23,497 whereas Walmart’s ROE is 80,678.5. Return on equity tells us that a company is increasing its ability to generate profit without needing as much capital, but it can also mean that a company could have a high level of debt with less shareholders.
Liquidity is determined by the ability of a company to meet its financial obligations. Amazon’s liquidity can be evaluated by its current ratio which is 1.04. Walmart’s current ratio is 0.76. When looking at current ratio, higher is better because it is telling us that the company is more likely to meet its liabilities which are due over the next 12 months. A current ratio below one, like Walmart’s in this case, means that the company doesn’t have enough liquid assets to cover its short-term liabilities. Another thing to take into consideration is the receivable turnover ratio. Amazon’s is 16.54 while Walmart’s is 87.40. In this case a high ratio can imply that the company operates on a cash basis or that its collection of accounts receivable is very efficient where their customers pay off their debts quickly. Amazon’s is considerable lower due to the fact that it is an online based shopping site where everyone pays with card.
Solvency deals with the ability to meet long term obligations. The debt to asset ratio provides an understanding to solvency. Amazon has a debt to asset ratio of 0.79 and Walmart has a ratio of 0.60. What this ratio tells us is that a company’s amount of leverage with the less average equals a stronger equity. Another aspect we can evaluate is the times interest earned which for Amazon is 5.48 and for Walmart is 8.65. Times interest earned deals with measuring a company’s ability to honor its debt payments. The higher the better in this case due to the fact that the company is able to meet its interest obligations because earnings are greater.
After much consideration, I believe Amazon would be a good investment based off of its tremendous growth markets. The company has a solid competitive advantage giving investors many ways to profit (Tenebruso, 2018). It’s benefits such as prime program is continuing to grow. In fact, by 2019 it is estimated that membership will reach 63.9 million, which would represent approximately 53% of American households (Neiger, 2018). Amazon’s stock has grown 87% in the last year (Divine, 2018). Its ratios show elevated strengths. As an investor, looking at how much Amazon is growing I see many dollar signs in the future.