MODULE 1: COMPANY ANALYSIS

MBA LEARNER

NEXFORD UNIVERSITY

FIN 6060: FINANCIAL DECISION MAKING

JUNE 2022
Complete this worksheet using the directions within to guide you. Submit your completed worksheet in the “Assignment and Grades”
tab in your course menu. When you have submitted this assignment for grading, please return to Module 1 for a module wrap-up.

Company Analysis
Directions: Obtain end-of-year financial statements (balance sheets and income statements) for the previous three years from
Amazon and Walmart. Conduct a ratio, horizontal, and vertical analysis for each company. Then answer the following questions.

I retrieved Amazon and Walmart's financial statements for the years 2019, 2020, and 2021.

How would you evaluate the financial strength of Amazon and Walmart?

AMAZON

The charts below were taken from GuruFocus.com (n.d.) and depicted Amazon's financial strengths. The charts reveal that Amazon

has a financial strength of 7, indicating that the company is financially solid and unlikely to experience any financial difficulties.

Amazon's Gross Profit and Net Profit for 2019, 2020, and 2021 are shown in the table below.

Gross Profit (Million $) Net Profit (Million $)

 2019 114,986 11,588

2020 152,757 21,331

2021 197,478 33,364

Amazon's yearly gross profit in 2021 was $197.478 billion which is an increase of 29.28% from the previous year's total of

$152.757 billion, that grew by 32.85 % from 2019. From the year 2019 to the year 2020, Amazon had a considerable increase in its

gross profit, and the same is true for its net profit; this implies that the amount of revenue that the firm generated continued to

increase gradually. However, as compared to the firm's gross profit, the company's net profit has been very low over the course of

the three years under consideration. This suggests that the company allocates a significant portion of its income into operating costs.

If the company were to cut its operating costs, this would result in a rise in its net profit and the achievement of a higher level of

financial stability for the company.

Despite this, the organization was still financially sound as of the end of the year 2021, having paid off all of its debt as well as all of

its other operating expenses.

WALMART
The charts below were taken from GuruFocus.com (n.d.) and depicted Walmart’s financial strengths. The charts reveal that Walmart
has a financial strength of 6, indicating that the company is financially solid and unlikely to experience any financial difficulties.

The table below shows the Gross Profit and Net Profit of Walmart for 2019, 2020 and 2021

Gross Profit (Million $) Net Profit (Million $)

2019 129,104 6,670

2020 129,359 14,881

2021 138,836 13,510

From the year 2019 to the year 2020, Walmart saw a minor gain in its gross profit. However, the firm saw a major gain in its net

profit between the years 2019 and 2020. However, in the year 2021, Walmart saw a minor gain in the gross profit and a decline in

the net profit.. This demonstrates that the growth in revenue created by the company is not even close to being considerable. This

suggests that in comparison of the gross profit and net profit over the course of the three years, the company allocates a significant

portion of its income toward covering its operating expenses. In order for the company to achieve a better level of financial stability,

increasing the net profit can be accomplished by lowering the total expenses incurred by the organization.

The firm's gross profit at the end of the year 2021 shows a trend of marginal increase even though it’s slightly higher than in 2020,

but the company's net profit had a large increase, which demonstrates that the company was successful in managing its expenses.
Is Amazon in a strong or weak financial position?

Ratios 2019 2020 2021

Current Ratio 1.097 1.0502 1.1368

Gross Profit 40.99 39.5678 42.0325

Net Profit 4.1309 5.5252 7.1014

Gearing Ratio 0.3773 0.3406 0.3998

Asset Turnover 1.2454 1.202 1.6327

The current ratio is calculated by comparing an organization's current assets to its current liabilities; if the company has a current

ratio that is greater than one, it indicates that the company has a greater number of assets than it does liabilities, as well as sufficient

resources to meet its short-term obligations and would not go bankrupt at any point in time.

Gross profit for Amazon however experienced a decrease from 2019 to 2020, indicating that the company's revenue increased but

the company's debt also increased leading to reduction in its gross profit; net profit ratio also compares net profit to revenue;

however, the gross profit increased in 2021 which shows that the debt and/or running costs reduced hence led to a growth in gross

profit over 2020. Amazon's net profit has increased over the course of the study's three years, showing that the company has
sufficient profits after it must have deducted all of its expenses; gross profit ratio also compares gross profit to revenue; gross profit

ratio also compares gross profit to revenue; gross profit ratio also compare

The asset turnover ratio is a measurement of how successfully a company uses its assets in order to create income. An asset turnover

ratio greater than one suggests that Amazon is very successful at making the most of its assets in order to generate money.

Is Walmart in a strong or weak financial position?

Walmart is in a slightly weak financial position, and this was evaluated using financial ratios as presented by Macrotrends

(Macrotrends, n.d.) in the table below:

Ratios 2019 2020 2021

Current Ratio 0.7989 0.7945 0.9278

Gross Profit 25.0977 24.6885 25.0987

Net Profit 1.2966 2.8401 2.3873

Gearing Ratio 0.7287 0.8134 0.8789

Asset Turnover 2.3457 2.2155 2.3391

A company's current ratio is calculated by comparing its current assets to its current liabilities. If Walmart's current ratio is below 1,

it indicates that the company is using a greater portion of its assets to service its liabilities and may not have sufficient resources to
meet its short-term obligations. If liabilities continue to rise, the company may be forced into bankruptcy. The net profit ratio

compares net profit to revenue; the gross profit ratio compares gross profit to revenue; Walmart's gross profit has decreased from

2019 to 2020; this indicates that the company's revenue has increased while its debt has also increased, leading to a reduction in

gross profit; the net profit ratio compares net profit to revenue; the gross profit ratio compares gross profit to revenue; the gross

profit for Walmart also reduced from 2019 to 2020, which indicates that Walmart’s revenue increased while its debt increased too

leading to reduction in gross profit but from 2020 to 2021 the gross profit increased which indicates the revenue increased while the

debts reduced.

The asset turnover ratio is a measurement of the assets of the company in relation to the amount of revenue it generates. An asset

turnover ratio greater than one implies that Walmart makes excellent use of its assets in order to create money.

Which company (Amazon or Walmart) is in a better financial position? Explain how you know this.

The two tables above illustrating the analytical ratios of the various parameters on the balance sheet and income statements of both

companies make it clear that Amazon is in a stronger financial situation than Walmart.  In each of the past three years, Amazon has

maintained a current ratio that is greater than 1, while Walmart has maintained a current ratio that is less than 1. Additionally,

Amazon's gross profit and net profit ratios are much greater than those of Walmart.

Overall, Amazon scores higher than Walmart in all of its metrics, which suggests that Amazon is in a stronger financial position

than
Walmart.

Would you use either Amazon or Walmart to establish benchmarks for the company you currently work for? Why?

Because Amazon has a stronger financial strength than Walmart and its parameters have increased significantly from 2019 to 2021,

which indicates that the company is on an upward trajectory, I would use Amazon as a benchmark for the company I currently work

for. This is due to the fact that Amazon has a better financial strength than Walmart.

If you were the CEO of each company, what recommendations would you make to improve the company’s financial performance?

If I were the CEO of each company, I would use this analysis to take critical business decisions to improve the financial strength

of the companies and I will recommend the following:

Recommendations for Amazon:

- Make enhancements to its supply chain and logistics network in order to keep its existing clients and win over new ones.

- Integrate artificial intelligence into their application and processes so that they may provide better experiences for their customers.

- Integrate some sort of automation solution into their working processes in order to boost their level of production.

- Decrease the amount spent on processes or reduce operating costs in order to improve the net profit.

Recommendations for Walmart:

 - Expand their company into emerging markets in order to draw in a greater number of clients.

- Make improvements to their services in order to provide pleasant shopping experiences for its customers.

- Broaden the variety of products they offer so that they can generate greater revenue.

REFERENCES

GuruFocus.com. (2022, March). Amazon.Com Financial Strength. Retrieved from

https://www.gurufocus.com/term/rank_balancesheet/AMZN/Financial+Strength/Amazon.com+Inc
GuruFocus.com (2021, January 6). Walmart Financial Strength. Retrieved from
https://www.gurufocus.com/term/rank_balancesheet/NYSE:WMT/Financial-Strength/Walmart

Macrotrends (n.d.) Amazon Financial Statement 2005-2021. Retrieved from

https://www.macrotrends.net/stocks/charts/AMZN/amazon/financial-statements

Macrotrends (n.d.) Amazon Financial Ratio for Analysis 2005-2021. Retrieved from
https://www.macrotrends.net/stocks/charts/AMZN/amazon/financial-ratios

Macrotrends (n.d.) Walmart Financial Statement 2005-2021. Retrieved from

 https://www.macrotrends.net/stocks/charts/WMT/walmart/financial-statements

Macrotrends (n.d.) Walmart Financial Ratio for Analysis 2005-2021.

https://www.macrotrends.net/stocks/charts/WMT/walmart/financial-ratios