FIN 6060: Financial Decision Making

Module 1 - Company Analysis Worksheet

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.

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

To evaluate the financial strength of Amazon and Walmart based on the provided data and analyses:

Amazon

 Profitability: Amazon has shown fluctuations in profitability over the years. While it had a strong profit margin in 2021, it
experienced a significant loss in net income in 2022. Its comprehensive income also turned negative in 2022.

 Liquidity: Amazon's liquidity, as indicated by the current ratio, was below 1 in 2022, suggesting that its current liabilities
exceeded its current assets. This could be a concern.

 Debt: Amazon has a relatively low debt-to-equity ratio, indicating a manageable level of debt compared to its equity.

 Vertical Analysis: Amazon's assets are predominantly comprised of property and equipment, indicating a significant
investment in infrastructure.

 Horizontal Analysis: Amazon experienced a substantial decrease in profitability and comprehensive income in 2022
compared to 2021, which may raise questions about its short-term financial performance.

Walmart
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Module 1 - Company Analysis Worksheet

 Profitability: Walmart has maintained a stable, albeit relatively low, profit margin over the years. Its net income also
decreased from 2022 to 2023.

 Liquidity: Walmart's current ratio was slightly below 1 in 2022 and 2023, indicating a similar concern regarding liquidity as
Amazon.

 Debt: Walmart has a moderate debt-to-equity ratio, indicating a reasonable level of debt compared to its equity.

 Vertical Analysis: Walmart's assets are well-diversified between current assets, property and equipment, and other long-
term assets.

 Horizontal Analysis: Walmart experienced a decrease in net income and comprehensive income from 2022 to 2023.

Is Amazon in a strong or weak financial position?

Amazon's financial position in 2022 appears to be relatively weak due to a significant decline in net income, resulting in a net loss.
Additionally, the current ratio was below 1, indicating liquidity concerns. However, the company maintains a relatively low debt-to-
equity ratio, which is a positive sign for financial stability. These observations highlight challenges in profitability and liquidity for
Amazon in 2022, though it's crucial to consider the broader context and long-term strategy of the company when evaluating its
financial strength.

Is Walmart in a strong or weak financial position?

Walmart's financial position appears to be relatively stable but not exceptionally strong. While it has maintained a consistent profit
margin, there was a slight decline in net income from 2022 to 2023. The company faces concerns related to short-term liquidity,
with a current ratio below 1. Additionally, Walmart maintains a moderate debt-to-equity ratio. Similar to Amazon, it's important to
consider Walmart's long-term strategy and industry dynamics when evaluating its financial strength.
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Module 1 - Company Analysis Worksheet

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

Based on the provided financial data and analyses, neither Amazon nor Walmart is in a particularly strong financial position as of
the most recent data available. Both companies have faced challenges in profitability and exhibited concerns regarding liquidity in
recent years. However, it's essential to understand that the financial strength of a company can vary based on specific
circumstances, industry dynamics, and long-term strategies.

Here are the key points for each company's financial position:

Amazon
 Amazon experienced a significant decline in profitability, with a net loss in 2022.
 Its current ratio was below 1 in 2022, indicating liquidity concerns.
 It has a relatively low debt-to-equity ratio, which is a positive sign for financial stability.

Walmart
 Walmart has maintained a relatively stable but relatively low-profit margin over the years.
 Like Amazon, Walmart's current ratio was below 1 in 2022 and 2023, suggesting liquidity concerns.
 It has a moderate debt-to-equity ratio, indicating a reasonable level of debt compared to equity.

Neither company stands out as being in a particularly strong financial position. Both face challenges related to profitability and
liquidity. The determination of which company is in a better financial position may depend on specific factors such as their strategic
objectives, industry conditions, and plans for addressing the current financial challenges.

Would you use either Amazon or Walmart to establish benchmarks for the company you currently work for? Why?
When establishing benchmarks for a fitness center like Barehogs, it's generally more appropriate to use benchmarks from
companies in the same or similar industry. Amazon and Walmart are in the retail and e-commerce sectors, which are quite different
from the fitness and gym industry. Here are some reasons why using Amazon or Walmart as benchmarks for a fitness center may
not be suitable:

1. Dissimilar Business Models: Amazon and Walmart operate as retailers, primarily selling products online and in physical stores.
In contrast, a fitness center's business model focuses on providing services related to health and fitness. The financial metrics and
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Module 1 - Company Analysis Worksheet

performance indicators relevant to these businesses differ significantly.

2. Different Financial Metrics: The key financial metrics and ratios that matter for a fitness center (e.g., membership retention,
customer acquisition cost, average revenue per member, facility utilization, etc.) are distinct from those relevant to retailers like
Amazon and Walmart (e.g., profit margins, inventory turnover, etc.).

3. Industry-Specific Challenges: The challenges and dynamics of the fitness industry, such as seasonality, competition, member
retention, and the impact of local demographics, are different from the challenges in the retail sector.

4. Size and Scale: Amazon and Walmart are large multinational corporations with extensive operations, making their financials and
operational characteristics less relevant for a smaller business like a fitness center.

To establish benchmarks for Barehogs, it would be more appropriate to look at financial data and performance metrics from other
fitness centers or similar businesses within the fitness and wellness industry. Using industry-specific benchmarks can provide a
more accurate understanding of how Barehogs is performing relative to its peers and help in making more informed decisions
related to its operations and financial health.

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

Recommendations for Amazon:

1. Diversify Revenue Streams: Amazon should continue diversifying its revenue streams beyond e-commerce. Expanding into
areas like cloud computing (Amazon Web Services), digital streaming, and technology solutions can reduce reliance on its retail
business.

2. Improve Profit Margins: Amazon's profitability has been relatively low. The company should focus on optimizing operational
efficiency, reducing costs, and potentially revisiting its pricing strategy to improve profit margins.

3. Liquidity Management: Address the issue of low current liquidity. Enhance working capital management to ensure that current
liabilities do not exceed current assets, improving short-term financial stability.
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4. Invest in Sustainability: Given Amazon's size and environmental impact, consider making further investments in sustainability
and reducing its carbon footprint. This not only aligns with social and environmental responsibility but can also lead to cost savings
over time.

5. Long-Term Focus: Maintain a long-term strategic approach and continue investing in innovation and customer experience, which
has been a hallmark of Amazon's success.

Recommendations for Walmart:

1. E-commerce Expansion: Walmart should further strengthen its e-commerce presence to compete effectively with online retailers.
Investing in technology, enhancing the user experience, and expanding online product offerings can help in this regard.

2. Profit Margin Improvement: Walmart may explore strategies to improve its profit margins, which have been relatively low. This
could involve supply chain efficiency improvements, pricing strategies, and cost control measures.

3. Focus on Sustainability: Similar to Amazon, Walmart should consider sustainability initiatives and environmentally friendly
practices, which can improve the brand's reputation and operational efficiency over time.

4. Enhance Customer Experience: Continue investing in-store experiences and omnichannel services to provide customers with
convenience and a seamless shopping experience.

5. International Expansion: Evaluate opportunities for international expansion or partnerships in regions with growth potential, as
this could diversify revenue sources.