AMAZON

NAME: HAMMAD AHMED

ACCA REG. NUMBER: 2427634
CONTENTS
• ABOUT COMPANY
• RESEARCH OBJECTIVES & QUESTIONS
• SOURCES OF INFORMATION
• ANALYSIS
• CONCLUSIONS AND RECOMMENDATIONS
ABOUT COMPANY
Amazon is a multinational technology company founded by Jeff Bezos in 1994. Originally an online bookstore, Amazon has
grown to become the largest online retailer in the world, selling a wide range of products and services, including electronics,
apparel, home goods, digital media, and more.

As of 2021, Amazon is one of the most valuable companies in the world, with a market capitalization of over $1.7 trillion. The
company is headquartered in Seattle, Washington, and operates in many countries around the world, employing over 1.3
million people globally.
RESEARCH OBJECTIVES & QUESTIONS

• RESEARCH AIM

• The primary objective of this research is to conduct a comprehensive financial performance and position analysis of Amazon and Walmart
Companies, comparing their performance over the last three years. This comparison aims to determine which company has been able to
leverage the business environment more effectively.

• RESEARCH QUESTIONS

 Which company’s management has been able to provide a higher return on capital employed by deriving sales and controlling operational
costs?

 Which company has a stronger liquidity ratio?

 Which company efficiently manages its working capital cycle, converting inventory and receivables into cash while paying off payables?

 Which company is heavily exposed to financial risk?

 Which company has been proved to be a better investment for its investors?

 Which company has been able to take greater advantage of the prevailing business environment?
SOURCES OF INFORMATION

• OBU INFORMATION PACK

• Company Annual Reports
• Business Articles
• Regulatory Filings
REVENUE ANALYSIS
• Amazon's sales performance for 2019, 2020, and 2021 showed steady growth, with revenue of $280.5 billion in 2019, $386.1 billion in
2020, and $386 billion in 2021.
• significant reason for Amazon's sales performance is its ability to provide a seamless and convenient customer experience, thanks to its
extensive product selection, fast and reliable delivery, and innovative technology solutions.
•
The main reason for Amazon's strong sales performance over the past few years is the increasing trend towards online shopping, accelerated
by the COVID-19 pandemic.
OPERATING PROFIT MARGIN
• Amazon's operating profit margin for 2019, 2020, and 2021 were 5.4%, 5.5%, and 5.5%, respectively.
• The stable operating profit margin of Amazon over the past few years can be attributed to its focus on cost optimization, strong revenue
growth, and continued investment in high-margin businesses such as Amazon Web Services (AWS) and advertising.
CURRENT RATIO
• Amazon's current ratio for 2019, 2020, and 2021 were 1.08, 1.18, and 1.16, respectively.
• The current ratio measures a company's ability to pay its short-term liabilities with its short-term assets. Amazon's current ratio has remained
relatively stable over the past few years, indicating that it has enough short-term assets to cover its short-term liabilities. This is likely due to
the company's strong cash flow generation, which has allowed it to maintain sufficient liquidity to meet its financial obligations.
WORKING CAPITAL CYCLE
• Amazon's working capital cycle for 2021 was -4 days, with receivable days of 4, payable days of 65, and inventory days of 36.
• The negative working capital cycle suggests that Amazon is able to finance its operations using funds from its suppliers and customers,
rather than relying on its own resources. This is possible due to the company's strong bargaining power, which enables it to negotiate
favorable payment terms with suppliers, and its efficient supply chain management, which allows it to quickly convert inventory into cash.
• The relatively low receivable days of 4 indicate that Amazon collects payments from its customers quickly, while the high payable days of
65 suggest that the company takes longer to pay its suppliers, allowing it to hold onto cash for longer. The inventory days of 36 indicate that
Amazon is able to manage its inventory efficiently, minimizing the amount of capital tied up in unsold products. Overall, this efficient
management of working capital helps Amazon to maintain strong cash flow and profitability.
GEARING RATIO
• Amazon's gearing ratio for 2019, 2020, and 2021 were 65.7%, 83.2%, and 80.1%, respectively.
• The gearing ratio measures a company's level of debt relative to its equity, and indicates the extent to which a company is financed by debt.
Amazon's increasing gearing ratio over the past few years can be attributed to its higher levels of long-term debt, which the company has
used to finance its growth initiatives, such as investments in its infrastructure and acquisitions. However, despite the increasing debt levels,
Amazon's profitability and cash flows remain strong, allowing the company to comfortably service its debt obligations.
INTEREST COVER
• Amazon's interest cover ratio for 2019, 2020, and 2021 were 10.5, 12.3, and 11.9, respectively.
• The interest cover ratio measures a company's ability to service its interest payments with its earnings before interest and taxes (EBIT).
Amazon's consistently high interest cover ratio over the past few years indicates that the company is generating sufficient profits to easily
cover its interest payments. This is a positive sign for investors, as it suggests that Amazon is managing its debt effectively and is not at risk
of defaulting on its obligations.
EARNING PER SHARE - EPS
• Amazon's EPS (earnings per share) for 2019, 2020, and 2021 were $23.01, $42.54, and $52.30, respectively.
• The increase in Amazon's EPS over the past few years can be attributed to the company's strong revenue growth, cost optimization efforts,
higher-margin businesses like AWS and advertising, and efficient management of working capital.
DIVIDEND PER SHARE - DPS
• . Amazon did not pay any dividends in 2018, 2020, and 2021.
• The company's policy has been to reinvest its profits back into the business to support growth initiatives and maximize shareholder value
through capital appreciation. Therefore, instead of paying dividends, Amazon has used its cash reserves to invest in research and
development, expand its product offerings, and acquire other companies to fuel growth.
STRENGTHS
ONLINE RETAIL DOMINANCE
. Online retail dominance: Amazon is the world's
largest online retailer, with a dominant position in e-
commerce. In 2020, Amazon's net sales amounted to
$386 billion, with more than half of that revenue
generated from online sales. This represents a
significant competitive advantage over Walmart,
which has a much smaller online presence. ("US E-
commerce Market Shares by Company," 2021).
economic
DIVERSIFIED REVENUES
Diversified Revenue Streams: Amazon has a diversified
revenue stream that includes not only online retail,
but also cloud computing (Amazon Web Services),
advertising, and subscription services such as Amazon
Prime. This diversification has helped the company
maintain its profitability even during times of
WEAKNESSES
Dependence on third-party sellers
: While Amazon sells its own products, it also relies
heavily on third-party sellers to provide a wide range
of products to customers. This dependence on third-
party sellers can lead to issues with product quality
and counterfeit products, which can harm Amazon's
reputation. In contrast, Walmart has more control
over the products sold in its physical stores. According
to CNBC, there have been several instances of
counterfeit products being sold on Amazon, which has
led to negative reviews and damaged trust among
customers. (CNBC. (2019).
Limited Grocery Offerings
While Amazon has made strides in the grocery
industry with its acquisition of Whole Foods and the
launch of Amazon Fresh, its grocery offerings are still
limited compared to Walmart's. Walmart has a well-
established grocery business with a large selection of
products and competitive pricing. According to data
from Statista, Walmart was the leading grocery retailer
in the United States in 2020, with a market share of
22.2%. In contrast, Amazon had a market share of just
1.4%.
OPPORTUNITIES
ADVERTISING
Walmart has been investing heavily in its advertising
business in recent years, leveraging its vast trove of
customer data to offer targeted advertising to brands.
In 2020, Walmart's advertising business grew by 79%,
making it the fastest-growing advertising business in
the United States. Amazon also has a significant
advertising business, with estimated US ad revenues
of $13.18 billion in 2020. However, Walmart's
advertising business is growing at a much faster pace,
and it has the advantage of being able to offer in-store
advertising as well
GROCERY AND HOUSEHOLD GOODS
: Walmart is one of the largest grocery retailers in the
United States, with a significant portion of its revenue
coming from grocery and household goods sales. In
2020, Walmart's US e-commerce sales grew by 79%,
largely due to its grocery pickup and delivery services.
Amazon, on the other hand, has been trying to break
into the grocery market with its acquisition of Whole
Foods and the launch of Amazon Fresh and Amazon
Go Grocery stores. However, Amazon's market share
in the US grocery market is still relatively small
compared to Walmart. According to eMarketer,
Walmart is projected to have a 25.2% share of the US
grocery market in 2021, compared to Amazon's 1.9%.
THREATS
Increased competition in e-commerce market
: Amazon faces intense competition from other e-
commerce companies such as Walmart, Alibaba, and
JD.com, which can affect its market share and financial
performance. For example, in 2020, Walmart's e-
commerce sales increased by 79%, while Amazon's e-
commerce sales increased by 38%. This increased
competition can also lead to price wars and pressure
on profit margins for Amazon (Reuters, 2021).
Dependence on third-party sellers
: A significant portion of Amazon's revenue comes
from third-party sellers who use Amazon's platform to
sell their products. However, this dependence on third-
party sellers can be a weakness as Amazon does not
have control over the quality and availability of these
products. Moreover, Amazon faces increased
competition from other e-commerce platforms that
also offer third-party selling services (Bloomberg,
2021).
CONCLUSIONS
• Both Amazon and Walmart have delivered strong financial performance over the past few years, despite the challenges posed by the
pandemic. Amazon's revenue growth has been consistently high, driven by the rapid expansion of its e-commerce business and the growth of
high-margin businesses such as AWS and advertising. Its operating profit margin has remained stable, indicating a continued focus on cost
optimization and efficient management of its operations. Additionally, Amazon's efficient working capital management has allowed the
company to maintain strong cash flows and profitability, even as it invests in growth initiatives.
• On the other hand, Walmart has also shown resilience in its performance, driven by its strong brick-and-mortar presence and rapid growth of
its e-commerce business. The company's revenue growth has been strong, driven by a surge in online sales during the pandemic. Walmart
has also been investing heavily in expanding its digital capabilities and supply chain operations, which has helped to drive its growth.
Additionally, Walmart has been focusing on improving its profitability through cost optimization and operational efficiency measures.
• Overall, both Amazon and Walmart have been successful in navigating the challenges posed by the pandemic and have continued to deliver
strong financial performance through a combination of revenue growth, cost optimization, and efficient management of their operations.
RECOMMENDATIONS
1. Investing in further expansion of its higher-margin businesses such as AWS and advertising, which have contributed significantly to the
company's profitability and growth.
2. Continuously improving its delivery and logistics operations to enhance its customer experience and maintain its competitive advantage.
3. Focusing on sustainable practices and initiatives to reduce the company's environmental impact, which could improve its reputation and
appeal to socially responsible consumers.
4. Pursuing strategic acquisitions and partnerships to expand into new markets and drive growth.
THANK YOU!