Question

Finance 313 - Handout #36B Financial Ratios for Amazon (AMZN) & Wal-Mart (WMT) AMZN 2017-12 22.9 2.3 1.71 6.15 2.83 12.91 5.49 WMT 2018-01 25.4 4.1 1.97 3.28 2.04 54 4.89 12.67 7.49 0.76 0.16 0.47 4.18 42.44 42.78 3.84 87.4 8.6 4.37 Gross Profit Margin % Operating Profit Margin % Net Profit Margin % Earnings Per Share Dividend per Share Dividend Payout Ratio % Return on Assets % Return on Equity % Interest Coverage (TIE) Current Ratio Quick Ratio Debt/Equity Days Sales Outstanding Days in Inventory Payables Period Cash Conversion Cycle Receivables Turnover Inventory Turnover Fixed Asset Turnover Asset Turnover 1.04 0.76 1.37 22.06 36.59 79.72 -21.06 16.54 9.97 4.56 1.66 2.48

1～10

Answer 1

Financial Ratio Analysis

Use the reported financial ratios to answer the following questions.

Answer:

Question 1:Which firm is more liquid? Explain.

Answer 1: Amazon

Explanation: Current ratio of Amazon is 1.04 which is greater than 1.00 & Wal-Mart, it means it is fully covered. High liquidity means a company has the ability to meet its short-term obligations.

Question 2:Which firm is more heavily indebted? Explain.

Answer 2:Amazon

Explanation: Debt/Equity ratio of Amazon is 1.37 which is greater than 1.00(100%) & Wal-Mart, tells you that a company has more debt than assets

Question 3:Which firm is better at cost management? Explain.

Answer 3:Wal-Mart

Explanation: Asset Turnover ratio of Wal-Mart is 2.48 which is greater than Amazon.it measures the efficiency of a company's assets to generate revenue or sales.

Question 4:Which firm sells off its inventory fester? Explain.

Answer 4:Amazon

Explanation: Inventory Turnover ratio of Amazon is 9.97 which is greater than Wal-Mart,it shows how effectively inventory is managed firm sells off its inventory fester.

Question 5:Which firm generates more sales revenue per dollar spent on fixed assets? Explain.

Answer 5:Amazon

Explanation: Fixed Asset Turnover ratio of Amazon is 4.56 which is greater than Wal-Mart.The higher the asset turnover ratio, the more efficient a company & generates more sales revenue per dollar spent on fixed assets.

Question 6:If an investor prefers dividend income over capital gains (Income over growth), which firm's stock is the better investment? Explain.

Answer 6:Wal-Mart

Explanation: Dividend per Share ratio of Wal-Mart is 2.04 which is greater than Amazon. Investor prefers Income over growth will prefer Wal-Mart as better investment.

Question 7:Which firm collects its receivables faster? Explain.

Answer 7:Wal-Mart

Explanation: Receivables Turnover ratio of Wal-Mart is 87.4 which is greater than Amazon.A high receivables turnover ratio can indicate that a company's collection of accounts receivable is efficient and that the company has a high proportion of quality customers that pay their debts quickly.

Question 8:Which firm generates more profit per share of stock? Explain.

Answer 8:Amazon

Explanation: Earnings Per Share ratio of Amazon is 6.15 which is greater than Wal-Mart.This indicates that firm generates more profit per share of stock.

Question 9:Which firm is more efficient at converting cash outflows into cash inflows? Explain.

Answer 9:Wal-Mart

Explanation: Cash Conversion Cycle ratio of Wal-Mart is 3.84 which is greater than Amazon.This indicates more efficient at converting cash outflows into cash inflows.

Question 10:What Is the business cycle or business year for both of these firms?

Answer 10:Business cycle for Amazon is 36.59 Days & for Wal-Mart is 42.44 Days.

Explanation: Days in Inventory ratio indicates days a firm averagely needs to turn its inventory into sales.