Question

To evaluate competitive advantage, we must be able to assess the firm's performance -- are they financially successful? Choose a publicly traded company(Microsoft, Amazon etc).For this company and the company's main competitor create a Table/Chart AND a graph in Excel reporting the following information for 2016-2018 : Gross Revenues (sales), Gross Profits, Net Profits, Net Profit Margin and Stock Price.  

In addition to the table and a graph, write a 1 or 2 paragraph summary of it's financial health. Calculate the percent changes for each variable. Also, assess whether the company appears to have a competitive advantage -- why or why not? If it does have an advantage, do you think it is sustainable?

Answer 1

We are going to compare the profit and loss statement of Alphabet Inc and Amazon.com Inc.

Alphabet Profit and Loss
Revenue	12/31/2018	Common Size	12/31/2017	Common Size	12/31/2016	Common Size
Total Revenue	136,819,000		110,855,000		90,272,000
Cost of Revenue	59,549,000	43.52%	45,583,000	41.12%	35,138,000	38.92%
Gross Profit	77,270,000	56.48%	65,272,000	58.88%	55,134,000	61.08%
Operating Expenses
Research Development	21,419,000	15.65%	16,625,000	15.00%	13,948,000	15.45%
Selling General and Administrative	24,459,000	17.88%	19,765,000	17.83%	17,470,000	19.35%
Non Recurring	-		-		-
Others	-		-		-
Total Operating Expenses	105,427,000	77.06%	81,973,000	73.95%	66,556,000	73.73%
Operating Income or Loss	31,392,000	22.94%	28,882,000	26.05%	23,716,000	26.27%
Income from Continuing Operations
Total Other Income/Expenses Net	3,521,000	2.57%	-1,689,000	-1.52%	434,000	0.48%
Earnings Before Interest and Taxes	31,392,000	22.94%	28,882,000	26.05%	23,716,000	26.27%
Interest Expense	-114,000	-0.08%	-109,000	-0.10%	-124,000	-0.14%
Income Before Tax	34,913,000	25.52%	27,193,000	24.53%	24,150,000	26.75%
Income Tax Expense	4,177,000	3.05%	14,531,000	13.11%	4,672,000	5.18%
Minority Interest	-		-		-
Net Income From Continuing Ops	30,736,000	22.46%	12,662,000	11.42%	19,478,000	21.58%
Net Income	30,736,000	22.46%	12,662,000	11.42%	19,478,000	21.58%

Following are the Profit and loss statement of Amazon.com Inc.

Amazon.com Inc
Revenue	12/31/2018	Common Size	12/31/2017	Common Size	12/31/2016	Common Size
Total Revenue	232,887,000		177,866,000		135,987,000
Cost of Revenue	139,156,000	59.75%	111,934,000	62.93%	88,265,000	64.91%
Gross Profit	93,731,000	40.25%	65,932,000	37.07%	47,722,000	35.09%
Operating Expenses
Research Development	28,837,000	12.38%	22,620,000	12.72%	16,085,000	11.83%
Selling General and Administrative	52,177,000	22.40%	38,992,000	21.92%	27,284,000	20.06%
Non Recurring	-		-		-
Others	296,000	0.13%	214,000	0.12%	167,000
Total Operating Expenses	220,466,000	94.67%	173,760,000	97.69%	131,801,000	96.92%
Operating Income or Loss	12,421,000	5.33%	4,106,000	2.31%	4,186,000	3.08%
Income from Continuing Operations
Total Other Income/Expenses Net	-1,151,000	-0.49%	-304,000	-0.17%	-390,000	-0.29%
Earnings Before Interest and Taxes	12,421,000	5.33%	4,106,000	2.31%	4,186,000	3.08%
Interest Expense	-1,417,000	-0.61%	-848,000	-0.48%	-484,000	-0.36%
Income Before Tax	11,270,000	4.84%	3,802,000	2.14%	3,796,000	2.79%
Income Tax Expense	1,197,000	0.51%	769,000	0.43%	1,425,000	1.05%
Minority Interest	-		-		-
Net Income From Continuing Ops	10,073,000	4.33%	3,033,000	1.71%	2,371,000	1.74%
Net Income	10,073,000	4.33%	3,033,000	1.71%	2,371,000	1.74%

Following are the graphical analysis of their revenue

Following are the comparison of net profit

Current Stock price of Alphabet Inc is $1122.99 and $1939 is of Amazon.com Inc.

Financial Health Analysis of both the company

As we can see for the above table, the research and development expenditure of both the company is above 10%, which is considered as very good as they are into business of innovation. Innovation has the capacity to generate money in the economy and this will great for the home country's GDP.

Cost of revenue and Operating expenses for Alphabet has continuously increased where as this trend is opposite in the case of amazon.com. Reduction is cost is being considered as good for any organization but then their profit also needs to be increased. we can see that amazon.com's profit increases consistently year on year. Google need to take care on their cost of revenue.

I would like to conclude that they are the market leader in their sector and very mush inclined or reliant on their R&D, ehich is good for any organization, as the famous saying "Change is the only constant".