Question

Below are some key financial ratios for Amazon and Walmart, two competitors in the retail market, over a three year period. Pick one of the financial ratios, complete a time-series and cross sectional analysis.

	Amazon
	12-2017	12-2016	12-2015
Days in Inventory	36.59	37.41	39.78
Receivables Turnover	16.54	18.42	17.78
Asset Turnover	1.66	1.83	1.78
Current Ratio	1.04	1.04	1.08
Debt/Equity	1.37	0.79	1.06
Return on Equity	12.91%	14.52%	4.94%
Interest Coverage	5.49	9.04	4.42
Profit Margin	1.71%	1.74%	0.56%
	Walmart
	01-2018	01-2017	01-2016
Days in Inventory	42.44	44.21	45.30
Receivables Turnover	87.40	84.80	77.75
Asset Turnover	2.48	2.44	2.39
Current Ratio	0.76	0.86	0.93
Debt/Equity	0.47	0.54	0.55
Return on Equity	12.67%	17.23%	18.15%
Interest Coverage	7.49	9.66	9.49
Profit Margin	1.97%	2.81%	3.05%

Answer 1

Inventory turnover ratio = cost of goods sold / average inventory

Days in inventory = 365 / inventory turnover ratio

Days in inventory is a measure of how fast the inventory is moving. In other words, it measures how many days the average inventory is held during the year. It indicates the efficiency of inventory management. A higher ratio means that the average inventory is relatively high, and the average inventory is sold less number of times during the year. A lower ratio means that the average inventory is relatively low, and the average inventory is sold more number of times during the year.

From 2015 to 2017, the days in inventory of Amazon has been decreasing. This means that Amazon has been managing its inventory more efficiently.  

From 2015 to 2017, the days in inventory of Walmart has been decreasing. This means that Walmart has been managing its inventory more efficiently.  

The days in inventory of Amazon is significantly lower than that of Walmart. This means that Amazon manages its inventory much more efficiently than Walmart