Question

In: Finance

Select the best answer. Based upon a comparison of Table 1 (2011 figures) and Table 2...

Select the best answer. Based upon a comparison of Table 1 (2011 figures) and Table 2

(2017 figures), it is fair to say______________.

Table 1: Selected Financials

Discount Retailing Industry 2011

($ in '000s except per share) Amazon CostCo Target Walmart

Net Sales or Revenues $48,077 $88,915 $69,865 $446,950

Gross Profit Margin-Merch 11.2% 10.7% 30.1% 24.5%

Operating Margin 1.8% 2.7% 7.6% 5.9%

Net Margin 1.3% 1.6% 4.2% 3.7%

EPS $1.37 $3.30 $4.28 $4.52

Return on Average Assets 2.8% 5.8% 6.5% 8.8%

Table 2: Discount Retailing Industry 2017

($ in 000s) except per share Amazon CostCo Target Walmart

Net Sales or Revenues $177,866 $129,025 $71,879 $500,343

Gross Profit Margin-Merch 5.6% 11.3% 28.9% 25.4%

Operating Margin 2.3% 3.2% 6.0% 4.1%

Net Margin 1.7% 2.1% 4.1% 2.0%

EPS $6.32 $6.08 $5.33 $3.28

Return on Average Assets 2.8% 7.7% 7.7% 4.9%


A. Walmart had a competitive advantage in 2017 versus Amazon, CostCo, and Target

B. Based upon ROAA, Costco and Target were at competitive disadvantages in 2011 but had

become the industry leaders versus their rivals - Amazon, and Walmart by 2017.

C. Amazon's astonishing 24% average annual revenue growth from 2011-2017 shows that the

company has a competitive advantage relative to its major competitors - Walmart, Target and

Costco.

D. Walmart maintained its competitive advantage, but Amazon narrowed "the gap" between the

two companies significantly over the period.

Solutions

Expert Solution

Amazon's astonishing 24% average annual revenue growth from 2011-2017 shows that the company has a competitive advantage relative to its major competitors - Walmart, Target and Costco. (which is Option C)

____

Explanation:

The average annual growth rate can be calculated with the use of Rate function/formula of EXCEL/Financial calculator. The function/formula for Rate is Rate(Nper,PMT,-PV,FV) where Nper = Period, PMT = Payment (if any), PV = Present Value and FV = Future Value.

Here, Nper will remain constant at 6 Years (2017 - 2011) and PMT will be 0 for all the companies. We will take sales value in 2011 as the PV and the sales value in 2017 as FV.

Now, we can calculate Average Annual Growth Rate for each company as below:

Amazon = RATE(6,0,-48077,177866) = 24.36% or 24%

Costco = RATE(6,0,-88915,129025) = 6.40% or 6%

Target = RATE(6,0,-69865,71879) = .47% or .5%

Walmart = RATE(6,0,-446950,500343) = 1.90% or 2%

Based on the above calculations, it is clear that Amazon's sales has increased considerably as compared to its competitors indicating its competitive advantage over the rivals. It also indicates that Amazon has increased its market share over the years while its rivals have not shown any significant improvement in their market share.

jeff jeffy answered 1 year ago
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