Liquidity
Current ratio
Amazon.com, Inc. had a current ratio of 1.05 in 2015 (NASDAQ, 2018). The current ratio at Amazon dropped to 1.04 where it remained constant in both fiscal years 2016 and 2017(NASDAQ, 2018). The ecommerce industrial average in the United States of America for the three years was recorded to be 1.01 (CSI Market, 2018). Amazon is at the forefront of the ecommerce sector in the USA and therefore performs better than most of its competitors in the state of Seattle where it is based as well as in the whole of the United States of America (Akter & Wamba, 2016). The strength of the current ratio of Amazon more than that of its industry average indicates a more liquid business approach at the company. Compared to the other companies in the industry, Amazon can take care of its financial obligations using its current assets (Akter & Wamba, 2016).
Quick ratio
The quick ratio of Amazon recorded an increase and a decrease in the three financial years that were observed. In 2015, the company had a quick ratio of 0.75 (NASDAQ, 2018). The quick ratio of Amazon then increased to 0.78 in the fiscal year 2016 (NASDAQ, 2018). The quick ratio had a decrease in the financial year 2017 and stood at 0.76 (NASDAQ, 2018). The ecommerce industry of the USA had a quick ratio of 0.19 by the end of the fiscal year 2015. The quick ratio of the sector rose to 0.24 in the fiscal year 2016. In 2017, the quick ratio of the ecommerce sector rose to 0.30 (CSI Market, 2018). Compared to the industry, Amazon has had a significantly high quick ratio. That indicates the ability of the company to take care of the most pressing financial obligations using the liquid assets (Epstein, 2018). Therefore, Amazon is performing better concerning liquidity that most of the companies in the ecommerce industry in the United States of America.
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Solvency
Cash ratio
Amazon had a cash ratio of 0.58 in the fiscal year 2015 (NASDAQ, 2018). The cash ratio increased to 0.59 in the fiscal year 2016 and then reduced to 0.54 in the fiscal year 2017 (NASDAQ, 2018). The cash ratio recorded a general drop in 2017 compared to 2015 (NASDAQ, 2018). That indicated a reduction in the company's ability to pay off its short-term debt, which would cause concern to the potential creditors of the company. The ecommerce industry had an average of 0.35 in cash ratio for the three financial ratios (CSI Market, 2018). In the analysis of the cash ratio, Amazon still emerged a victor in the industry, which is an indicator of the company's competitive approach to performance (Gimbar, Hansen, & Ozlanski, 2015). According to Zhuo (2017), the competitive approach has made the company to be at the lead of the financial performance in the ecommerce industry in the USA.
Total debt ratio
The total debt ratio, also known as the debt-to-assets ratio at Amazon in 2015 stood at 0.22 (NASDAQ, 2018). That meant that 22% of the assets in the company were financed by debt. The debt ratio of Amazon reduced to 0.18 in 2016 (NASDAQ, 2018). The reduction was a sign of better financial performance in the company and the decline of the total debt. Nonetheless, the situation in the company was different in the fiscal year 2017 with the company increased its total debt ratio to 0.29 (NASDAQ, 2018). That was an indicator of the company's growing debt and the increase in the number of assets that were funded by the debts. The ecommerce industry, in this case, was performing better than Amazon was with the industrial averages in the total debt ratio with an average of 0.05 (CSI Market, 2018). That indicated the possibility of the increasing financial concern of Amazon among its investors and other shareholders.
Asset Management
Inventory turnover
In the fiscal year 2015, Amazon had an inventory turnover of 8.68(NASDAQ, 2018). The inventory turnover then increased in the financial year 2016 and was recorded as 11.33 (NASDAQ, 2018). The inventory turnover had a slight drop to 11.12 according to the 2017 financial information (NASDAQ, 2018). The increase in the inventory turnover in the company indicated the increase in the number of times that the company has replaced inventory (Lee, Zhou & Hsu, 2015). The more the times of the replacement of stock, the more financial performance amazon recorded. The industrial average for the inventory turnover for the three fiscal years was recorded as 8.94 (CSI Market, 2018). Therefore, according to Hançerlioğulları, Şen, & Aktunç (2016), it was evident that Amazon was performing better concerning the sale of goods and the replacement of the inventory than most of the players in the ecommerce sector of the United States of America.
Day's sales in inventory
The day's sales in stock for Amazon were 42.05 in the fiscal year 2015 (NASDAQ, 2018). The days' sales in inventory reduced to 32.22 in the fiscal year 2016 (NASDAQ, 2018). That was an indicator of the increase in the sales of the company since there was a decline in the number of days used to clear the stock (Turban, Outland, King, Lee, Liang, & Turban, 2018). The days' sales in inventory increased to 32.82 days in 2017(NASDAQ, 2018). The slight increase in the days indicated a slowing down of the sales process in the company. Looking at the days' sales in inventory of the ecommerce industry in the united states of America, the ratio was recorded as 40.83 days on average since 2015 to 2017 (CSI Market, 2018). Amazon had an averagely higher speed in the clearance of the available stock than the industry, which was an indicator of the company's better financial sales than most of the players in its industry (Turban et al., 2018).
Profitability
Return on investment
The return on investments for Amazon in 2015 was recorded as 4.58% in the fiscal year 2015(NASDAQ, 2018). The ROI of amazon increased to 5.22% in the fiscal year 2016 and had a further increase in the fiscal year 2017 to stand at 8.28 % (NASDAQ, 2018). The constant increase in the ROI at Amazon can be explained by the continual rise in the net income of the company owing to the increase in the sales. The ROI for the ecommerce industry for the three financial years was recorded as 14.50 % (CSI Market, 2018). From the comparison, the industrial averages for the ROI were higher than that of Amazon, which was a wakeup call for the company in the investment platform in the bid to ensure that it matches with the other companies in its sector.
Gross margin
The gross margin of Amazon recorded a gradual increase from 2015 to 2017. The progressive margin of Amazon was recorded as 33% in the fiscal year 2015(NASDAQ, 2018). The gross margin of the company shot to 35% in the financial year 2016 (NASDAQ, 2018). The gross margin increased at Amazon by 2% in 2017 to hit 37 % (NASDAQ, 2018). The continuous increase in the gross margin of the company was an indicator of the financial health that the company had. Such a trend was likely to attract more potential investors and shareholders as well as attract financial lending institutions. The average gross margin for the American ecommerce industry was 15.32% for the three years (CSI Market, 2018). From the outlook, Amazon was performing more than double in the profitability of the company compared to the other industrial players (Fisher & Raman, 2017). Amazon was, therefore, more profitable compared to its competitors in the American ecommerce market.
Market Value
Price to earnings ratio
Amazon’s price to earnings ratio, also known as the PE ratio has indicated the company's instability in the market valuation. In the fiscal year 2015, Amazon had a PE ratio of 540.71 (Guru Focus, 2018). The ratio drastically nosedived to 152.72 in the financial year 2017 (Guru Focus, 2018). The PE ratio at amazon then rose to 189.85 in the fiscal year 2017 (Guru Focus, 2018). The investors of Amazon, according to the PE ratio recorded in the three years, have had a reduction in their anticipation of financial growth in the future. Comparing amazons PE ratio to the ecommerce industry in the USA, there were more opportunities in the company to invest and attract investors than most of the industrial players (Ritala, Golnam, & Wegmann, 2014). That is because the industry had a PE ratio of 28.25 on average for the three financial years.
References
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