Amazon forms an excellent company from which to compare with as it already is a success and furthermore operates within the same industry as Etsy. Even though Amazon deals with a variety of products in contrast to Etsy’s niche market, the financial comparison will be critical in the development of a robust operational strategy for the latter (Bensinger, 2015). Therefore, the quick ratio, asset turnover ratio, and the gross profit percent were computed to evaluate the asset management, profitability, and the leverage of the two online retail stores.
Quick Ratio
The acid test ratio is a metric that is has been used extensively in the assessment of an organization's ability to convert its assets to liquidity in the short-term (Sec.gov. 2015). The constituents used to derive the quick ratio for the financial year 2015, consist of the cash equivalent, assets receivable, current liabilities, and the marketable securities.
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Thus,
QR = (C.E. + Mkt. Sec. + A. Rec.) ÷ C.L.
For Amazon,
QR = (15,890,000 + 13,384,000 + 6,423,000) ÷ 33,899,000 = 1.05
For Etsy,
QR = (27,244 + 330,498 + 20,275) ÷ 86,122 = 4.39
The companies have an excellent position to clear their current liabilities if required to do so within 3 months as shown by the quick ratios but Etsy has better liquidity of $4.39 disposable asset available to secure each dollar of its existing liabilities.
Asset Management
The asset turnover ratio was used to assess how efficiently the two online companies were using their assets increase overall revenue. Thus to achieve this financial comparison, the net sales were computed as a percentile of the total assets for each of the companies, and the results were as indicated below.
Turn. Rat. = N. Sal. ÷ Tot. A.
For Amazon,
Turn. Rat. = 596,000 ÷ 65,444,000 = 0.009
For Etsy,
Turn. Rat. = -54,063 ÷ 553,061 = -0.10
In general, Amazon was more efficient at managing its assets as indicated by the above computations that suggest that the company generated $0.01 for every dollar of the online store’s asset.
Gross Profit Percent
A gross profit margin is a financial tool used to evaluate an organization's business model and financial stability by exposing the cash that remains after subtracting the price of merchandise sold from the sales (Sec.gov. 2015). In the calculation of the gross margin ratio, the gross profit of each of the companies and their corresponding total sales for 2015 were used.
GPM = 100% x (GP ÷ Tot. Sal.)
Amazon,
GPM = 100% x (35,355,000 ÷ 107,006,000) = 33%
Etsy,
GPM = 100% x (176,520 ÷ 273,499) = 65%
From this analysis, it is apparent that Etsy had a greater profit margin compared to Amazon in the financial year 2015.
Debt to Asset Ratio
The leverage ratio is relevant in evaluating the two companies’ level of risk by comparing each of their total debts to the total assets.
D:A = Tot. D ÷ Tot. A
Amazon,
D:A = 8,235,000 ÷ 65,444,000 = 0.13
Etsy,
D:A = 0 ÷ 553,061 = 0
In the financial year ended 2015, Amazon had a greater debt to asset ratio compared to Etsy, hence a higher degree of leverage. This can be attributed to the fact that the company purchases merchandise and content from suppliers for resale while its counterpart connects sellers and buyers hence had a lower financial risk.
Operational Strategy
Compared to its rival, Etsy is doing exceptionally well with only challenges in asset management where Amazon seems to be better off. This fact is evident from the liquidity, profitability, and leverage ratios which show the company performing better than Amazon, which takes a higher financial risk (Sun, 2015). Therefore, as part of the operational strategy that the company can adopt is by increasing the range of products that the sellers and buyers can interact with while maintaining the same marketing strategy. It can also do well in improving its asset management efforts.
References
Bensinger, G. (2015, May 22). Amazon Targets Etsy With 'Handmade? Marketplace. Retrieved July 9, 2019, from https://www.wsj.com/articles/amazon-targets-etsy-with-handmade-marketplace-1432332301
Sec.gov. (2015, December 31). 10-K. Retrieved July 9, 2019, from https://www.sec.gov/Archives/edgar/data/1018724/000101872416000172/amzn-20151231x10k.htm#/h
Sec.gov. (2015, December 31). 10-K. Retrieved July 9, 2019, from https://www.sec.gov/Archives/edgar/data/1370637/000137063716000032/etsy1231201510k.htm#s47292EF3EF7FC80B95CFFDF6504245EB
Sun, L. (2015, October 12). Amazon Inc vs. Etsy Inc: Will Goliath Kill David? Retrieved July 9, 2019, from https://www.fool.com/investing/general/2015/10/12/amazon-inc-vs-etsy-inc-will-goliath-kill-david.aspx
