Financial Analysis of Amazon and Auto Nation
Company Description:
The financial ratio is very important tool in every business. As it help in every type of calculation and observe the difference between current year performance and previous year performance which provide proper guidance related to the financial decision and company strategic decision. It also help in providing true picture to all its shareholders and management and top management compare the performance of company with other companies and improve its weak areas. Here we are going to discuss the financial analysis of two companies; Amazon and AutoNation. Amazon is a well reputed company.it was incorporated in 1996, 28 may and offer a wide range of different services and products with the help of websites. It offer different type of manufacturer and electronics products and with this they offer healthy and organic food of all types to its customers. Company deal in three segments and provide a huge variety of products in almost all over the world. (Reuters.com, 2018)
AutoNation is manufactured in 1996 with the help and support of H.Wayne Huizenga. This company is the most reputed company and become the first auto dealer in the US and become public With 300 new franchise. Company is the biggest automotive retailer in America and having a strong and innovative comprehensive and strategic vision related to retailer sector. (AutoNation Company History, 2018)
Ratio Analysis:
Importance of ratio analysis: the importance of ratio analysis is determined that the financial condition of any company is clearly explain with the help of financial ratios. With these easily compare the current and previous year performance and highlight the major areas of company and also point out the weak areas that provide a better understanding related to company financial position. Financial management and effective planning are important tool for running any business successfully. Ratio analysis help to understand the trends related to new technologies, measuring the financial state of company and provide detail understanding of financial statements. Different comparison provide different information related to different part like profitability ratio show the profit status of company. Liquidity ratio provide information that how much we can cover our debts and liabilities and how much we liquidate our assets. Efficiency ratio show that how much days are required by company to cover all its selling and purchasing and solvency ratio provide a detail overview on our debts related to assets and equity. So different ratios tell us different departments of company and their financial condition. (Lohrey, 2018)
Financial Ratio:
Here we are presenting the four different type of ratios of both Amazon and AutoNation company:
Amazon Company:
| Profitability Ratios | |||||
| Gross Profit Margin | 2013 | 2014 | 2015 | 2016 | 2017 |
| Gross Profit | 20,271 | 26,236 | 35,355 | 47,722 | 65,932 |
| Revenue | 74,452 | 88,988 | 107,006 | 135,987 | 177,866 |
| Formula: Gross Profit/ Revenue | |||||
| Gross Profit Margin | 27.23% | 29.48% | 33.04% | 35.09% | 37.07% |
| Net Profit Margin | 2013 | 2014 | 2015 | 2016 | 2017 |
| Net Profit | 274 | (241) | 596 | 2,371 | 3,033 |
| Revenue | 74,452 | 88,988 | 107,006 | 135,987 | 177,866 |
| Formula: Net Profit/ Revenue | |||||
| Net Profit Margin | 0.37% | -0.27% | 0.56% | 1.74% | 1.71% |
| Return on Assets | 2013 | 2014 | 2015 | 2016 | 2017 |
| Net Profit | 274 | (241) | 596 | 2,371 | 3,033 |
| Total Assets | 40,159 | 54,505 | 65,444 | 83,402 | 131,310 |
| Formula: Net Profit/ Total Assets | |||||
| ROA | 0.68% | -0.44% | 0.91% | 2.84% | 2.31% |
| Liquidity Ratios | |||||
| Current Ratio | 2013 | 2014 | 2015 | 2016 | 2017 |
| Current Assets | 24,625 | 31,327 | 36,474 | 45,781 | 60,197 |
| Current Liabilities | 22,980 | 28,089 | 33,899 | 43,816 | 57,883 |
| Formula: Current Assets/ Current Liabilities | |||||
| Current Ratio | 1.07 | 1.12 | 1.08 | 1.04 | 1.04 |
| Quick Ratio | 2013 | 2014 | 2015 | 2016 | 2017 |
| Current Assets | 24,625 | 31,327 | 36,474 | 45,781 | 60,197 |
| Inventories | 7,411 | 8,299 | 10,243 | 11,461 | 16,047 |
| Current Liabilities | 22,980 | 28,089 | 33,899 | 43,816 | 57,883 |
| Formula: (Current Assets-Inventories)/ Current Liabilities | |||||
| Quick Ratio | 0.75 | 0.82 | 0.77 | 0.78 | 0.76 |
| Efficiency Ratio | |||||
| Inventory Days | 2013 | 2014 | 2015 | 2016 | 2017 |
| Average Inventory | 7,855 | 9,271 | 10,852 | 13,754 | |
| Cost of Revenue | 62,752 | 71,651 | 88,265 | 111,934 | |
| Formula: (Average Inventory/Cost of revenue) x 360 | |||||
| Inventory Days | 45 | 47 | 44 | 44 | |
| Receivable Turnover | 2013 | 2014 | 2015 | 2016 | 2017 |
| Revenue (Credit) | 88,988 | 107,006 | 135,987 | 177,866 | |
| Average Account Receivables | 5,190 | 6,018 | 7,381 | 10,752 | |
| Formula: Revenue/ Average Account Receivables | |||||
| Receivable Turnover | 17.15 | 17.78 | 18.42 | 16.54 | |
| Solvency Ratio | |||||
| Debt Ratio | 2013 | 2014 | 2015 | 2016 | 2017 |
| Total Debt | 30,413 | 43,764 | 52,060 | 64,117 | 103,601 |
| Total Assets | 40,159 | 54,505 | 65,444 | 83,402 | 131,310 |
| Formula: Total debt/ Total Assets | |||||
| Debt Ratio | $ 0.76 | 0.80 | 0.80 | 0.77 | 0.79 |
| Debt to Equity Ratio | 2013 | 2014 | 2015 | 2016 | 2017 |
| Total Debt | 30,413 | 43,764 | 52,060 | 64,117 | 103,601 |
| Total Equity | 9,746 | 10,741 | 13,384 | 19,285 | 27,709 |
| Formula: Total Debt/ Total Equity | |||||
| Debt to Equity Ratio | 3.12 | 4.07 | 3.89 | 3.32 | 3.74 |
AutoNation Company:
| Profitability Ratios | |||||
| Gross Profit Margin | 2013 | 2014 | 2015 | 2016 | 2017 |
| Gross Profit | 2760 | 2989 | 3262 | 3313 | 3359 |
| Revenue | 17518 | 19109 | 20862 | 21609 | 21535 |
| Formula: Gross Profit/ Revenue | |||||
| Gross Profit Margin | 15.76% | 15.64% | 15.64% | 15.33% | 15.60% |
| Net Profit Margin | 2013 | 2014 | 2015 | 2016 | 2017 |
| Net Profit | 375 | 419 | 443 | 431 | 435 |
| Revenue | 17518 | 19109 | 20862 | 21609 | 21535 |
| Formula: Net Profit/ Revenue | |||||
| Net Profit Margin | 2.14% | 2.19% | 2.12% | 1.99% | 2.02% |
| Return on Assets | 2013 | 2014 | 2015 | 2016 | 2017 |
| Net Profit | 375 | 419 | 443 | 431 | 435 |
| Total Assets | 7914 | 8400 | 9558 | 10060 | 10272 |
| Formula: Net Profit/ Total Assets | |||||
| ROA | 4.74% | 4.99% | 4.63% | 4.28% | 4.23% |
| Liquidity Ratios | |||||
| Current Ratio | 2013 | 2014 | 2015 | 2016 | 2017 |
| Current Assets | 3830 | 3999 | 4711 | 4715 | 4798 |
| Current Liabilities | 3752 | 3882 | 5169 | 5829 | 5636 |
| Formula: Current Assets/ Current Liabilities | |||||
| Current Ratio | 1.02 | 1.03 | 0.91 | 0.81 | 0.85 |
| Quick Ratio | 2013 | 2014 | 2015 | 2016 | 2017 |
| Current Assets | 3830 | 3999 | 4711 | 4715 | 4798 |
| Inventories | 2827 | 2899 | 3612 | 3520 | 3366 |
| Current Liabilities | 3752 | 3882 | 5169 | 5829 | 5636 |
| Formula: (Current Assets-Inventories)/ Current Liabilities | |||||
| Quick Ratio | 0.27 | 0.28 | 0.21 | 0.21 | 0.25 |
| Efficiency Ratio | |||||
| Inventory Days | 2013 | 2014 | 2015 | 2016 | 2017 |
| Average Inventory | 2827 | 2899 | 3612 | 3520 | 3366 |
| Cost of Revenue | 14758 | 16120 | 17601 | 18296 | 18176 |
| Formula: (Average Inventory/Cost of revenue) x 360 | |||||
| Inventory Days | 68.96 | 64.74 | 73.88 | 69.26 | 66.67 |
| Receivable Turnover | 2013 | 2014 | 2015 | 2016 | 2017 |
| Revenue (Credit) | 17518 | 19109 | 20862 | 21609 | 21535 |
| Average Account Receivables | 741 | 818 | 908 | 1033 | 1111 |
| Formula: Revenue/ Average Account Receivables | |||||
| Receivable Turnover | 23.64 | 23.36 | 22.98 | 20.92 | 19.38 |
| Solvency Ratio | |||||
| Debt Ratio | 2013 | 2014 | 2015 | 2016 | 2017 |
| Total Debt | 1840 | 2128 | 2367 | 2721 | 2704 |
| Total Assets | 7914 | 8400 | 9558 | 10060 | 10272 |
| Formula: Total debt/ Total Assets | |||||
| Debt Ratio | $ 0.23 | $ 0.25 | $ 0.25 | $ 0.27 | $ 0.26 |
| Debt to Equity Ratio | 2013 | 2014 | 2015 | 2016 | 2017 |
| Total Debt | 1840 | 2128 | 2367 | 2721 | 2704 |
| Total Equity | 2062 | 2072 | 2349 | 2310 | 2369 |
| Formula: Total Debt/ Total Equity | |||||
| Debt to Equity Ratio | 0.89 | 1.03 | 1.01 | 1.18 | 1.14 |
Vertical and horizontal analysis:
The vertical and horizontal analysis of Amazon Company is given below:
Vertical analysis:
| Income Statement | 2015 | 2016 | 2017 |
| Revenue | 100.00% | 100.00% | 100.00% |
| Cost of revenue | 66.96% | 64.91% | 62.93% |
| Gross profit | 33.04% | 35.09% | 37.07% |
| Total operating expenses | 30.95% | 32.01% | 34.76% |
| Operating income | 2.09% | 3.08% | 2.31% |
| Net income | 0.56% | 1.74% | 1.71% |
| Balance Sheet | 2015 | 2016 | 2017 |
| Assets | |||
| Total current assets | 55.73% | 54.89% | 45.84% |
| Total non-current assets | 44.27% | 45.11% | 54.16% |
| Total assets | |||
| Liabilities and stockholders’ equity | |||
| Total current liabilities | 51.80% | 52.54% | 44.08% |
| Total non-current liabilities | 27.75% | 24.34% | 34.82% |
| Total liabilities | 79.55% | 76.88% | 78.90% |
| Total stockholders’ equity | 20.45% | 23.12% | 21.10% |
| Total liabilities and stockholders’ equity | 100.00% | 100.00% | 100.00% |
Horizontal analysis:
| Income Statement | 2016 | 2017 |
| Revenue | 27.08% | 30.80% |
| Cost of revenue | 23.19% | 26.82% |
| Gross profit | 34.98% | 38.16% |
| Total operating expenses | 31.44% | 42.01% |
| Operating income | 87.46% | -1.91% |
| Net income | 297.82% | 27.92% |
| Balance Sheet | 2016 | 2017 |
| Assets | ||
| Total current assets | 25.52% | 31.49% |
| Total non-current assets | 29.86% | 89.02% |
| Total assets | 27.44% | 57.44% |
| Liabilities and stockholders’ equity | ||
| Total current liabilities | 29.25% | 32.10% |
| Total non-current liabilities | 11.78% | 125.20% |
| Total liabilities | 23.16% | 61.58% |
| Total stockholders’ equity | 44.09% | 43.68% |
| Total liabilities and stockholders’ equity | 27.44% | 57.44% |
Vertical analysis of AutoNation Company:
| Income Statement | 2015 | 2016 | 2017 |
| Revenue | 100.00% | 100.00% | 100.00% |
| Cost of revenue | 84.4% | 84.67% | 84.40% |
| Gross profit | 15.64% | 15.33% | 15.60% |
| Total operating expenses | 11.37% | 11.22% | 11.68% |
| Operating income | 4.26% | 4.12% | 3.91% |
| Net income | 2.12% | 1.99% | 2.02% |
| Balance Sheet | 2015 | 2016 | 2017 |
| Assets | |||
| Total current assets | 49.29% | 46.87% | 46.71% |
| Total non-current assets | 50.71% | 53.13% | 53.29% |
| Total assets | 100.00% | 100.00% | 100.00% |
| Liabilities and stockholders’ equity | |||
| Total current liabilities | 54.08% | 57.94% | 54.87% |
| Total non-current liabilities | 21.34% | 19.10% | 22.07% |
| Total liabilities | 75.42% | 77.04% | 76.93% |
| Total stockholders’ equity | 24.58% | 22.96% | 23.06% |
| Total liabilities and stockholders’ equity | 100.00% | 100.00% | 100.00% |
Horizontal analysis:
| Income Statement | 2016 | 2017 |
| Revenue | 3.58% | -0.34% |
| Cost of revenue | 3.95% | -0.66% |
| Gross profit | 1.56% | 1.39% |
| Total operating expenses | 2.15% | 3.80% |
| Operating income | 0.11% | -5.28% |
| Net income | -2.71% | 0.93% |
| Balance Sheet | 2016 | 2017 |
| Assets | ||
| Total current assets | 0.08% | 1.76% |
| Total non-current assets | 10.27% | 2.41% |
| Total assets | 5.25% | 2.11% |
| Liabilities and stockholders’ equity | ||
| Total current liabilities | 12.77% | -3.31% |
| Total non-current liabilities | -5.83% | 18.01% |
| Total liabilities | 7.50% | 1.96% |
| Total stockholders’ equity | -1.66% | 2.55% |
| Total liabilities and stockholders’ equity | 5.25% | 2.11% |
(Morningstar.com, 2018)
Discussion:
In the Amazon Company, we can observe that major difference can be appearing in its profitability ratio which is going to be increase after every year. So Amazon company is busy in making high profits and its remaining ratios show that its efficiency, solvency and liquidity is almost same in last 5 years which show that it perform its duties with high efficiency and consistency.
In AutoNation Company, its ratios show that company is moving in upward direction with slowly and getting high range of profit and maintain its position in the market. So the overall ratios show that company is performing very well and generate profit every year and give good return to its stockholders and dealers.
References:
- AutoNation Company History. (2018). Retrieved from https://phx.corporate-ir.net/phoenix.zhtml?c=85803&p=irol-companyhistory_pf
- Lohrey, J. (2018, april 05). Importance of Ratio Analysis in Financial Planning. Retrieved from https://smallbusiness.chron.com/importance-ratio-analysis-financial-planning-80600.html
- Morningstar.com. (2018). AutoNation Inc AN. Retrieved from https://financials.morningstar.com/balance-sheet/bs.html?t=AN®ion=usa&culture=en-US
- Reuters.com. (2018). Amazon.com Inc (AMZN.O). Retrieved from https://www.reuters.com/finance/stocks/company-profile/AMZN.O