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Ratio Analysis of Amazon and AutoNation

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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:

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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 http://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 http://smallbusiness.chron.com/importance-ratio-analysis-financial-planning-80600.html
  • Morningstar.com. (2018). AutoNation Inc AN. Retrieved from http://financials.morningstar.com/balance-sheet/bs.html?t=AN&region=usa&culture=en-US
  • Reuters.com. (2018). Amazon.com Inc (AMZN.O). Retrieved from https://www.reuters.com/finance/stocks/company-profile/AMZN.O

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