Fin Comparative Analysis Problem: Amazon Inc. Vs. Walmart Stores, Inc

Fin Comparative Analysis Problem: Amazon.com, Inc. vs. Wal-Mart Stores, Inc.

ACC/290

April 24, 2017

Introduction

Inventory turnover is the ratio that shows how many times in a year in which a firm translates its inventory into sales. It ensures that a business has enough inventory as compared to its sales level. A high ratio indicates that a firm is performing better since many customers come to buy as shown by increased sales implying that much of the stock is sold. A low turnover ratio indicates that few customers are buying from the firm and thus the sales are few while inventory levels are still high (Kimmel, Weygandt, & Kieso, 2016).

The receivables turnover of Wal-Mart Corporation is almost the same as that Amazon, but

They only purchase the inventory which they are sure that it is going to sell. The low value of inventory turnover for the Amazon Company could be because they do not know how to manage their purchasing system and thus end up buying a lot of stocks which remain idle at year end This may cause inventory to become obsolete and lose value.

Days in inventory is a ratio that shows the number of days that inventory was held in the warehouse before being sold. When receivables are compared to a business sales activity then the ratio is termed as average collection period. This comparison Is used to indicate the period within which customers pay off their dues to the company. A low ratio indicates better performance since it implies that customers buy more of the inventory within a shorter period of time (Kimmel, Weygandt, & Kieso, 2016). A high figure implies that customers take long to buy hence inventory is held for longer periods before being bought. It is calculated as shown below:

To calculate days in inventory, divide 365 days into the amount of annual cost of goods sold to arrive at sales per day, and then divide this figure into the total inventory for the extent period. Thus, the formula

A firm may be compared to another one which is of a different size, technology and diversification of products. Rations do not consider the effects of inflation on a firm’s performance. For instance, increased sales may be due to increasing the selling price as a result of economical inflationary pressure.

Moreover, ratios do not consider the non-quantitative characteristics of the firm such as customer loyalty, technological advancements and the corporate image. Moreover, the computation of ratios occurs only at a certain period of time and is affected by frequent changes thereafter such as cash changes and changes in stock levels. Lastly, monopolistic firms rarely have competitors thus making cross sectional and industrial analyses difficult.

Regardless total assets that are essential to the two firms, as a result of fluctuations in sales, the financing will be attained from the existing two sources identified. Any amount which cannot be achieved from the observed two sources will have to be borrowed from other external sources on short term basis hence termed as a current