Profitability all efforts resulted in higher sale volume

Profitability Ratios

Gross Profit Margin

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The gross profit margin was improved for Amazon in 2016 to 35.09%
that was 33.04% in 2015. The improvement in margin was backed by 21.31% growth
in sale revenue during 2015-16, while the cost of sale was increased by 18.82%
during the same period. The growth in sale revenue was attributed to all three
segments of North America, International & Amazon Web Services (AWS). The
sale in North America was improved due to company efforts to reduce its product
price, improvement in its shipping process and more options to consumers to
choose from. These all efforts resulted in higher sale volume to all product
areas. Sale from international market segment was improved mainly due to
company efforts to expand its technological infrastructure that increased its
operating expenses but also the sale volume. Growth in AWS segment was driven
by high sale through market place sellers that provides more service fee to
Amazon.

Cost of sale was also increased during this period to 18.82% and
this was due to high product cost and shipping charges during 2016 but still
this increase was lower than 21.31% growth in sale revenue that resulted the
gross margin of 35.09% in this year.

Net Profit Margin

Net profit was 0.56% of sale revenue in 2015 for Amazon that jumped
to 1.74% in 2016. The improvement in net profitability was led by growth in
gross profit margin that was further supported by $90 million from other income
that was 384.44% higher than 2015, when company had to incur the net expense of
$256 million. Operating expenses were all increased with increase in sale
revenue but the rise in real term was ineffective for any material impact on
net profitability.

Liquidity Ratios

Current Ratios

Current ratio was declined marginally for Amazon in 2016 to 1.04
times compared to 1.08 times in 2015. The decline in margin was due to more
increase in current liabilities, by 29.25%, compared to 25.52% increase in
current assets. The inflated payable figure & other expenses payable was
the reason for this increase.

Quick Ratio

Despite the decline in current ratio, quick ratio was improved a
bit in 2016 to 0.78 times compared to 0.77 times. The improved in ratio was due
to the fact the most liquid current assets of Amazon excluding inventory were
30.84% higher in 2016 than was more than 29.25% raise in current liabilities
that improved the ratio.

Solvency Ratio

Debt-to-Assets Ratio

Debt to asset ratio was improved in 2016 to 24% that was 28% in
2015. The decline in ratio was due to 6.57% reduction in long term debts as
Amazon had paid off due loan amounts. The total assets were also up by 27.44%
due to increase in both current & non-current assets.

Efficiency Ratios

Inventory Turnover &
Inventory Days

Inventory turnover ratio improved to 7.70 times in 2016 compared to
7.00 times in 2015 and this was due to increase in sale volume that resulted
the quick conversion of company stock to sale. This quick conversion can also
be observed from reduced number of inventory days in 2016 at 47.39 compared to
52.18 days in 2015.

Receivable Turnover & Days
Sale Outstanding

Receivable turnover was almost unaffected in both years as it was
16.31 times in 2016 compared to 16.66 times in 2015. The reason for the
unaffected figures is due to reason that Amazon trade on cash basis with
individual customers & on credit with only corporate clients that have
predetermined payment periods. This could also be verified from 22.38 days of
debtor collection (sale outstanding period) in 2016 with around same period of
21.91 days in 2015.

Payable Turnover & Days
Payable Outstanding

The payable turnover period was also unaffected in 2015 & 2016
as the figures were 3.51 & 3.49 times in respective years. This is also due
to the contract between Amazon suppliers & the company itself that give
Amazon a set period of time to pay its credits. The same trend is evident in
payable outstanding period that was 103.91 days in 2015 compared to 104.66 days
in 2016 (Morning Star , 2018).

 

 

 

 

 
References
 

Morning Star . (2018). Amazon.com
Inc. Retrieved January 17, 2018, from
http://financials.morningstar.com/income-statement/is.html?t=AMZN
 

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