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

Jeffery Jones

ACC/290

Jammie Janis

November 20, 2017

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

Financial statements can give a company a great amount of insight into the status and

success of their business. The amount of inventory a company holds, as well as the length of

time the inventory is held, can directly affect the profitability of a company. In this comparison I

will interpret the financial statements of Amazon.com and Wal-Mart; two of the world’s largest

marketplaces, and compare their inventory turnovers and number of days in inventory and

calculate them both to give a side by side analysis at the two companies to determine who has

better management of the inventories.

Walmart, one of the most popular retailers all over the world, was established by a man

by the name of Sam Walton. In 1962 in Rogers, Arkansas, Walmart was established and has

become very successful and has changed the retail business with quality products and lower

prices all over the world.

Amazon is another popular retailer that is also established all over the world. This

company was created in the garage of Jeff Bezo in 1994. Things were well on their way for Mr.

Bezo, and by 1996 the first online associates program was launched for online shopping and by

1998 the Amazon experience had reach the United Kingdom and Germany and are now also all

over the world.

Inventory Turnover

Inventory turnover is a measure of how quick a retailer sells all of its inventory and needs

to replace it. The faster you turn your inventory, the more inventory you will need within a year.

Inventory turn is typically looked at on a calendar year basis. This means that you are calculating

how many times you will turn that item in a year. Even though you may be looking at it in a
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shorter period, you can assume based on statistics, that time period out to equal a year. Inventory

turnover can be a good thing, but it can also be sort of bad. Just because you are getting rid of

your inventory fast, it could mean that you may not be stocking enough. But there could be

situation where you have many items and may only sell one, which means the turnover on that

item is not good and you have too many.

Days in Inventory

The days in inventory gives you the average number of days that it took you to sell the

products a company has in their inventory during the certain time frame given. Calculating the

formula is used to determine how fast a company is transforming the inventory into sales. A

slower turnaround on sales may be a bad sign that there may be problems within the company,

such as brand image or the product, or outside the company, such as an industry downturn or the

overall economy. If you look at the chart below; Table 1, it will show the comparison between

the two companies to see to evaluate the inventory section of two companies using basic

comparative analysis, and to interpret the data to gain insight about the company's inventory

management.

Table 1
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(a)
Amazon.com Wal-Mart

Inventory turnover: 7.98 8.11

Inventories
2014 2013 2015 2014
8,299 7,411 7,855 45,151 44,858 44999.5
Cost of sales 62,752 7,855 7.98 365,086 44,999.50 8.11

Days in inventory: 46 days 45 days

365 / 7.98 46 365 / 8.11 45

(b) Based on the inventory information from both Amazon and Wal-Mart, the financial statements
show that neither of the 2 companies sit very long when it comes to their inventory. The are very
close in how long they hold on to inventory. They both have great sales, but Walmart seems to
get rid of their inventory quicker than Amazon, but their days is inventory is a day longer than
Amazon. Their turnover rate is better than Walmart, although Walmart seems to lower inventory
purchase. The company can change what products are ordered to bring down their days in
inventory to be under 46 days or they can order more product. The management can also look at
ways to move products faster, maybe have more items on sale or possibly do inventory more
than once a year. The Amazon and Wal- Mart company can do little changes to improve
company’s performances and trends that come from customers.

The amounts owed turnover of the Wal-Mart Corporation is very close to that of the Amazon

company. But Wal-Mart Corporation are somewhat higher then Amazon. These would mean that

Wal- Mart has upper hand to more sales that are possible, because some of their sales are most of

their products are purchased with cash basis and that can therefore extend credit to more

customers easier. Now, Amazon seems to be more on selling more than on credit. Switch means
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most of their debtors have not paid for their purchase and gives more credit sales that will lower

the amount of sales that come in.

To compute the Inventory turnover for both Amazon and Walmart. Taking the Amazon

turnover for 2014, and the cost of sales was $62,752, and was divided by the 2014 inventory

which is $8,299 plus the 2013 inventory which is $7,411 added them up and divided them by 2.

So, cost of goods sold, divided by both inventories came out to an inventory turnover of 7.98.

Next, I computed the days in inventory which is 365 days divided by the inventory turnover of

7.98, and this came out to be 46 days. In following the same formula for the Walmart turnover

for 2015, the cost of sales for them was $365,086 and was divided by the 2015 inventory of

$45,151, and the 2014 inventory of $44,858I also added the both numbers up and divided them

by two. The cost of goods sold for Walmart, divided by both inventories was an inventory

turnover of 8.11. To compute Walmart’s days in inventory, I used the same formula with the 365

days divided by Walmart’s inventory turnover and came up with 45 days.

In conclusion, according to the Economist Competition (2016), “Amazon and Walmart

have become ubiquitous, household names in the US and for good reason: both of these

companies have revolutionized the way in which we shop. Amazon offers a convenient

experience, and an ever-expanding selection of products whereas Walmart has a wide network of

store locations and famously low prices.” With the comparison that was done and this

investment case, this let’s know that if there was a company that I think will have a better

turnover in the next 10 years with their inventory and sales, it will be Walmart.
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References

Amazon (2017). About Us. Retrieved from https://www.amazon.com/p/feature/rzekmvyjojcp6uc

Shidler College of Business (2016). Walmart VS Amazon. Economist 2016 Investment Case

Competition. Retrieved from

http://www.economist.com/sites/default/files/shidler_college_of_business_ws.pdf

Walmart (2017). About Us. Retrieved from https://corporate.walmart.com/our-story