Profitability RatiosGross Profit MarginThe 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% growthin 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 threesegments of North America, International & Amazon Web Services (AWS). Thesale in North America was improved due to company efforts to reduce its productprice, improvement in its shipping process and more options to consumers tochoose from. These all efforts resulted in higher sale volume to all productareas. Sale from international market segment was improved mainly due tocompany efforts to expand its technological infrastructure that increased itsoperating expenses but also the sale volume. Growth in AWS segment was drivenby high sale through market place sellers that provides more service fee toAmazon. Cost of sale was also increased during this period to 18.82% andthis was due to high product cost and shipping charges during 2016 but stillthis increase was lower than 21.31% growth in sale revenue that resulted thegross margin of 35.
09% in this year.Net Profit MarginNet profit was 0.56% of sale revenue in 2015 for Amazon that jumpedto 1.74% in 2016. The improvement in net profitability was led by growth ingross profit margin that was further supported by $90 million from other incomethat 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 salerevenue but the rise in real term was ineffective for any material impact onnet profitability.Liquidity RatiosCurrent RatiosCurrent ratio was declined marginally for Amazon in 2016 to 1.04times compared to 1.08 times in 2015.
The decline in margin was due to moreincrease in current liabilities, by 29.25%, compared to 25.52% increase incurrent assets. The inflated payable figure & other expenses payable wasthe reason for this increase.Quick RatioDespite the decline in current ratio, quick ratio was improved abit in 2016 to 0.78 times compared to 0.77 times. The improved in ratio was dueto the fact the most liquid current assets of Amazon excluding inventory were30.
84% higher in 2016 than was more than 29.25% raise in current liabilitiesthat improved the ratio.Solvency RatioDebt-to-Assets RatioDebt to asset ratio was improved in 2016 to 24% that was 28% in2015. The decline in ratio was due to 6.57% reduction in long term debts asAmazon 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 RatiosInventory Turnover &Inventory DaysInventory turnover ratio improved to 7.70 times in 2016 compared to7.00 times in 2015 and this was due to increase in sale volume that resultedthe quick conversion of company stock to sale. This quick conversion can alsobe observed from reduced number of inventory days in 2016 at 47.39 compared to52.18 days in 2015.
Receivable Turnover & DaysSale OutstandingReceivable turnover was almost unaffected in both years as it was16.31 times in 2016 compared to 16.66 times in 2015. The reason for theunaffected figures is due to reason that Amazon trade on cash basis withindividual customers & on credit with only corporate clients that havepredetermined payment periods. This could also be verified from 22.
38 days ofdebtor collection (sale outstanding period) in 2016 with around same period of21.91 days in 2015.Payable Turnover & DaysPayable OutstandingThe payable turnover period was also unaffected in 2015 & 2016as the figures were 3.51 & 3.49 times in respective years. This is also dueto the contract between Amazon suppliers & the company itself that giveAmazon a set period of time to pay its credits.
The same trend is evident inpayable outstanding period that was 103.91 days in 2015 compared to 104.66 daysin 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