AMAZON VS. WALMART: USING FINANCIAL RATIOS TO COMPARE
COMPANIES CASE STUDY SOLUTION
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SYNOPSIS
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In 2021, Shiv Jani, an analyst at the investment management firm Archaic Capital, was in a difficult
situation. He was working with a portfolio manager (PM) who refused to invest in tech companies. His
PM’s preferred company to invest in was Walmart; however, Jani found an investment thesis for
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Amazon.com Inc. (Amazon). To convince his PM to invest, he decided to use financial ratio analysis to
showcase the fundamental similarities between Amazon and Walmart from a financial standpoint.
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So
OBJECTIVES
• Calculate a wide variety of financial ratios.
• Analyze and understand the implications of these financial ratios.
• Understand why certain ratios use specific calculations.
• Relate a company’s strategy and business plan to its financial ratios.
The Case Solution Starts From page 4
,ASSIGNMENT QUESTIONS
1. As Jani, calculate the financial ratios in Case Exhibit 4 for both Amazon and Walmart.
2. Evaluate the differences and similarities in the financial ratios. What trends do you see? Which ratios
signal similarities? Which ratios signal differences?
3. Perform a DuPont analysis of both companies. What components contribute to the relative return on
investment (ROE) of both companies? What is the biggest driver of the difference in ROE between
Amazon and Walmart? What would be the implications of a change in one of the components of ROE?
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4. If you were the portfolio manager, would you accept that Amazon is similar to Walmart based only on
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The Case Solution Starts From page 4
, ANALYSIS
1. As Jani, calculate the financial ratios in Case Exhibit 4 for both Amazon and Walmart.
The following is the output of ratios based on the formulas shown in Case Exhibit 4.
Amazon Walmart
Profitability ratios
Gross margin 39.57% 24.83%
Profit margin 5.53% 2.42%
ROA 7.81% 5.53%
ROE 27.44% 15.98%
Return on invested capital 14.08% 8.87%
Activity ratios
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Asset turnover 1.41x 2.29x
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Invested capital turnover 2.55x 3.67x
Equity turnover 4.97x 6.61x
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Capital intensity 4.16x 5.66x
Days receivable 21.44 4.18
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Days inventory 34.65 38.81
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The Case Solution Starts From page 4
COMPANIES CASE STUDY SOLUTION
e
pl
SYNOPSIS
m
Sa
In 2021, Shiv Jani, an analyst at the investment management firm Archaic Capital, was in a difficult
situation. He was working with a portfolio manager (PM) who refused to invest in tech companies. His
PM’s preferred company to invest in was Walmart; however, Jani found an investment thesis for
n
Amazon.com Inc. (Amazon). To convince his PM to invest, he decided to use financial ratio analysis to
showcase the fundamental similarities between Amazon and Walmart from a financial standpoint.
tio
lu
So
OBJECTIVES
• Calculate a wide variety of financial ratios.
• Analyze and understand the implications of these financial ratios.
• Understand why certain ratios use specific calculations.
• Relate a company’s strategy and business plan to its financial ratios.
The Case Solution Starts From page 4
,ASSIGNMENT QUESTIONS
1. As Jani, calculate the financial ratios in Case Exhibit 4 for both Amazon and Walmart.
2. Evaluate the differences and similarities in the financial ratios. What trends do you see? Which ratios
signal similarities? Which ratios signal differences?
3. Perform a DuPont analysis of both companies. What components contribute to the relative return on
investment (ROE) of both companies? What is the biggest driver of the difference in ROE between
Amazon and Walmart? What would be the implications of a change in one of the components of ROE?
e
4. If you were the portfolio manager, would you accept that Amazon is similar to Walmart based only on
pl
m
Sa
n
tio
lu
So
The Case Solution Starts From page 4
, ANALYSIS
1. As Jani, calculate the financial ratios in Case Exhibit 4 for both Amazon and Walmart.
The following is the output of ratios based on the formulas shown in Case Exhibit 4.
Amazon Walmart
Profitability ratios
Gross margin 39.57% 24.83%
Profit margin 5.53% 2.42%
ROA 7.81% 5.53%
ROE 27.44% 15.98%
Return on invested capital 14.08% 8.87%
Activity ratios
e
Asset turnover 1.41x 2.29x
pl
Invested capital turnover 2.55x 3.67x
Equity turnover 4.97x 6.61x
m
Capital intensity 4.16x 5.66x
Days receivable 21.44 4.18
Sa
Days inventory 34.65 38.81
n
tio
lu
So
The Case Solution Starts From page 4
