Need comprehensive analysis of Ebay and Amazon comparison ratio. I will provide

Question

Need comprehensive analysis of Ebay and Amazon comparison ratio.

I will provide excel spread sheet and calculation. I need cooperative analysis for 3 ratio of ebay and amazon.

What can the team tell from the analysis? What are the strengths and weaknesses of each company?   Which is the stronger competitor? Give reasons.

Return on Equity (ROE)

DuPont Components

Total Asset Turnover (TATO)

eBay Amazon Comparison of ratios 2017 2016 2017 2016 Return on Equity (ROE) Net Income -$1,016 $7,266 $3,033 $2,371 Total Stockholders Equity $7,358 $6,775 $3,210 $2,529 Ratio -13.8% 107.2% 94.5% 93.8% DuPont Components Profit Margin Net Income -$1,016 $7,266 $3,033 $2,371 Revenue $9,567 $8,979 $177,866 $135,987 Net Inc. / Sales -10.6% 80.9% 1.7% 1.7% Total Asset Turnover (TATO) Sales or Revenue $9,567 $8,979 $177,866 $135,987 Total Assets $7,743 $8,875 $60,197 $45,781 Sales / Assets 123.6% 101.2% 295.5% 297.0%

Explanation / Answer

1.ROE

ROE is expressed as a percentage of Net income after dividend divided by Equity Shareholders funds. Since the net income of Ebay is negative in the current year,it has a negative ROE as compared to Amazon which has a positive ROE. The net income of Amazon has increased by 28%(approx) from 2016 to 2017 and for Ebay there is a decline in net income for about 114% approx as compared to the previous year. So we can comment that Amazon is growing at a good pace in terms of revenue and providing good returns to the equityshareholders.

2. Dupoint Components

There are basically three components of the Dupoint Analysis -Net profit Margin, Total assets turnover ratio and the financial leverage. All these three components multiplied together result in ROE. In the given case we have been given the net profit margin component of the Du point analysis.

Since ebay has negative net income in the current year as compared to Amazon, thus it has a negative dupoint component in the current year. But if we compare the previous year figures of Dupoint component of both the companies,Ebay has a much higher net income/ Sales as compared to Amazon.

So we can conlcude that the Net Income/Sales component of Ebay has declined from the previous year and for Amazon it has maintained the same proportion over two years.

3. Total Assets Turnover Ratio

Another component of the Dupoint analysis is the Total Assets turnover ratio which is Net Sales/ Total Assets.The total assets turnover ratio of Amazon is much higher than Ebay that is the assets of Amazon are generating sales at almost 3 times as compared to Ebay.Higher the Total assets turnover ratio, higher will be the ROE is is one of the component of the ROE as per the Dupoint Analysis.

Conclusions on the basis of the above three ratios-

Amazon is a much stronger competitor has compared to Ebay as -

a) it is maintaining growth in its net income whereas for Ebay it is declining

b) The sales for amazon are almost 18 times for Amazon in the current year and 15 times in the Previous year as compared to Ebay which clearly shows its strong share in the overall market.

c) Amazon is utlizing its assets maximum for generating the sales as compared to Ebay as is clearly evident from the above ratios.

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