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FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
Scott Scott
NCU
ACC 7035
11/14/2023
Background Summary
2
FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
Amazon (AMZN) and Walmart (WMT) are two of the largest retailers in the United
States and the world. Both companies operate massive e-commerce and brick-and-mortar retail
operations. Amazon was founded in 1994 and is headquartered in Seattle, Washington. The
company started as an online bookstore but has grown to become the world's largest online
retailer selling a wide variety of consumer products (McFadden, 2021). Amazon also
manufactures consumer electronics like Kindle e-readers, Fire tablets, and Echo smart speakers
and provides cloud-computing services through its Amazon Web Services (AWS) division.
Walmart was founded in 1962 and is headquartered in Bentonville, Arkansas (O’Connell, 2019).
The company operates over 10,500 stores under various banners in 24 countries. Walmart is the
world’s largest company in terms of revenue and the largest private employer with over 2.2
million associates worldwide. The company is transitioning and growing its e-commerce
business to better compete with Amazon.
Conceptual Differences between Net Income, Comprehensive Income, and Accumulated
Other Comprehensive Income
Net income is a company's bottom line profit calculated under generally accepted
accounting principles (GAAP). It represents revenues minus expenses and is the most widely
followed indicator of a company's financial performance. Comprehensive income is a broader
measure of total profitability that includes net income plus gains and losses that bypass the
income statement and are recorded directly in shareholders' equity. This includes things like
changes in the fair value of investments, foreign currency translation adjustments for
international operations, and certain pension adjustments. Accumulated other comprehensive
income is an equity account on the balance sheet that accumulates all these direct entries to
shareholders’ equity that bypass net income. It essentially tracks the running balance of all
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FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
comprehensive income items that did not flow through the income statement. Therefore, the key
difference is that net income only reflects revenues and expenses included on the income
statement while comprehensive income provides a more complete assessment of changes in
shareholders' equity each period. Accumulated other comprehensive income accounts for items
that affect equity outside of transactions with shareholders.
Financial Performance Analysis
Figure 1: Financial Income statement for AMAZON (AMZN) and Walmart (WMT) FOR 2021
AND 2022
Net Income
From the existing financial information collected from Yahoo.com, Amazon saw a
significant decline in net income between 2021 and 2022. In 2021, the company reported a
robust net income of $33.4 billion (Yahoo Finance, 2021). However, in 2022, Amazon swung to
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FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
a net loss of $2.7 billion. The $36.1 billion negative change in net income was primarily
attributable to a substantial $12.7 billion non-cash pre-tax valuation loss stemming from
Amazon's investment in Rivian Automotive. This write-down of the Rivian investment was the
key driver that caused net income to drop into negative territory. Excluding the impact of the
Rivian loss, Amazon's net income would have been approximately $10 billion in 2022, still
representing a 70% decline from the prior year.
In contrast to Amazon, Walmart experienced stable net income over the two-year period.
In 2021, Walmart reported net income of $13.7 billion. The company maintained strong
profitability in 2022, with a net income of $13.5 billion for the year. Walmart's net income
declined slightly by 1.5% between 2021 and 2022. However, the company avoided any major
swings or losses (Yahoo Finance, 2023). The consistent net income demonstrates Walmart
maintained reliable profit margins over the past two years without any of the volatility
influencing Amazon's earnings. While Amazon moved from a $33 billion profit to a multi-billion
dollar loss, Walmart continued generating over $13 billion in net income in both periods.
Earnings per Share
Amazon experienced a sharp decline in earnings per share (EPS) from 2021 to 2022
driven by the net loss. In 2021, the company had robust EPS of $3.24 for basic and $3.30 for
diluted. However, in 2022 EPS plummeted to ($0.27) for both basic and diluted, representing a
negative swing of over $3.50 per share (Yahoo Finance, 2021). This drastic EPS contraction
stemmed directly from the net loss in 2022 compared to strong net income in 2021. With the
bottom line shifting from a $33 billion profit to a $2.7 billion loss, EPS correspondingly dropped
significantly.
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FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
In contrast, Walmart grew EPS year-over-year. In 2021, Walmart had a basic EPS of
$4.77 and a diluted EPS of $4.75. The company improved on both metrics in 2022, with basic
EPS increasing to $4.90 and diluted rising to $4.87. This growth represented a 2.7% bump in
basic EPS and a 2.5% increase in diluted EPS between 2021 and 2022. The EPS gains can be
attributed to Walmart having fewer shares outstanding in 2022 as the company repurchased
stock. With fewer shares, the company's net income was distributed over a smaller share base,
benefiting EPS.
Comprehensive Income
Amazon experienced a sharp drop in comprehensive income from 2021 to 2022. In 2021,
Amazon had a robust comprehensive income of $33 billion. However, in 2022 the company
swung to a comprehensive loss of $3.6 billion (Yahoo Finance, 2021). This massive $36.6 billion
negative change was primarily driven by the $12.7 billion pre-tax loss relating to the Rivian
investment write-down. This write-off flowed through to comprehensive income, causing it to
decline over 100% year-over-year. Walmart trended to the contrary, with comprehensive income
increasing between 2021 and 2022. In 2021, Walmart reported a comprehensive income of $13.5
billion. This rose to $14.6 billion in comprehensive income for 2022, representing an 8%
increase. Walmart's higher comprehensive income was fueled by improved net income along
with larger investment gains related to derivatives. While Amazon took a large comprehensive
loss stemming from the Rivian investment issue, Walmart grew comprehensive income through
strong core performance and investment gains. The companies experienced completely divergent
comprehensive income results between 2021 and 2022, with Amazon dropping dramatically into
the red and Walmart achieving steady growth.
Accumulated Other Comprehensive Income
6
FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
Amazon saw a substantial decrease in accumulated other comprehensive income (AOCI)
from 2021 to 2022 (Yahoo Finance, 2021). At the end of 2021, Amazon had an AOCI of $3.5
billion on its balance sheet. However, by the end of 2022, AOCI had dropped to just $187
million, representing a 95% year-over-year decline. This massive contraction was driven by
losses on the company's marketable securities, particularly the Rivian investment. The unrealized
losses on these securities flowed through and reduced AOCI significantly over the course of
2022. In contrast, Walmart grew its AOCI balance between 2021 and 2022. At the end of 2021,
Walmart had an AOCI of $4.4 billion. By the end of 2022, this figure had increased to $4.7
billion, up 7% year-over-year. Walmart's AOCI benefitted from additional unrealized gains
relating to derivatives and other investments during 2022. While market losses pummeled
Amazon's AOCI balance, Walmart managed to further build up its AOCI through investment-
related gains over the past year. The companies had completely opposite AOCI trajectories over
the last two years.
Horizontal and Trend Analysis
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FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
Figure 2; Amazon vs Walmart Financial Statement Analysis Trend 2021 and 2022
Looking at comprehensive income results over the past two years highlights diverging
trends between Amazon and Walmart. Both companies have seen revenue growth decelerate after
huge pandemic-related gains. Amazon's revenues increased 9.4% in 2022, down from 21.7%
growth in 2021 (Yahoo Finance, 2021). Similarly, Walmart's revenues grew just 2.4% in 2022
versus 4.7% in 2021. However, Walmart has controlled expenses much better recently. Walmart's
operating expenses rose only 1.3% in 2022 compared to a 15.2% jump in 2021 (Yahoo Finance,
2023). Meanwhile, Amazon's operating expenses spiked 33.7% in 2022 after increasing just
6.2% in 2021, driven by heavy investment in fulfillment and logistics capabilities. This
combination of slowing revenues and surging expenses led Amazon to report an operating loss in
2022 compared to a profit in 2021. Walmart realized the opposite, with operating income rising
15.1% in 2022 following a 2.9% decrease in 2021 thanks to cost discipline. Ultimately, these
operating trends flowed through the comprehensive income statements. Amazon reported a
massive $3.6 billion comprehensive loss in 2022 driven by the Rivian investment write-down
after a comprehensive income of $33 billion in 2021. Walmart achieved 8% comprehensive
income growth between 2021 and 2022 to $14.6 billion thanks to better operational performance
and investment gains (Yahoo Finance, 2023). The trend analysis clearly shows the diverging
comprehensive income results based on the different expense trajectories of these competitors.
Ratio Analysis
Gross Margin Ratio
Analysis of the gross margin ratios over the past two years shows Walmart maintaining
consistently stronger profitability versus compression at Amazon. In 2021, Amazon reported a
gross margin ratio of 14.1% (Yahoo Finance, 2021). However, in 2022 the ratio declined to
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FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
13.2% due to fulfillment cost inflation exceeding revenue growth. Rising logistics and
transportation expenses have steadily eaten into Amazon's gross margins. In contrast, Walmart
held gross margins steady between 2021 and 2022. Walmart's gross margin ratio was 24.9% in
2021 and ticked up slightly to 25.1% in 2022 (Yahoo Finance, 2023). Walmart's scale provides
more protection against cost increases, allowing the company to defend margins. Amazon
experienced 120 basis points of gross margin compression over the two-year period while
Walmart maintained ratios above 25%. Walmart has significantly higher gross profitability, and
Amazon's margins are trending in the wrong direction. The ratio analysis confirms Walmart's
structural gross margin advantage versus Amazon's challenges with fulfillment cost inflation.
Operating Margin Ratio
Analysis of the operating margin ratios shows a reversal of fortunes between the two
companies over the past two years. In 2021, Amazon reported an operating margin of 5.3%
compared to just 4.0% for Walmart. However, in 2022 the situation flipped entirely. Amazon's
operating margin plunged to -2.4% in 2022 due to the sizable Rivian investment loss. This
represented nearly an 800 basis point decline in just one year. Meanwhile, Walmart increased its
operating margin to 4.5% in 2022 through diligent cost control efforts (Yahoo Finance, 2023).
Walmart cut expenses and drove efficiency gains to expand margins by 50 basis points. The ratio
analysis displays how the Rivian-related loss decimated Amazon's profitability, while Walmart
made operational improvements to strengthen margins. Walmart has completely overtaken
Amazon in terms of operating margin performance based on the drastic reversal of trends over
the past two years.
Comprehensive Income Margin
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FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
Further ratio analysis of the comprehensive income margins underscores the divergence
between the two companies. In 2021, Amazon held an advantage with a comprehensive income
margin of 7.0% compared to just 2.4% for Walmart. However, in 2022, Amazon's comprehensive
income margin plummeted to -0.7% due to the massive Rivian-related loss. This represented a
770 basis point swing in the wrong direction. Meanwhile, Walmart increased its comprehensive
income margin to 2.5% in 2022, up 10 basis points through improved operational execution
(Yahoo Finance, 2023). The ratios display how Walmart continued improving profitability over
the past two years while Amazon experienced severe margin compression and shifted to a
comprehensive loss in 2022. The Rivian investment write-down was the primary driver that
caused Amazon's profitability ratios to decline across the board compared to Walmart's gains.
This ratio analysis confirms that Walmart extended its lead in terms of comprehensive income
margins versus Amazon's faltering.
Comprehensive Income per Share
The comprehensive income per share figures further showcase the diverging profitability
trends between the two retail rivals. Amazon reported a robust comprehensive income per share
of $31.02 in 2021 (Yahoo Finance, 2021). However, in 2022 this swung to a comprehensive loss
per share of ($0.35) due to the Rivian investment loss. In contrast, Walmart grew its
comprehensive income per share from $4.74 in 2021 to $5.28 in 2022 thanks to higher net
income and investment gains. The per-share amounts reflect the same trends seen in the overall
comprehensive income results for both companies. Requiring comprehensive income per share
could provide incremental information to allow investors to better assess total performance.
However, it may also cause confusion for those accustomed to traditional EPS if the figures
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FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
diverge significantly. There would likely need to be additional education on interpreting
comprehensive income metrics if per-share amounts were reported.
Informational Content of Comprehensive Income
Comprehensive income does provide incremental informational value over net income by
capturing important changes in shareholders’ equity that bypass the income statement. For
Amazon in 2022, this included over $12 billion in unrealized losses on its Rivian investment that
are very relevant in assessing overall performance but are not reflected in net income. However,
comprehensive income also introduces some volatility from market-driven factors like
investment fluctuations that may distort the assessment of core operating results. Companies
often prefer to separate out these non-operating items through other comprehensive income
disclosures rather than having them directly impact comprehensive income. Reporting both
metrics clearly delineated between operating and non-operating is likely optimal. Net income
remains useful for evaluating core business performance. Comprehensive income gives a more
complete picture of total changes in shareholders’ equity each period.
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FINANCIAL ANALYSIS FOR PUBLICLY TRADED COMPANIES: AMAZON INC. AND WALMART. INC.
References
McFadden, C. (2021, February 17).
The Rise and Rise of Amazon: A Brief History of the
Everything Store
. Interestingengineering.com.
https://interestingengineering.com/culture/a-very-brief-history-of-amazon-the-
everything-store
O’Connell, B. (2019, September 17).
History of Walmart: Timeline and Facts
. TheStreet.
https://www.thestreet.com/markets/history-of-walmart-15092339
Yahoo Finance. (2021).
Amazon.com, Inc. (AMZN) Income Statement
. @YahooFinance.
https://finance.yahoo.com/quote/AMZN/financials?p=AMZN
Yahoo Finance. (2023).
Walmart Inc. (WMT) Income Statement - Yahoo Finance
.
@YahooFinance. https://finance.yahoo.com/quote/WMT/financials?p=WMT
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- 8 Alimentation Couche-Tard Inc. is a leading convenience store operator in Canada, with Couche-Tard stores in Quebec and Mac's stores in central and western Canada. It also operates Circle K shops in the United States and Ingo automated fuel sites in Sweden and Denmark. Revenues Cost of sales Gross profit CONSOLIDATED STATEMENTS OF EARNINGS For the years ended April 24, 2022, April 25, 2021, and April 28, 2020 (in millions of U.S. dollars) Operating, selling, administrative, and general expenses (Gain) loss on disposal of property and equipment and other assets Depreciation, amortization, and impairment Total operating expenses Operating income Share of earnings of joint ventures and associated companies Net financial expenses Earnings before income taxes Income taxes Net earnings Revenues Cost of sales Gross profit $ $ 2022 28,000 23,699.2 4,300.8 3,304.0 (3.2) 2021 $ 27,590.0 23,619.8 3,970.2 3,145.3 (19.5) 284.2 3,410.0 560.2 63.4 111.8 2020 $ 24,310.0 20,298.9 4,011.1 3,060.6 299.6…arrow_forwardA leading AI technology firm ATOOL, is publicly traded on the US stock market with shares currently valued at $15 each. Some information from its annual report of Year 2023, is presented in the following tables (Unit=’1000). Income Statement (2023)Sales $21,800Cost of goods sold $15,050Depreciation $4,150EBIT $2,600Interest $1,830Taxable income $870Taxes (34%) 296Net income $574 Balance Sheet 2022 2023Current assets $3,800 $6,930Net fixed assets $23,650 $26,800Current liabilities $2,700 $3,150 Compute the cash flow from assets (CFFA) of ATOOL for the year 2023 and show how you interpret the number you get for CFFA.arrow_forwardWhy are most large companies like Microsoft, PepsiCo, Caterpillar, and AutoZone organized as corporations?arrow_forward
- According to the IFRS Foundation, approximately how many countries either require or permit the use of IFRS by publicly traded companies?a. 40 countries.b. 80 countries.c. 115 countries.d. 195 countries.arrow_forwardAnalyze and compare Amazon.com to Netflix Amazon.com, Inc. (AMZN) is one of the largest Internet retailers in the world. Netflix, Inc. (NFLX) provides digital streaming and DVD rentals in the United States. Amazon and Netflix compete in streaming and digital services; however, Amazon also sells many other products online. The cash, temporary investments, operating expenses, and depreciation expense from recent financial statements were reported as follows for both companies (in millions): Balance sheet, end of year: Cash Short-term investments Income statement: Days' Cash on Hand Amazon Netflix Operating expenses Depreciation expense a. Determine the days' cash on hand for Amazon and Netflix. Assume a 365-day year. If required, round all computations to one decimal place and use in subsequent calculations. Round final answers to one decimal place. $36,092 $5,018 18,929 1 265,981 17,552 21,789 9,320 Amazon 82.2 Netflix days 222.5 X days b. With regard to the cash on hand which of these…arrow_forward
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