Assignment 1

ACCT 4005

Walter Seay Harder

Catherine Cormier

Pamela Isufi

Albert Claude

Golnaz Tavakoli

27 November 2022
a. Both Amazon and eBay, were founded in the 1990s and expanded the global market for
electronic commerce. They are both in the Retailing and Consumer Discretionary industry. In
1994, Amazon was founded by Jeff Bezos with a simple vision to sell books on the internet.
Amazon transformed into one of the world’s top companies by market value over the years with
about 1,608,000 employees as of August 3rd, 2022. The company sells products on digital
streaming, e-commerce, and cloud computing. In 2007, Amazon released the Kindle, an
electronic book that is portable and wireless. Third party merchants have more competition with
sales sold at a fixed price with Amazon Basics, Amazon Essentials and Amazon Prime
subscription. Amazon’s annual revenue for 2021 was 469.82 billion. Amazon’s profit as a % of
Revenues was 4.1% as of August 3rd, 2022.

In comparison, eBay was founded by Pierre Omidyar in 1995, and is a global e-commerce
corporation that offers customer to customer sales services. eBay is mainly known for its auction
platform as it is a safe place to bid and sell items from electronics to cars. eBay revolutionized the
industry of digital payments by purchasing PayPal and spinning off the company in 2015. This
move aided in the expansion of e-commerce payment platforms. eBay only enables third-party
merchants, meaning they do not produce their own products or entertainment like Amazon. Since
eBay acts solely as a marketplace, individual sellers and businesses list products through the
auction format or fixed-price format and do not compete with eBay themselves. The annual
revenue in 2021 for eBay was $10.42B. According to Fortune 500, eBays profit as a % of
Revenues as of May 23rd, 2022, was 109.8%.

b.

c. The current ratio or (CR) is used to determine the ability of a company to pay both short and
long-term obligations. A CR of 1 or greater indicates that a company is more than capable of
paying its obligations. A CR of less than 1 could indicate that a company is at risk or unable to
pay its obligations. The table indicates that the liquidity ratio for both companies is more than 1,
which is an acceptable amount. Over the 3-year period, eBay's CR showed a rising trend from
1.1 to 1.97 or an increase of 70.3%, meaning eBay is very capable of paying its short-term debt.
Amazon’s CR improved from 1.10 to 1.14 or a 3.5% increase. Amazon's CR deteriorated from
2019 to 2020 but then improved from 2020 to 2021 exceeding the 2019 level. The trend of the
CR is neither a rising trend nor a downward trend; instead, it is a sideways trend. Amazon's
highest CR was in 2021 with a value of 1.14 meaning for every $1 of current debt, Amazon had
1 dollar and 14 cents available to pay for debt.

Return on Assets (or ROA) indicates how a company is using its assets to generate profit. ROA
is typically used to gauge the efficiency of the company and its management at deploying capital
to generate income for shareholders. In Amazon’s case, we have a rising trend of ROA with a
steady increase over the course of 2019 to 2021 which suggests management is utilizing their
assets efficiently. Looking back at the last three years, eBay's ROA peaked in 2021 at 51.1%.
Based on the data, we can infer eBay is making better use of its resources to generate prospective
revenue. eBay’s ROAs have increased significantly throughout these three years, we observe
that their net income is rising. They have achieved these higher ROAs by increasing their profit
margin while using fewer assets to promote sales.

d. (Comparison of Current Ratio). For the CR, both Amazon and eBay had an increasing trend
from 2019 to 2021. As it fluctuates over time with no noticeable change, the CR for both
companies is in a healthy range. However, the table in question 2 shows that eBay's CR is higher
than Amazon each year, implying that eBay had more liquidity. As we can see, Amazon is not
having financial issues. The company can support its short-term obligations and convert its
inventory into cash at an acceptable rate. eBay is much more capable of paying out its liabilities
by turning its resources into cash and lessening their obligations. Both Amazon and eBay have
enough current assets to cover their short-term obligations. Given that both entities are in the
same industry, it is safe to infer that eBay performed better than Amazon in terms of short-term
liquidity during the three-year period. It could be stated that eBay will perform better in cash flow
in the future as they have a sufficient liquidity ratio compared to Amazon. It is important to
understand that the CR has limitations. No ratio is a perfect tool to determine company`s financial
stability or if the company is worth investing in.

(Comparison of Profitability ratio). When we compare the ROA increase for Amazon and eBay
between 2019-2021, the incremental improvement was much more significant with eBay. This
suggests that eBay’s operating model was much more capital efficient than Amazon. Amazon’s
ROA increased from 5.14% to 7.93% or +154% between 2019 to 2021. eBay’s ROA also
increased but more significantly from 9.8% to 51.1% or +512% in the same period. Amazon’s
ROA is in line with industry norms; however, eBay’s ROA was significantly higher and improved
much more drastically. eBay's high ROA suggests that the company is efficient in converting
capital investment into profit. The primary reasons for the increase in ROA over 2021 are the
increase in profitability measured by net profit margin ratio. The changes in ROA between these
companies are dramatically significant, the only year in which we can say they are almost in
unison would be 2019. For the remaining two years, eBay’s ROA escalated with an average of
40.2%, leaving Amazon behind with an average of 7.3%.

e. (See Appendix A for Industry Ratios). Amazon and eBay are in the Retail and Consumer
Discretionary industry, competing with companies like Home Depot, Target and Walmart. The
average CR for the industry is 1.14. eBay’s CR has an average of 1.64 in 2019-2021 which puts
them in the 40.1% percentile, meaning they are more efficient compared to their competitors.
Amazon’s average CR for the same period is 1.09 which indicates they perform close to the
industry’s standard.

The average ROA for the industry is 5.4% and both Amazon and eBay meet the industry’s
standard. eBay’s ROA is 5.5 times more than the average industry (30% ROA). This puts them
well above their competitors in terms of their ability to maximize their return on investment.
Amazon is slightly above the average industry ROA at 6.6%. Both Amazon and eBay compete
efficiently with regard to their industry’s standards.

f. Both companies are healthy and were able to support their short-term liabilities in 2019-2021.
eBay’s CR increased much more significantly during this period than Amazon. eBay's major
increase in assets during this period was due to an increase in short-term investments in the form
of corporate bonds. These purchases were funded by the sale of other business lines including,
eBay Korea, StubHub, and ADVENTA. They used the cash from their sales to acquire corporate
debt securities which increased their short- term assets and overall CR.

During the COVID 19 Pandemic (2020-2021), both companies benefited from increased sale
volumes due to increased e-commerce activity in the market, and their net income, profit, and
ROAs improved. Both companies invested capital during this period, with eBay focusing on
technology and customer/supplier experience, and Amazon focusing on investments in fulfillment
operations and supply chain. Due to the nature of their business model, Amazon’s ROA is much
lower than eBay. Amazon’s operations require significant capital investment in warehousing,
transportation, and logistics. This difference was further exasperated during the pandemic due to
inflationary pressures and high costs of capital expansion. eBay is able to generate profits with
lower capital investments as their primary product is an e-commerce trading platform opposed to
Amazon’s fulfilment operations.
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 Appendix A
Industry – Retail/ Consumer Discretionary
Current Ratio ROA
2021: 1.21 2021: 7.31%
2020: 1.16 2020: 3.68%
2019: 1.06 2019: 5.19%
Average: 1.14 Average: 5.4%