What does efficiency mean? Plain simple: how effective the company has utilized its assets, how fast can the company collect its revenue, how quickly can the company sell its inventory, etc. The following table lists the important ratios which address above basic questions.
| Asset turnover Sales / average total assets |
| A/R turnover Sales / average accounts receivable |
| Inventory turnover Cost of goods sold / average inventory |
| Fixed asset turnover Sales / average fixed assets |
| Working capital A/R turnover (days) + inventory turnover (days) – A/P turnover (days) |
Let’s put these ratios into work for Amazon.
If you look at the times of the turnover ratio you want larger number which means higher efficiency. On the other hand, if you look at the number by days you want smaller number, the shorter the better. Amazon has great seasonality so you have to compare YOY. Again 2009 is a dramatic year for recovery so the comparison needs to take that into consideration. Look at Amazon’s numbers I can still say it’s performing great. How does that compare with peers? Who are its peers first? There are just too many. Based on Amazon’s retail concept I’d compare it with Walmart since they both are low margin high efficiency firms. And when I do you’ll see how similar they might look alike. (I will post that for another post in the near future)
I’m just trying to give you guys a short intro and hopefully it can make some sense quickly and easy for you to evaluate a company. For more detail you gotta read a book . Jamie Pratt’s book is good. (I probably should let him know I’m advertising for himJ.
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