Direct and indirect implications of the COVID-19 pandemic on Amazon's financial situation

Qin, Zixuan; Hassan, Abeer; Adhikariparajuli, Mahalaxmi Article Direct and indirect implications of the COVID-19 pandemic on Amazon's financial situation Journal of Risk and Financial Management Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Qin, Zixuan; Hassan, Abeer; Adhikariparajuli, Mahalaxmi (2022) : Direct and indirect implications of the COVID-19 pandemic on Amazon's financial situation, Journal of Risk and Financial Management, ISSN 1911-8074, MDPI, Basel, Vol. 15, Iss. 9, pp. 1-25, https://doi.org/10.3390/jrfm15090414 This Version is available at: https://hdl.handle.net/10419/274934 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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Journal of Risk and Financial Management 15: 414. https://doi.org/10.3390/ jrfm15090414 Academic Editor: Cristina Raluca Gh. Popescu Received: 24 July 2022 Accepted: 14 September 2022 Published: 19 September 2022 Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. Copyright: © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). Journal of Risk and Financial Management Article Direct and Indirect Implications of the COVID-19 Pandemic on Amazon’s Financial Situation Zixuan Qin 1, Abeer Hassan 2and Mahalaxmi Adhikariparajuli 3,* 1Adam Smith Business School, University of Glasgow, Glasgow G12 8QQ, UK 2School of Business and Creative Industries, University of the West of Scotland, Paisley PA1 2BE, UK 3School of Business, Law and Social Sciences, Abertay University, Dundee DD1 1HG, UK *Correspondence: [email protected] Abstract: We provide theoretical and empirical insights into the impact of COVID-19 on Amazon’s financial position. A longitudinal case study of Amazon’s financial situation during the 2016–2020 period, and time-series analysis, ratio analysis, and DuPont analysis, are employed as a quantitative methodology to explore Amazon’s financial situation changes before and after the COVID-19 pandemic. As for the robustness of the in-depth analysis, we compare Amazon’s financial performance and position with Walmart. The result shows that the COVID-19 pandemic did not have a huge negative impact on the companies’ financial performance because of its promotion of their development. However, this study provides an in-depth analysis of the influence of COVID-19 on Amazon’s financial situation, which financial aspects are most affected by COVID-19, which are not, and the company’s response to COVID-19. Therefore, this study sheds light on the accounting literature to demonstrate the impact of COVID-19 on Internet companies’ financial performance and provides some reference values for subsequent academic research. Keywords: COVID-19; Amazon; financial statement analysis; DuPont analysis 1. Introduction The rapid growth of the global economy and electronic technology has greatly stimulated the use of the Internet worldwide. The number of Internet users has doubled in the past few years (Nielsen 2010), which has given rise to a host of related industries and companies, Amazon is one of these most typical companies. Amazon has built a nearperfect platform-based market, which has become more and more popular in recent years (Kapoor and Agarwal 2017). However, during the COVID-19 outbreak in 2019, Amazon’s business had been hard hit by the COVID-19 pandemic when it was booming globally. In contrast, Amazon applied a competitively advantageous, low-cost product differentiation strategy to expand their business globally with political and environmental adjustments (Onyusheva and Seenalasataporn 2018). The world is struggling with the greatest public health emergency of its time, generating economic, social, and human crises (Guterres 2020). According to WTO’s relevant files published in 2020, global trade in goods would be 32 percent lower than before (Maliszewska et al. 2020). Amazon is no exception; its various businesses have been hit to varying degrees during the COVID-19 pandemic. According to Airports Council International (ACI)’s data, the COVID-19 pandemic has led to a 40% drop in global air traffic, which causes a lot of trouble for Amazon, a company that relies heavily on transportation. Not only the air transportation industry but also a series of links including land transportation, customer pick-up, door-to-door delivery, etc., have been affected by the COVID-19 pandemic response measures (Gray 2020). However, the COVID-19 pandemic has not only had a negative impact on Amazon. Cabrera-Sánchez et al. (2020) demonstrate that the outbreak of the pandemic may greatly stimulate the development of the freight industry, and the e-commerce industry may become the biggest J. Risk Financial Manag. 2022,15, 414. https://doi.org/10.3390/jrfm15090414 https://www.mdpi.com/journal/jrfm J. Risk Financial Manag. 2022,15, 414 2 of 25 winner. Furthermore, Amazon has appropriately balanced profit, Corporate Social Responsibilities (CSR), and the implementation of Sustainable Development Goals (SDGs), especially, climate change, environment, carbon emissions, and other natural measures (Yu et al. 2022). On the whole, the COVID-19 pandemic not only brings challenges to Amazon but also opportunities. Therefore, by applying a trend analysis, ratio analysis, and Dupont analysis, we deeply analyze Amazon’s financial situation, various financial indicators, and business systems. Furthermore, through the vertical comparison, we correctly evaluate Amazon’s financial situation, various financial capabilities, the changing trends of net interest rate of assets and equities, and find out the general financial changes of Amazon during the COVID-19 pandemic and the reasons behind it. More importantly, as the summary of Amazon’s financial situation, we put forward some improvement strategies for the existing problems in order to help the company’s survival, development and profitability, and to serve as a reference for other Internet enterprises. Various prior studies provide evidence that firms with different characteristics react heterogeneously across regions and industrial sectors in response to the COVID-19 pandemic, especially the financial performance and position. For instance, Gore et al. (2021) explore that COVID-19 does not have any significant impact on primary students’ academic performance in Australia. Likewise, there is no effect on learning performance, whether the session is online or face-to-face teaching in higher education (Churi et al. 2022). However, the COVID-19 pandemic has negatively disrupted various retail sector industries such as tourism, telecom, and transportation within the Indian economy (Kumar Das and Patnaik 2020). Furthermore, COVID-19 has significant negative influence on stock market return in the Saudi Arabian context (Alzyadat and Asfoura 2021). Therefore, it is essential to examine the association between COVID-19 and retail companies’ financial performance as a deep case study research. This study contributes to the emerging literature through the examination of the impact of COVID-19 on online retail companies’ financial performance using a case study of Amazon. This study can add value to the business performance literature in two dimensions. First, as per our best knowledge, this is the first study that empirically explored COVID19’s impact on Amazon’s financial performance as a case study research and finalized the results via robustness test with proxy company Walmart’s performance and position. Second, this might be one of the few impact case studies within the business performance literature because this study reveals a critical analytical analysis of Amazon and Walmart’s strategic changes, technological development, and operational management just before the pandemic and during the pandemic by covering the data from the 2016–2020 period. The rest of the paper is organized as follows: Section 2presents the literature review on COVID-19 and Amazons’ performance; Section 3explains the data and methodology, which is followed by a discussion of the research results in Section 4. Section 5concludes the study. 2. Literature Review 2.1. Amazon’s Corporate Profile Amazon is the largest online e-commerce company in the United States, located in Seattle, Washington. It is one of the earliest companies that started to operate e-commerce on the Internet. Amazon was founded in 1994 as an online book sales business, but now it has expanded to a wide range of other products, such as the brick and motor industry online (Mellahi and Johnson 2000). Initially, the firm’s revenues doubled in size every 4 months, and revenues for the first year of operations were USD 5 million. (These revenues are comparable to a large Barnes and Noble superstore.) By August 1996, book sales were growing at 34% a month. During this time, the firm was able to attract USD 8 million from Kleiner, Perkins, Caufield and Byers, a venture-capital firm based in Silicon Valley that has funded well-known firms such as Sun Microsystems and Netscape. Through 31 December 1996, Amazon had sales of more than USD 16 million to approximately 180,000 customer J. Risk Financial Manag. 2022,15, 414 3 of 25 accounts in over 100 countries. On 24 March 1997, the firm filed an S1 (the registration statement) application with the SEC, and a few weeks later, it went public. Sales for the six months ending in June 1997 were USD 43 million (Kotha 1998). Despite moving upwards and downwards, its founder Jeff Bezos applied three core strategies to revolve customers’ demand: the best selection, the lowest prices, and cheap and convient delivery (Lee 2015). Amazon has become the online retailer with the largest variety of goods in the world and the second largest Internet company in the world. Amazon and its vendors provide customers with millions of unique brand-new, refurbished, and second-hand goods, such as books, movies, music and games, digital downloads, electronics and computers, household gardening products, toys, baby products, food, clothing, shoes and jewelry, health and personal care products, sports and outdoor products, automobiles, and industrial products. All these enhancements were possible due to continuously engaging in the innovation and expansion of Amazons’ logistics infrastructure, increasing its efficiency, and reducing the delivery cost (Kim and Youn 2013). Amazon has shipped several billion packages every year and the delivery cost is nearly 10%–15% of its net sales (Hahn et al. 2018). 2.2. COVID-19 and Business Performance COVID-19 forces governments to take strict action, and many lockdowns and restrictions in various communities have a negative impact on economic actors (Kuckertz et al. 2020). During the COVID-19 pandemic, as the results of distraction and movement restriction, 64% of companies experienced a shortage of raw materials, about 66% of companies faced the problem of finished-goods delivery, and around 35% of companies saught to diversify their marketing channels and sales into online worldwide ones (Syaifullah et al. 2021). In contrast, while COVID-19 occurs, companies’ performance and complexity are determined by company size, indebtedness, profitability, internationalization, number of employees, age, and leverage (Pereira et al. 2021). Likewise, Wanasida et al. (2021) explore how organizational performance is influenced by business analysis capabilities, information and innovation quality, and organizational agility during the COVID-19 pandemic. Additionally, while the world is suffering from COVID-19, entrepreneurial orientation and marketing ability affects organizational performance (Christian et al. 2021). Furthermore, the effect of the COVID-19 pandemic and the competitive business environment has a significant negative influence on a company’s financial performance, but such influence could be mitigated by digital marketing. Therefore, re-optimization of digital marketing would be an essential tool to improve business performance during and after the pandemic (Giantari et al. 2022). Based on the existing background and on an Amazon case study, this research aims to solve the following research questions: •How did Amazon perform during the COVID-19 pandemic? • Does the COVID-19 pandemic have any influence on Amazon’s financial performance? 3. Analytical Framework In this study, we apply the case study of Amazon. As such, we analyze the profitability, return of equity, return assets interest rate, statement of financial performance, statement of financial position, and cashflow statement. As the robustness test, DuPont analysis is employed and compares Amazon’s financial performance with Walmart as a proxy company. 3.1. Profitability Analysis The research and exploration of corporate profitability began in the early 20th century. Wang et al. (2021) explores that Wole (1928) first proposed the concept of credit index in his “Research on Credit Barometer”, Additionally taking the return on net assets, net sales margin, return on net worth, and other indicators as the core indicators to evaluate corporate profitability. Higgins (1998) puts forward the viewpoint of sustainable growth of enterprises and believes that the profitability of enterprises can be discussed from the J. Risk Financial Manag. 2022,15, 414 4 of 25 perspective of financial management and that the resource allocation of enterprises can be controlled. After entering the 21st century, scholars continue to study profitability. After analyzing the profitability of 1009 companies, Deloof (2003) believes that the profitability of a company is highly correlated with the level of operation. Its profitability is directly proportional to the turnover speed of corporate assets. Kasozi (2018) concluded through research on retail companies that corporate capital structure is one of the factors. With the deepening of profitability research, more and more scholars pay attention to the research of profit models. Finch (1999) pointed out in their research that multiple profit factors form a company’s profit model according to different combinations. If companies want to improve their own profitability, they must scientifically combine profitability elements. Magretta (2003) proposed that a scientific profit model contains many elements, such as profit points, profit sources, shareholder value, cash flow, etc. Peter McNamara et al. (2013) used quantitative analysis research methods to conduct an in-depth analysis of the relationship between financial indicators and profit models and concluded that the profitability of a company will decline to a certain extent during the process of changing the profit model. 3.2. DuPont Analysis As early as the beginning of the last century, the concept of financial analysis appeared in the United States. Later, with the increase in productivity, it was gradually discovered that a single indicator was not comprehensive enough for evaluation. Therefore, related scholars explored comprehensive financial analysis methods to scientifically evaluate company performance, and the DuPont financial analysis system came into being. In 1919, American DuPont managers Pierreu Pont and Donaldson Brown put forward the DuPont analysis method, which comprehensively uses multiple indicators to evaluate and measure the profitability of enterprises. When the DuPont analysis system researched the return on net asset indexes, three indicators were obtained through subdivision, namely, the net sales profit rate x total asset turnover rate x equity multiplier. The research is carried out in a hierarchical manner. The three indicators, respectively, represent the company’s sales ability, operating ability, and debt solvency. The comprehensive application of the three indicators can accurately describe the company’s performance. Since then, the DuPont model has been extended to other fields, such as the field of equity return analysis, and has played an important role. Soliman (2008) found that the DuPont analysis is the most common way to analyze profitability through corporate financial statements, especially in analyzing its profitability and solvency. Sometimes, it may also be used in risk analysis. It decomposes the return on net assets into two situations: profit and asset turnover. The authors found that when applying these two kinds of accounting index analyses, it is concluded that two different financial structures in the production and operation of enterprises have different financial and accounting properties. In this way, the indicators in the DuPont analysis system can be obtained, which can express the changing laws of the production and operation of the enterprise. As such, after in-depth research, the business results of a company can be reflected by whether the company can realize its own value. Income is an important foundation for realizing corporate value. The DuPont analysis can effectively study the relationship between shareholder income and business details. Therefore, the effective use of Vasile and Radu (2014) applied Dupont analysis and demonstrated the results as increasing the rate of return; thus, the company’s own profitability can be improved. Ahamed (2020) pointed out that DuPont’s financial analysis system can play an important role in analyzing corporate profitability. The DuPont analysis method can compare and analyze the historical data and current data of a company, and it can also make effective predictions for the company’s operating conditions for a period in the future, which is conducive to the company’s adoption of targeted measures to improve its profitability. Wright (2017) believes that the DuPont analysis method is a relatively unique method, and the core of the DuPont analysis method is management decision making. After teaching students to use J. Risk Financial Manag. 2022,15, 414 5 of 25 these methods, it can enable students to have a deeper understanding of financing, investment, and business decision making. Wanasida et al. (2021) pointed out that a company’s sustainable development capability can be reflected by the increase in shareholder income. At the same time, for a company’s continuous operation, cash balance is very important. Bernhardt et al. (2018) pointed out that it is difficult for the current common evaluation system to evaluate the financial and operating conditions of modern enterprises accurately and effectively. Therefore, cash flow should be included in the financial indicator system. This method can be used to target the enterprise comprehensively and systematically. An evaluation of the financial situation is conducive to obtaining accurate and objective results. Manjunatha and Gujjar (2018) conducted a study on three companies in the information field. They chose two indicators: return on sales and return on assets when evaluating return on equity and compared and analyzed the differences between the three sample companies. Market investors accurately judge the company’s situation and make scientific and reasonable decisions. Hao and Choi (2019) used DuPont analysis to decompose the asset return rate into asset turnover rate and profit rate. A higher asset turnover rate indicates the effective use of assets, while a higher profit rate indicates an effective cost structure. Through a survey of seven Chinese online shopping companies, we found that companies that sell multiple complex products have higher asset turnover rates than companies that sell a single special product. However, the profit rate of a multi-complex company is lower than that of a single special company, and there is no difference in the return on assets of the two. More interestingly, various earlier scholars applied DuPont Analysis as a “drillingdown” approach to analyze financial performance for a single company as case study research (e.g., Biogen Inc. was analyzed by Wright 2017; the Coca-Cola company was explored by Gardner et al. 2011; Apple Inc. was examined by Latif et al. 2014; Jordanian Arab commercial bank was evaluated by Almazari 2012). Therefore, we analyzed Amazons’ financial performance with the application of Dupont analysis as case study research. 3.3. DuPont Analysis System The DuPont system is a financial analysis method invented by DuPont in the United States in practice. The main analysis method is to decompose the core indicators of return on net assets, and then calculate and organize the decomposed indicators. In this way, a multi-level analysis of the profitability of the enterprise can be carried out from a more subtle point. The DuPont analysis system comprehensively reflects the profitability of the company’s procurement, production, sales, etc., and can also examine the company’s management level. Starting from a core indicator, it also analyzes the profitability of the company’s products, asset turnover, and financial leverage. Return on net assets is the top indicator in the system, which can directly reflect the return on investment, which is the most concerned aspect of enterprises and related investors. However, in addition to knowing whether the company makes money or not, the company or management wants to know why the company makes money, so the indicators are further decomposed into net asset interest rate and equity multiplier. In this way, if the corporate management wants to understand a certain aspect, they can conduct a more specific and in-depth analysis by consulting the separated data. The following Figure 1is the logic diagram of the DuPont system. J. Risk Financial Manag. 2022,15, 414 6 of 25 J. Risk Financial Manag. 2022, 15, x FOR PEER REVIEW 6 of 27 Figure 1. DuPont analysis logic diagram. 3.4. DuPont Analysis System Index 3.4.1. Return on Equity (ROE) ROE is the most important and comprehensive indicator in this analysis system, which reflects the ability of an enterprise to obtain net profit through its own capital situation. It can be obtained according to the ratio of the total net profit to the shareholders’ equity of the enterprise (Hickson et al. 2011). The size of this indicator can directly reflect the company’s overall sales revenue level, comprehensive profit level and financial status. This indicator is very comprehensive and will play an important auxiliary role for future management to formulate corporate business strategies and management models. The relevant formula for the return on net assets is as follows: return on net assets = net sales interest rate x total asset turnover rate x equity multiplier. 3.4.2. Net Asset Interest Rate (ROA) This index is a more comprehensive index obtained after the decomposition of the above-mentioned first layer. It is closely related to the two indicators of net sales margin and total asset turnover. Through the vertical and horizontal comparison of ROA values, it is possible to analyze and evaluate a company’s development capabilities and operating conditions in the same industry, and then to obtain an analysis of its profitability (Annisa and Hamzah 2020). It is also the main reference data for company managers to judge whether the company can carry out debt management. The main calculation method of ROA is to divide the net profit by the total average assets. 3.4.3. Equity Multiplier (EM) This indicator has a strong correlation with the asset–liability ratio. It can directly reflect the level of liabilities in the company’s daily operations and the level of liabilities that can be assumed, and it is a concrete manifestation of the level of financial leverage. The equity multiplier shows the corporate financing status or corporate debt status (Lízalová and Kozáková 2013). The equity multiplier is a risk indicator. The higher the value of the equity multiplier, the more the company’s debt financing assets increase. The higher the company’s financial leverage, the greater the capital risk for small and medium Figure 1. DuPont analysis logic diagram. 3.4. DuPont Analysis System Index 3.4.1. Return on Equity (ROE) ROE is the most important and comprehensive indicator in this analysis system, which reflects the ability of an enterprise to obtain net profit through its own capital situation. It can be obtained according to the ratio of the total net profit to the shareholders’ equity of the enterprise (Hickson et al. 2011). The size of this indicator can directly reflect the company’s overall sales revenue level, comprehensive profit level and financial status. This indicator is very comprehensive and will play an important auxiliary role for future management to formulate corporate business strategies and management models. The relevant formula for the return on net assets is as follows: return on net assets = net sales interest rate x total asset turnover rate x equity multiplier. 3.4.2. Net Asset Interest Rate (ROA) This index is a more comprehensive index obtained after the decomposition of the above-mentioned first layer. It is closely related to the two indicators of net sales margin and total asset turnover. Through the vertical and horizontal comparison of ROA values, it is possible to analyze and evaluate a company’s development capabilities and operating conditions in the same industry, and then to obtain an analysis of its profitability (Annisa and Hamzah 2020). It is also the main reference data for company managers to judge whether the company can carry out debt management. The main calculation method of ROA is to divide the net profit by the total average assets. 3.4.3. Equity Multiplier (EM) This indicator has a strong correlation with the asset–liability ratio. It can directly reflect the level of liabilities in the company’s daily operations and the level of liabilities that can be assumed, and it is a concrete manifestation of the level of financial leverage. The equity multiplier shows the corporate financing status or corporate debt status (Lízalová and Kozáková2013). The equity multiplier is a risk indicator. The higher the value of the equity multiplier, the more the company’s debt financing assets increase. The higher the company’s financial leverage, the greater the capital risk for small and medium shareholders and creditors. A lower equity multiplier indicates that the development of the enterprise is relatively more stable, which is more beneficial to the development of the enterprise. However, the value is not as low as possible. A too low equity multiplier J. Risk Financial Manag. 2022,15, 414 7 of 25 indicates that the company has a poor grasp of capital utilization efficiency and needs to improve its capital management capabilities. This indicator can be obtained by dividing the total average assets. 3.5. Amazon’s Statement of Financial Positions Analysis The statement of financial position is a statement that reflects the assets, liabilities, and owners’ equity of an enterprise in a given period. The purpose of the statement of financial position analysis is to understand the financial situation of enterprises and the quality of accounting information and make a proper evaluation on the solvency and financial flexibility of enterprises. Therefore, the balance sheet is an important carrier for users of accounting information to obtain accounting information. The purpose of the balance sheet analysis is to understand the financial situation of the enterprise and the quality of the accounting information and, accordingly, to make an appropriate evaluation on the solvency and financial resilience of the enterprise (Ramlall 2018). Amazon’s annual statement of financial position from 2016 to 2020 are shown below in Table 1. Table 1. Amazon’s annual statement of financial position from 2016–2020. 31 December 2016 31 December 2017 31 December 2018 31 December 2019 31 December 2020 Current Assets Cash and Cash Equivalent 19,334 20,522 31,750 36,092 42,122 Marketable Securities 6647 10,464 9500 18,929 42,274 Inventories 11,461 16,047 17,174 20,497 23,795 Accounts Receivables 8339 13,164 16,677 20,816 24,542 Total Current Assets 45,781 60,197 75,101 96,334 132,733 Property and Equipment 29,114 48,866 61,797 72,705 113,114 Operating Leases 25,141 37,553 Goodwill 3748 13,350 14,548 14,754 15,017 Other Assets 4723 8897 11,202 16,314 22,778 Total Assets 83,402 131,310 162,648 225,248 321,195 Current Liabilities Accounts Payables 25,309 34,616 38,192 47,183 72,539 Accrued Expenses 13,739 18,170 23,663 32,439 44,138 Unearned Revenue 4768 5097 6536 8190 9708 Total Current Liabilities 43,816 57,883 68,391 87,812 126,385 Long-term Lease Liabilities 9650 39,791 52,573 Long-term Debt 7694 24,743 23,495 23,414 31,816 Other Long-term Liabilities 12,607 20,975 17,563 12,171 17,017 Treasury stock at cost (1837) (1837) (1837) (1837) (1837) Additional Paid-in Capital 17,186 21,389 26,791 33,658 42,865 Accumulated other comprehensive loss (985) (484) (1035) (986) (180) Retained Earnings 4916 8636 19,625 31,220 52,551 Total Shareholder’s Equity 19,825 27,709 43,549 62,060 93,404 Total Liabilities and Shareholders’ Equity 83,402 131,310 162,648 225,248 321,195 From the above Table 1, the following can be analyzed: 3.5.1. Analysis on the Changes of Main Items of Assets From the Table 1, balance sheet of assets and liabilities of Amazon, we can see that the scale of assets of Amazon is constantly expanding, and the total assets are increasing rapidly. Amazon’s total assets from 2016 to 2020 are, respectively, USD 83,402 million, USD 131,310 million, USD 162,648 million, USD 225,248 million, and USD 321195 million. The total increase in assets over the five years is 237,793, the year-on-year growth percentages are, respectively, 57.4%, 23.9%, 38.5%, and 42.6%. In general, the growth rate of Amazon’s assets is very large. Although the growth rate declined in the 2017–18 period, Amazon still maintains a very high growth rate. Meanwhile, it can be seen that the outbreak of COVID-19 in 2019 does not seem to have too much impact on the growth of Amazon’s total assets, neither positive nor negative. It is worth noting that Amazon’s current assets do not show a similar rate of growth to its total assets, the ratio of current assets from 2016 J. Risk Financial Manag. 2022,15, 414 8 of 25 to 2020 are, respectively, 54.9%, 45.8%, 46.17%, 32.3%, and 35.3%, which has experienced a dramatic decline in the past five years. By analyzing the asset structure of Amazon in recent years, we can see that current assets as a share of total assets have fallen almost below the normal ratio range; the liquidity of Amazon is greatly weakened, and the risk of assets becomes greater. The decline in liquidity of the company is unfavorable to enhancing the solvency of the enterprise and meeting the demand of the liquidity of the asset. Amazon’s cash and cash equivalents have been increasing for these years, especially in the 2017–18 period, increasing by 54.7%. This shows that Amazon has abundant capital and strong short-term solvency, but it can also be related to the expansion of enterprise scale. At the same time, too much money is not necessarily a good thing, it keeps more money than daily needs and increases the opportunity cost and capital cost. Amazon should analyze the reasons for the increase in cash funds in recent years and judge whether the cash funds are appropriate or not according to the scale of assets, business income, industry characteristics, and fund-raising ability of enterprises. Amazon’s total inventory has also continued to grow in recent years. As an important practical asset of enterprises, with numerous species and huge quantity, inventory is particularly sensitive to the changes in production and business activities of enterprises, so it is necessary to keep the balance between the quantity of inventory and business activities of enterprises. If there is too little inventory, it may lead to the cost of stopping production or shortage of goods, which will affect the normal production and operation of enterprises; if there is too much inventory, it will lead to rising ordering cost, storage cost, opportunity cost, and management cost. Even the excessive increase in the inventory quantity will cause cash precipitation, which will affect the capital turnover rate of enterprises and make it difficult for enterprises to continue their business. According to the growth degree of Amazon’s total assets, the authors think that the growth rate of Amazon’s inventory amount in other years, except for the 2016–17 period, is reasonable, as the size of the company expands, it is inevitable that the amount of inventory will increase. The authors would have expected the offline sales industry to be hit hard by the global lockdown due to the COVID-19 pandemic, further increasing the demand for online e-commerce shopping, but this is not the case based on Amazon’s inventory amount, which did not increase significantly in 2019 and 2020. 3.5.2. Analysis on the Changes of Liabilities and Owners’ Equity Accounts payable increased year by year, especially in 2020, with the amount of accounts payable reaching 72,539, an increase of 53.8 percent year-on-year, equal to the sum of accounts payable in 2017 and 2018. The increase in accounts payable shows that the enterprise has a large scale of production and operation and has a large amount for materials. The accounts payable is formed due to the time inconsistency between the acquisition of materials and the payment of goods, which is exactly the result of the surge in online orders of Amazon caused by the COVID-19 pandemic. Meanwhile, Accounts payable is generally considered as a reduction in enterprise financing funds, which is considered as the most ideal way to occupy the other party’s funds free of charge. In recent years, Amazon’s accounts payable has increased year by year, which shows that Amazon is more capable of occupying the other party’s funds free of charge, greatly saving its own capital cost. Due to the increasing scale of Amazon and the increasing demand for commercial goods, suppliers are willing to sell goods on credit for Amazon and moderately extend their collection period to benefit Amazon. If the Amazon wants to achieve this effect, they must ensure that their own strength is as strong as Amazon’s, so that suppliers are willing to provide them with sales removal services, and the payment period is longer than that of other enterprises. The current liabilities increase rapidly. From 2016 to 2020, the amount of current liabilities tripled, increasing from 43,816 to 126,385. The year with the fastest growth is from 2019 to 2020, increasing by 43.9 percent. Compared with current liabilities, non-current liabilities show a much sharper growth in these years. Total non-current liabilities in 2020 are five times the amount in 2016, from 20,301 to 101,406, the biggest reason being that J. Risk Financial Manag. 2022,15, 414 15 of 25 J. Risk Financial Manag. 2022, 15, x FOR PEER REVIEW 16 of 27 Figure 4. Amazon’s indicator line chart. The rate of return on equity is an index to measure the ability of enterprises to make profits by using assets. The rate of return on equity has fully considered the influence of financing methods on the profitability of enterprises. Therefore, the profitability reflected by it is the result of the comprehensive action of many factors, such as enterprise management ability, financial decision making, and financing methods (Easto and Monahan 2016). To a large extent, investors in enterprises judge whether to invest or transfer shares according to the ROE index, inspection of the performance of managers, and the dividend distribution policy. This index is also very important for the managers of the company. 4.1.2. Two-Factor Analysis of Return on Equity (ROE) ROE = Net asset interest rate (ROA) × Equity multiplier (EM) (1) The product of net interest rate of assets and equity multiplier can be regarded as the rate of return on shareholders’ equity. The ability of a company’s total assets to make profits is reflected by the net interest rate of assets and also reflects the utilization effect of total assets. The higher the index of the net interest rate of assets, the better the utilization effect of total assets, the better the management ability, and the higher the operating level of the company (Dai and Piccotti 2020). The authors use factor analysis to calculate the influence of DuPont model indicators on the return on shareholders’ equity in 2016, 2017, 2018, 2019, and 2020, respectively. 2016: ROE = 2.84% (ROA) × 4.325 (EM) = 12.29% ① Replace ROA: ROE = 2.31% (ROA 2017) × 4.325 (EM 2016) = 9.99% ② Replace EM: ROE = 2.31% (ROA 2017) × 4.739 (EM 2017) = 10.95% ③ The impact of the decrease in ROA on the return on ROE in 2017 is as follows: ② − ① = 9.99% − 12.29% = −2.3% Figure 4. Amazon’s indicator line chart. The rate of return on equity is an index to measure the ability of enterprises to make profits by using assets. The rate of return on equity has fully considered the influence of financing methods on the profitability of enterprises. Therefore, the profitability reflected by it is the result of the comprehensive action of many factors, such as enterprise management ability, financial decision making, and financing methods (Easto and Monahan 2016). To a large extent, investors in enterprises judge whether to invest or transfer shares according to the ROE index, inspection of the performance of managers, and the dividend distribution policy. This index is also very important for the managers of the company. 4.1.2. Two-Factor Analysis of Return on Equity (ROE) ROE = Net asset interest rate (ROA) ×Equity multiplier (EM) (1) The product of net interest rate of assets and equity multiplier can be regarded as the rate of return on shareholders’ equity. The ability of a company’s total assets to make profits is reflected by the net interest rate of assets and also reflects the utilization effect of total assets. The higher the index of the net interest rate of assets, the better the utilization effect of total assets, the better the management ability, and the higher the operating level of the company (Dai and Piccotti 2020). The authors use factor analysis to calculate the influence of DuPont model indicators on the return on shareholders’ equity in 2016, 2017, 2018, 2019, and 2020, respectively. 2016: ROE = 2.84% (ROA) ×4.325 (EM) = 12.29% 1  Replace ROA: ROE = 2.31% (ROA 2017) ×4.325 (EM 2016) = 9.99% 2  Replace EM: ROE = 2.31% (ROA 2017) ×4.739 (EM 2017) = 10.95% 3  The impact of the decrease in ROA on the return on ROE in 2017 is as follows: 2 −1 = 9.99% −12.29% = −2.3% The impact of the increase in EM on the return on ROE in 2017 is as follows: 3 −2 = 10.95% −9.99% = 0.96% 2017: J. Risk Financial Manag. 2022,15, 414 16 of 25 ROE = 2.31% (ROA) ×4.739 (EM) = 10.94% 1  Replace ROA: ROE = 6.19% (ROA 2018) ×4.739 (EM 2017) = 29.33% 2  Replace EM: ROE = 6.19%(ROA 2018) ×3.735 (EM 2018) = 23.12% 3  The impact of the increase in ROA on the return on ROE in 2018 is as follows: 2 −1 = 29.33% −10.94% = 18.39% The impact of the decrease in EM on the return on ROE in 2018 is as follows: 3 −2 = 23.12% −29.33% = −6.21% 2018: ROE = 6.19% (ROA) ×3.735 (EM) = 23.13% 1  Replace ROA: ROE = 5.14% (ROA 2019) ×3.735 (EM 2018) = 19.20% 2  Replace EM: ROE = 5.14% (ROA 2019) ×3.63 (EM 2019) = 18.66% 3  The impact of the decrease in ROA on the return on ROE in 2019 is as follows: 2 −1 = 19.20% −23.13% = −3.93% The impact of the decrease in EM on the return on ROE in 2019 is as follows: 3 −2 = 18.66% −19.20% = −0.54% 2019: ROE = 5.14% (ROA) ×3.63 (EM) = 18.67% 1  Replace ROA: ROE = 6.64% (ROA 2020) ×3.63 (EM 2019) = 24.10% 2  Replace EM: ROE = 6.64% (ROA 2020) ×4.439 (EM 2020) = 29.48% 3  The impact of the increase in ROA on the return on ROE in 2020 is as follows: 2 −1 = 24.10% −18.67% = 5.43% The impact of the increase in EM on the return on ROE in 2020 is as follows: 3 −2 = 29.48% −24.1% = 5.38% From the above calculations, it can be seen that, on the whole, ROA has shown an upward trend and EM has shown a downward trend in the last five years, and the changing trends of these two factors also determine that ROE has shown an upward trend despite slight fluctuations in these five years. The rise in ROA of Amazon is closely related to the company’s vigorous development. The company’s asset utilization effect is becoming better and better, and it has achieved good results in increasing revenue and saving capital use. As for EM, which refers to the multiple of total assets equal to shareholders’ equity, it can evaluate the debt level of an enterprise. Therefore, EM is closely related to the asset–liability ratio index, which is why the asset–liability ratio appears in the above table. It is not difficult to see that in the past five years, the asset–liability ratio of Amazon has been decreasing, and the EM index has also been decreasing, which shows that the debt level of Amazon has been decreasing, and the protection degree of creditors’ rights and interests has been increasing. It is worth noting the change trend in ROA in 2019 and 2020; ROA in 2019 decreased by 17% year-on-year. According to the report data, the authors found that this was due to the insignificant increase in net profit of Amazon in 2019 and the substantial increase in total assets. As for the stagnation in net profit, according to the authors’ analysis in 2019, the company forced all sellers to provide VAT invoices for the purchase price, because in 2019, Amazon’s tax payable increased significantly by more than 100%, which led to a decrease in profits. On the other hand, in 2019, the company started operating business leasing and purchased a large number of corporate bonds, which led to the increase in total assets. As for 2020, the ROA value greatly increased, with a year-on-year increase of 29%. The authors speculate that this is caused by the impact of the COVID-19 pandemic. Although the company bought more corporate bonds and fixed assets in 2020, the growth rate of total assets is still far lower than that of net profit. In 2020, Amazon’s net profit almost doubled. The main reason is the surge in online sales due to the pandemic. Although the unit cost and unit income may not change much, the surge in number will also increase the total profit. 4.1.3. Three-Factor Analysis of Return on Equity (ROE) According to the three-factor DuPont model, there are three factors that determine the return rate of shareholders’ equity: equity multiplier, net sales interest rate, and total J. Risk Financial Manag. 2022,15, 414 17 of 25 assets turnover rate. The ratios of equity multiplier, net sales interest rate, and total assets turnover rate, respectively, reflect the debt ratio, profitability ratio, and operational capacity ratio of enterprises. After this decomposition, we can concretize the reasons for the rise and fall of the comprehensive index of the rate of return on shareholders’ equity and quantitatively explain the problems existing in enterprise management. We can set the formula as follows: ROE = Total asset turnover (TAT) ×Net profit margin on sales (NPMS) ×Equity multiplier (EM) (2) Factor analysis method is used to calculate the impact of DuPont model indicators on the ROE in 2016, 2017, 2018, 2019, and 2020. 2016: ROE = 1.74% (NPMS 2016) ×163.05% (TAT 2016) ×4.325 (EM 2016) = 12.29% 1  Replace NPMS: ROE = 1.70% (NPMS 2017) × 163.05% (TAT 2016) × 4.325 (EM 2016) = 11.99% 2  Replace TAT: ROE = 1.70% (NPMS 2017) × 135.46% (TAT 2017) × 4.325 (EM 2016) = 9.96% 3  Replace EM: ROE = 1.70% (NPMS 2017) × 135.46% (TAT 2017) × 4.739 (EM 2017) = 10.91% 4  The impact of the decrease in NPMS on the return on ROE in 2017 is as follows: 2 −1 = 11.99% −12.29% = −0.3% The impact of the decrease in TAT on the return on ROE in 2017 is as follows: 3 −2 = 9.96% −11.99% = −2.03% The impact of the increase in EM on the return on ROE in 2017 is as follows: 4 −3 = 10.91% −9.96% = 0.95% 2017: ROE = 1.70% (NPMS 2017) ×135.46% (TAT 2017) ×4.739 (EM 2017) = 10.94% 1  Replace NPMS: ROE = 4.32% (NPMS 2018) × 135.46% (TAT 2017) × 4.739 (EM 2017) = 27.73% 2  Replace TAT: ROE = 4.32% (NPMS 2018) × 143.18% (TAT 2018) × 4.739 (EM 2017) = 29.31% 3  Replace EM: ROE = 4.32% (NPMS 2018) × 143.18% (TAT 2018) × 3.735 (EM 2018) = 23.10% 4  The impact of the increase in NPMS on the return on ROE in 2018 is as follows: 2 −1 = 27.73% −10.94% = 16.36% The impact of the increase in TAT on the return on ROE in 2018 is as follows: 3 −2 = 29.31% −27.73% = 1.58% The impact of the decrease in EM on the return on ROE in 2018 is as follows: 4 −3 = 23.10% −29.31% = −6.21% 2018: ROE = 4.32% (NPMS 2018) ×143.18% (TAT 2018) ×3.735 (EM 2018) = 23.13% 1  34 Replace NPMS: ROE = 4.13% (NPMS 2019) × 143.18% (TAT 2018) × 3.735 (EM 2018) = 22.09% 2  Replace TAT: ROE = 4.13% (NPMS 2019) × 124.54% (TAT 2019) × 3.735 (EM 2018) = 19.21% 3  Replace EM: ROE = 4.13% (NPMS 2019) × 124.54% (TAT 2019) × 3.630 (EM 2019) = 18.67% 4  The impact of the decrease in NPMS on the return on ROE in 2019 is as follows: 2 −1 = 22.09% −23.13% = −1.04% The impact of the decrease in TAT on the return on ROE in 2019 is as follows: 3 −2 = 19.21% −22.09% = −2.88% The impact of the decrease in EM on the return on ROE in 2019 is as follows: 4 −3 = 18.67% −19.21% = −0.54% 2019: J. Risk Financial Manag. 2022,15, 414 18 of 25 ROE = 4.13% (NPMS 2019) ×124.54% (TAT 2019) ×3.630 (EM 2019) = 18.67% 1  Replace NPMS: ROE = 5.52% (NPMS 2020) × 124.54% (TAT 2019) × 3.630 (EM 2019) = 24.95% 2  Replace TAT: ROE = 5.52% (NPMS 2020) × 120.20% (TAT 2020) × 3.630 (EM 2019) = 24.09% 3  Replace EM: ROE = 5.52% (NPMS 2020) × 120.20% (TAT 2020) × 3.439 (EM 2020) = 22.82% 4  The impact of the increase in NPMS on the return on ROE in 2020 is as follows: 2 −1 = 24.95% −18.67% = 6.28% The impact of the decrease in TAT on the return on ROE in 2020 is as follows: 3 −2 = 24.09% −24.95% = −0.86% The impact of the decrease in EM on the return on ROE in 2019 is as follows: 4 −3 = 22.82% −24.09% = −1.27% The changes in EM were analyzed to some extent above, and this part focuses on analyzing the changes in TOT and NPMS. On the whole, TOT has basically maintained a downward trend in the past five years, with a huge decline range, and NPMS has shown a rising trend. The turnover ratio of total assets is the ratio of net sales revenue to average total assets of an enterprise in a certain period, and it is an index to measure the ratio between the scale of asset investment and sales level; the higher the turnover rate of assets, the stronger the sales ability of enterprises and the better the benefit of asset investment (Patin et al. 2020). Within five years, Amazon’s total asset turnover ratio decreased by 40%, which is a huge amount, but the authors do not think that this represents a decline in the company’s sales capacity. On the contrary, we can see from the above that the company’s sales revenue has maintained a very high growth rate every year, but Amazon’s asset purchase speed is really too fast, and a large number of fixed assets are purchased every year, especially in 2020; because of COVID-19, the amount of fixed assets bought doubled from the amount in 2019, which shows that Amazon actively develops the company’s basic business and actively expands globally, that is the reason why TOT has keept going down in the past 5 years. As for EPMS, it reflects the net profit of each dollar of sales revenue and indicates the income level of sales revenue. The following Figure 5can show the change trend of Amazon’s net sales and operating expenses: The table above shows the annual growth rate of Amazon’s sales revenue and sales cost. According to the above EPMS data, the index suddenly increased by 2.62% in the 2017–2018 period, with a year-on-year increase of 154.1%, and then it entered a floating period in the following years. It can also be seen from the chart that the growth rate of sales revenue from 2017 to 2018 is much higher than the growth rate of sales expenses, which further leads to the sharp increase in operating income and net income, which has tripled compared with 2016. F Moreover, such a huge difference in income and expenses only lasted for one year and returned to the normal level in the 2018–19 period. Unfortunately, the authors have not been able to find the specific reason for this so far. According to the data on operating expenses in the company’s 2018 financial statements, there is no significant change in any of them, but the overall increase trend has declined, which led to the decrease in the total operating expenses. The Figure 6demonstrates the annual growth of Amazon’s product and service sales, where the product sales include product sales and related shipping fees, including digital media content. However, the service sales comprehensively covered the third-party sellers’ fees, AWAS sales, advertising services, Amazon Prime membership fees, and certain digital content subscriptions. According to the figure, North American sales revenue increased by 70.38% in the 2016–2020 period. Likewise, international segment sales revenue jumped up by 137.39%, and AWS revenue sharply increased by 271% from 2016 to 2020. J. Risk Financial Manag. 2022,15, 414 19 of 25 J. Risk Financial Manag. 2022, 15, x FOR PEER REVIEW 20 of 27 Figure 5. Amazon’s net sales % operating sales change trend line. The table above shows the annual growth rate of Amazon’s sales revenue and sales cost. According to the above EPMS data, the index suddenly increased by 2.62% in the 2017–2018 period, with a year-on-year increase of 154.1%, and then it entered a floating period in the following years. It can also be seen from the chart that the growth rate of sales revenue from 2017 to 2018 is much higher than the growth rate of sales expenses, which further leads to the sharp increase in operating income and net income, which has tripled compared with 2016. F Moreover, such a huge difference in income and expenses only lasted for one year and returned to the normal level in the 2018–19 period. Unfortunately, the authors have not been able to find the specific reason for this so far. According to the data on operating expenses in the company’s 2018 financial statements, there is no significant change in any of them, but the overall increase trend has declined, which led to the decrease in the total operating expenses. The Figure 6 demonstrates the annual growth of Amazon’s product and service sales, where the product sales include product sales and related shipping fees, including digital media content. However, the service sales comprehensively covered the third-party sellers’ fees, AWAS sales, advertising services, Amazon Prime membership fees, and certain digital content subscriptions. According to the figure, North American sales revenue increased by 70.38% in the 2016–2020 period. Likewise, international segment sales revenue jumped up by 137.39%, and AWS revenue sharply increased by 271% from 2016 to 2020. Figure 5. Amazon’s net sales % operating sales change trend line. J. Risk Financial Manag. 2022, 15, x FOR PEER REVIEW 21 of 27 Figure 6. Amazon’s performance by segment. The Figure 7 presents the annual growth of Walmart’s products and services worldwide, where Walmart’s US segment revenue increased by 3.94% in the 2016–2020 period but, in contrast, Walmart’s international segment revenue and Sam’s Club segment revenue decreased by 2.43% and 8.55%, respectively. When we compare the segmental financial performance between Amazon and Walmart, Amazon has performed far better than Walmart. This analysis is in line with Yu et al. (2022), who explored how Amazon has sufficient experience to balance profit and CSR, climate change, and human rights activities. Figure 7. Walmart’s performance by segment. 0 50 100 150 200 250 2016 2017 2018 2019 2020 Amazons' Segmental Performance AWS International North America 01234567 2016 2017 2018 2019 2020 Walmart's segmental performance Sam`s Club segment Walmart International segment Walmart US segment Figure 6. Amazon’s performance by segment. The Figure 7presents the annual growth of Walmart’s products and services worldwide, where Walmart’s US segment revenue increased by 3.94% in the 2016–2020 period but, in contrast, Walmart’s international segment revenue and Sam’s Club segment revenue decreased by 2.43% and 8.55%, respectively. When we compare the segmental financial performance between Amazon and Walmart, Amazon has performed far better than Walmart. This analysis is in line with Yu et al. (2022), who explored how Amazon has sufficient experience to balance profit and CSR, climate change, and human rights activities. J. Risk Financial Manag. 2022,15, 414 20 of 25 J. Risk Financial Manag. 2022, 15, x FOR PEER REVIEW 21 of 27 Figure 6. Amazon’s performance by segment. The Figure 7 presents the annual growth of Walmart’s products and services worldwide, where Walmart’s US segment revenue increased by 3.94% in the 2016–2020 period but, in contrast, Walmart’s international segment revenue and Sam’s Club segment revenue decreased by 2.43% and 8.55%, respectively. When we compare the segmental financial performance between Amazon and Walmart, Amazon has performed far better than Walmart. This analysis is in line with Yu et al. (2022), who explored how Amazon has sufficient experience to balance profit and CSR, climate change, and human rights activities. Figure 7. Walmart’s performance by segment. 0 50 100 150 200 250 2016 2017 2018 2019 2020 Amazons' Segmental Performance AWS International North America 01234567 2016 2017 2018 2019 2020 Walmart's segmental performance Sam`s Club segment Walmart International segment Walmart US segment Figure 7. Walmart’s performance by segment. 4.2. Comparison of ROA, ROE, and EM between Amazon and Walmart As the robustness test of Amazon’s financial performance analysis, the authors employed a comparative analysis of ROA, ROE, and EM between Amazon and Walmart during the study period of 2016–2020, see Table 6. Table 6. Comparative data of ROA, ROE, and EM of Amazon and Walmart (2016–2020). Amazon Walmart Item/Year 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 ROA (net profit/Total average assets 2.84% 2.31% 6.19% 5.14% 7.8% 7.31% 7.22% 5.23% 3.41% 6.72% ROE (net sales interest rate ×total assets turnover rate ×equity multiplier 12.29% 10.94% 23.13% 18.87% 27.09% 17.90% 17.17% 12.53% 8.57% 19.08% EM (total assets/total shareholders’ equity) 4.32 4.73 3.73 3.63 3.82 2.48 2.56 2.63 3.02 3.17 The table above demonstrates that Amazon’s ROA increased by 174.65% from 2016 to 2020, but Walmart’s ROA declined by 8.07% during the 2016–2020 period. The decreasing statistics of ROA for Walmart are inconsistent with Pandey et al. (2021), where the authors concluded that Walmart did not understand consumers’ tastes and preferences before entering the foreign market, and the net profit from their international segment decreased from 2016 to 2020. In addition, even though Walmart provides essential goods that people still buy during the COVID-19 pandemic, e.g., food, beverages, and personal care products, which are profitable with lower risk, their stock price was negatively affected by the COVID19 outbreak (Guo et al. 2021). The ROEs for both companies have increasing trends during the study period of 2016–2020, however, the raising percentage is different. For instance, Amazon’s ROE jumped by 120.26% from 2016 to 2020, but Walmart’s ROE only improved by 6.59%. Again, this result is supported by Baud and Durand (2021), where the authors observed steady growth of distributed earnings to shareholders and the ability to reduce the debt equity ratio; in opposition, Amazon is very different, they did not distribute any funds to their shareholders directly, but their shareholders are becoming richer at a very impressive rhythm via equity price. More interestingly, Amazon’s EM is in a declining position by 11.5% for the study period. However, Walmart’s EM increased by 27.82%. J. Risk Financial Manag. 2022,15, 414 21 of 25 To summarize, from the overall point of view of the DuPont analysis, the most intuitive indicator (return on equity (ROE)) in the DuPont framework has maintained an upward trend in the past five years for both Amazon and Walmart, which means that both companies have maintained an optimistic development trend as a whole. If ROE is subdivided into EM and ROA, we can see that ROA has been on the rise, which shows that Amazon and Walmart’s assets are becoming better and better, and both companies have done a good job in saving money and increasing revenue. At the same time, in the past five years, the EM index has experienced a process of first rising and then falling, which shows that the debt level of Amazon is gradually decreasing, and the rights and interests of creditors are being much better protected. At the same time, the ROA index is obtained by multiplying net profit margin on sales (NPMS) by total asset turnover rate (TAT). From the above data analysis, it can be seen that NPMS has been rising continuously during the past five years, which shows that Amazon’s revenue level is rising continuously, and its profit level is guaranteed. At the same time, the turnover rate of total assets is constantly decreasing, which shows that although the company’s profitability is constantly improving, the sales capacity is still lacking, and the purchase speed of total assets is too fast, which cannot be used in time and converted into sales. 4.3. Problems and Countermeasures in Financial Management 4.3.1. Poor Cost Control As mentioned above, Amazon’s sales revenue has been growing at a rate of 30 percent a year for the past five years, but corresponding operating costs are also rising year by year, and some years even outpace the growth in operating income, such as 2016 and 2018, with only 2017 seeing a much higher annual increase in operating expenses. Even though Walmart enhanced various developments in various stages, for instance free two-days shipping via Store No 8, e-commerce platform of Flipkart and Myntra in India during 2019, and next-day delivery to more than 75% of the US population in 2020 (Walmart 2020), their operating expenses increased 2.41% from 2019 to 2020. Main business income has increased year by year, but the sales expenses and management expenses have increased by a larger margin, which has led to a decrease in the net profit of enterprises year by year and a slowdown in the growth rate of assets. This shows that Amazon should strictly control the production cost and operating expenses and try their best to reduce various expenses, so as to expand the room for the company’s profit growth. The cost of enterprises is an important factor affecting profits and saving the cost is conducive to improving the profitability and competitiveness of enterprises. From the DuPont analysis system, we can analyze whether the cost structure of enterprises is reasonable, so as to find out the problems existing in the cost management of enterprises and provide the basis for strengthening cost management. We can start from the following aspects: strictly control the scope and standard of cost and expense, focus on improving the basic work of cost and expense management, calculate the cost and expense in time, and make the cost and expense plan regularly. 4.3.2. Poor Capital Operation Ability Because the turnover rate of the company’s total assets is too low, which shows poor asset utilization effect, Amazon should take some measures to effectively utilize assets. The company’s asset turnover rate is low, and it has been going down for a long time. However, comparing Amazon’s asset turnover rate (1.25 times in 2019 and 1.20 times in 2020), Walmart effectively utilizes assets by having a higher asset turnover rate (2.33 time in 2019 and 2.12 times in 2020) and should take measures to improve the utilization efficiency of various assets, dispose of redundant and unused assets, and increase sales revenue, so as to improve asset turnover rate. The essence of the asset utilization effect is to produce as many products as possible and create as much income as possible with as little asset occupation as possible and as short a turnover as possible. The effective use of assets is the key link that affects the financial stability and profitability of enterprises. The asset turnover rate directly affects the profitability of an enterprise. If the asset turnover rate of J. Risk Financial Manag. 2022,15, 414 22 of 25 an enterprise is slow, it will take up a lot of capital, increase the cost of capital, and reduce the profit of the enterprise. The analysis of asset turnover should not only analyze the total asset turnover rate of enterprises but also analyze the inventory turnover rate and accounts receivable turnover rate of enterprises and combine the turnover rate with capital occupation. From the analysis of the above two aspects, we can find the problems existing in the asset management of enterprises, so as to strengthen control and management and improve the efficiency and effect of asset utilization. 4.3.3. Poor Management Level of Liabilities In recent years, the EM index of Amazon has been decreasing year by year, and the asset liability ratio also has been decreasing. In a sense, this may be a good thing, but on the other hand, it also shows that the mechanism of the company’s debt utilization is not reasonable enough. In contrast, Walmart’s EM has a steady growth during the study period. From the above income statement, we can see that although the total liabilities of the company are also increasing year by year, the growth rate is still relatively slow compared with the total assets, especially for long-term liabilities, the amount of which has kept a very slow growth rate in the past five years. The reason why the company’s asset–liability ratio does not show a very sharp decline is because Amazon began to carry out long-term lease liabilities in 2017, which greatly increased the company’s total long-term liabilities. Likewise, Walmart’s long liabilities are an increasing trend, but their cash flow situation is much stronger in 2020. Therefore, Walmart’s liability management is more efficient that Amazon. However, long-term lease liabilities cannot really obtain a certain amount of cash flow, which has no influence on the company’s foreign investment or internal improvement. Under the background of the COVID-19 pandemic, it may be a major blow to other industries such as manufacturing and service industries, but it is really a golden age for e-commerce companies such as Amazon, where the number of orders has surged and sales have doubled, which means that Amazon is at the center of the development of the times. Under such favorable conditions, why can Amazon not be more radical, continue to increase its amount of debt, introduce a large amount of cash flow, and expand substantially to seize the opportunity of the times? 4.3.4. Lack of Core Competitiveness Amazon lacks core enterprise competitiveness. With the advent of the Internet age, more and more e-commerce companies are entering the market, such as Taobao and Suning in China. Obviously, Amazon has not shown as strong dominance in China as in the world. When it comes to Taobao, people’s first impression is that it is cheap and good. When it comes to Suning, people think of household appliances. Amazon lacks this first impression, therefore, cultivating the core competitiveness of enterprises is the fundamental way to improve business performance, and it is also the objective requirement for the sustainable development of enterprises. Within a similar vein, Walmart is facing similar problems to enter foreign countries, mainly Argentina, Brazil, Indonesia, China, and Japan, because Walmart’s products fail to meet customers’ tastes and lag behind compared with other brands (Pandey et al. 2021). Amazon should constantly strengthen technological innovation and management innovation, improve the quality of products and services, shape a unique corporate culture, and change the past extensive management mode, so as to be invincible in the complicated market economy environment and make a difference in such a big market as China. Likewise, Walmart should launch consumer surveys about their tastes and preferences for products before entering new countries. 5. Conclusions From the analysis results of the above financial statements, Amazon and Walmart both have shown good development states in recent years, no matter assets, sales, profits, or cash flow being in a steady upward state. Especially since the outbreak of the COVID-19 pandemic in 2019, the company has shown a completely different operating state from most J. Risk Financial Manag. 2022,15, 414 23 of 25 industries, with a substantial increase in sales and faster expansion of the company, which is unexpected. Although the DuPont analysis shows that the company has some problems in financial management, such as high operating cost and high turnover rate of total assets, the development of Amazon is still remarkable. On one hand, Amazon continues to seize the double-edged sword of the COVID-19 pandemic, continues to expand sales, apply a unique innovative corporate style, and lay a good foundation of business organization. However, on the other hand, Amazon appropriately tackled challenges of globalization and adjusted its sustainable development strategy within the required time. Next, the authors conclude that the company should continue to seize the doubleedged sword of the COVID-19 pandemic, continue to expand sales, create its unique corporate style and mode, and lay a good foundation for the next business operation. The scale effect of the e-commerce retail industry is very important. The larger the scale, the easier it is for enterprises to survive and develop. Therefore, Amazon should work on high-speed expansion, specifically, it is to use diversified, large-scale, low-cost, and high-efficiency development strategies, quickly replicated in the whole world with the chain development model, and expand with low cost and high efficiency through the application of various management technologies to create the best chain network service brand in the world. At the same time, Amazon should change its development mode and promote strategic transformation from focusing on growth quantity to quality, from low added value to high added value, and from extensive management to fine management. As for the limitations of this study, the authors explored two points which can be further studied and improved in the future. The first point is that this case study is based on Amazon and Walmart only because the research theme of this paper is about the impact of the COVID-19 pandemic on Amazon, which is mapped to the whole Internet industry. However, because the COVID-19 pandemic officially broke out in 2019, further studies could be expanded through cross-sectional and longitudinal data bases. The second problem is that this paper only analyzes the companies’ financial data from the perspective of Amazon’s consolidated financial statements and Walmart’s financial consolidated financial statements as a whole and does not think about the problem from the perspective of a single Amazon subsidiary or Walmart subsidiary in different countries or regions. This is a big deficiency because different countries and regions have different policies to deal with the COVID-19 pandemic, such as China’s tough policies to deal with the pandemic or the coexistence policies of Denmark and other countries; different subsidiaries will show different development trends. Therefore, future research can start from this angle, specifically analyzing the different financial situations of different subsidiaries affected by different policies and studying the different impacts of different countries’ COVID-19 preventive policies on Internet companies. Author Contributions: Conceptualization and methodology, Z.Q. and A.H.; data curation, validation, and software, Z.Q., A.H. and M.A.; formal analysis and resources, Z.Q. and M.A. writing—original draft preparation, Z.Q., A.H. and M.A.; writing—review and editing and supervision, Z.Q., A.H. and M.A. All authors have read and agreed to the published version of the manuscript. Funding: This research received no external funding. Data Availability Statement: Data were obtained from Amazon’s annual report and financial statement and are available on Amazon’s website. Conflicts of Interest: The authors declare no conflict of interest. References Ahamed, Mohammad Jafaur. 2020. Comparison of the Financial Performance between Square Pharmaceuticals Limited and Beximco Pharmaceuticals Limited: DuPont Analysis. Global Disclosure of Economics and Business 9: 39–48. [CrossRef] Almazari, Ahmed Arif. 2012. 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