supply chain assignment 1

ECLT5940/SEEM5880 Supply Chain Management

1. Solu: Amazon’s financial metrics: ROA (return on assets) =

=

Earnings before interestAverage total assets

=

Net income+[Interest expense×(1 Tax rate)]

Average total assets

1145+[39×(1 0.35)]

18797Net income

= 6.2%

6864= 16.7% Equity

1145

ROE (return on equity) = Average

Shareholder

ROFL (return on financial leverage) = ROE – ROA = 16.7 – 6.2 = 10.5% APT (accounts payable turnover) = Accounts ART (accounts receivable turnover) =

Inventory turnover (INVT) =

Cost of goods sold

payable

= 10372 = 2.56

=

342041783

26561

Sales revenue

Accounts receivable

= 19.18

Cost of goods sold

Inventories

=

265613202

= 8.30

C2C = – weeks payable (1/APT) + weeks in inventory (1/INVT) + weeks receivable (1/ART)

= – 52/2.56 + 52/8.30 + 52/19.18 = –20.31 + 6.27 + 2.71 = –11.33 Wal-Mart’s financial metrics: ROA (return on assets) =

=

Earnings before interestAverage total assets

=

Net income+[Interest expense×(1 Tax rate)]

Average total assets

14335+[2065×(1 0.35)]

170706Net income Shareholder

= 9.2%

14335

ROE (return on equity) = Average= 71056= 20.2% Equity

ROFL (return on financial leverage) = ROE – ROA = 20.2 – 9.2 = 11% APT (accounts payable turnover) =

Cost of goods soldAccounts payable

=

30465750550

= 6.03

= 98.51

ART (accounts receivable turnover) = Accounts

Inventory turnover (INVT) =

Cost of goods sold

Inventories

Sales revenue

receivable30465733160

=

4082144144

= = 9.19

C2C = – weeks payable (1/APT) + weeks in inventory (1/INVT) + weeks receivable (1/ART)

= – 52/6.03 + 52/9.19+ 52/98.51 = –8.62 + 5.66+ 0.53 = –2.43

2. Wal-Mart perform better on ROA (9.2% > 6.2%), ROE (20.2% > 16.7%), ART (98.51 > 19.18), INVT (9.19 > 8.30)

Amazon perform better on APT (2.56 < 6.03) (Amazon was able to use the money it owed suppliers to support its operations), C2C (–11.33 < –2.43)

3. this move will increase the facility cost which goes up under property, plant and equipment, the average total assets will increase, that means the ROA will decrease.

This move will help Wal-Mart increase the responsiveness and the IVNT will be improved, the net income will decrease due to facility cost, so the ROE will decrease.

The metrics of Wal-Mart may not so good in a short time, but in the long run, this move will help Wal-Mart become more competitive and show better metrics in the future.