Amazon: Cash Flows - Case Study Example

Student’s Name Lecturer’s Name Topic Date Amazon.com The Amazon.Com Inc was incorporated in. Amazon.com deals with the sale of DVDs, drugs, cosmetics, books, households, music, electronics, apparel, clothes and videos through the use of their World Wide Website. In the recent years it has been considered the largest bookstore and online store in the global market. Amazon.com has always had its up and downs, but the most useful fact is that it has being able to sustain its competitive advantage. It has been able to attain this through establishment and implementation of the most viable strategies.Amazon.com business strategies surround information and communication system which relates to the internet and website. This is because there are many technological developments and changes occurring in the world that present Amazon.com to adopt strategically. The illustrations below present the form 10K filing and financial statements of Amazon.com in 2010 and 2010. The Security Exchange Commission (SEC) requires the companies to present their financial information to investors through various documentations termed as ‘filings’. In the case of Amazon.com we are interested with the 10-K filing. Accordingly, the following financial reporting relates to Amazon.com income statement, cash-flow statement and the balance sheet presented in a quarterly manner. Therefore, this are Amazon results for the last three months of 2010 and the first three months of 2011. AMAZON.COM INC STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2011 and 2010 March, 2011 December 2010 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) 201,000 1,152,000 Depreciation 202,000 568,000 Deferred Income Taxes 15,000 4,000 Operating Losses (Gains) 2,000 (2000) Increase (Decrease) in Receivables 395,000 (295,000) Increase (Decrease) in Inventories 343,000 (1,019,000) Increase (Decrease) in Payables (2,649,000) 2,373,000 Increase (Decrease) in other Current Liabilities (183,000) 740,000 Increase (Decrease) in other Working Capital (10,000) (218,000) Other Non-Cash Items 134,000 192,000 NET CASH FROM OPERATING ACTIVITIES (1,586,000) 3,495,000 Sale of Short- term Investments 1,939,000 4,250,000 Purchase of Property, Plant and Equipment (298,000) (979,000) Acquisitions (139,000) (352,000) Purchase of Short Term Investments (1,112,000) (6,279,000) NET CASH FROM INVESTING ACTIVITIES 390,000 (3,360,000) Issuance of Debt 89,000 143,000 Repayment of Debt (111,000) (221,000) Other Financing Charges, Net 46,000 259,000 NET CASH FROM FINANCING ACTIVITIES 24,000 181,000 Effect of Exchange Rate Charges 36,000 17,000 Net Change in Cash and Cash Equivalents (1,136,000) (333,000) Cash at Beginning of Period 3,777,000 3,444,000 Cash at End of Period 2,641,000 3,777,000 Value of expenses contributed by officers 800 800 AMAZON.COM INC. INCOME STATEMENT For the Three Months Ended March 31, 2011 and 2010 March, 2011 Dec 2010 Operating Revenue (Sales) 9,857,000 12,947,000 TOTAL REVENUES 9,857,000 12,947,000 Cost of Sales 7,406.000 10,148,000 Cost of Sales with Depreciation 7,608,000 10,317,000 Gross Margin (Operating profit) 2,451,000 2,799,000 Operating Income 322,000 474,000 Operating Income b/f Depreciation 557,000 672,000 Depreciation 202,000 169,000 Operating Income after Depreciation 355,000 503,000 Interest Income 15,000 15.000 Other Income (Net) (68,000) (6,000) Total Income Available for Interest Expense (EBIT) 302,000 512,000 Interest Expense 12,000 11,000 Pre-tax Income (EBT) 290,000 501,000 Income Taxes 89,000 85,000 Income before Income Taxes 307,000 507,000 Net Income from Continuing Operations 201,000 416,000 TOTAL NET INCOME 201,000 416,000 ======== ======== Normalized Income 201,000 416,000 AMAZON.COM INC BALANCE SHEETS For the Three Months Ended March 31, 2011 ASSETS March 2011 Dec 2010 Cash Equivalents 2,641,000 3,777,000 Marketable Securities 4,240,000 4,985,000 Accounts Receivables 1,304,000 1,587,000 Inventories 2,888,000 3,202,000 Current Deferred Income Taxes 215,000 196,000 TOTAL CURRENT ASSETS 11,288,000 13,747,000 Construction in Progress - 260,000 Other Fixed Assets 2,902,000 2,996,000 TOTAL FIXED ASSETS 2,902,000 3,256,000 TOTAL ASSETS 14,190,000 17,003,000 LIABILITIES Accounts Payable 5,540,000 8,051,000 Accrued Liabilities 2,190,000 2,321,000 TOTAL CURRENT LIABILITIES 7,730,000 10,372,000 Long Term Debt - 184,000 Capital Lease Obligations - 457,000 Other Non-Current Liabilities 1,805,000 920,000 TOTAL LIABILITIES 9,535,000 11,933,000 STOCKHOLDERS’ EQUITY 4,665,000 5,070,000 =========== ========= TOTAL LIABILITIES AND EQUITY 14,190,000 17,003,000 =========== ========== Business Strategy The Amazon business strategy is to become customers’ first choice when it comes to online shopping for any kind of customers’ needs. Amazon takes the advantage on the capabilities of the internet to reach many customers from different geographical locations. In addition, Amazon business strategy is to provide its customers with variety through partnering with local and international companies which supply different products. Amazon focuses on been innovative on the kind of products and services it offers to its customers. The business strategy of Amazon.com is supported by Customer Relationship Management (CRM) and Information Technology (IT). (Conklin, 2006 151). Accounting The Total Current Assets decreased from December 31, 2010 from 3,777,000 to 2,641,000 on March 31, 2011. The Company's Total Current Assets as of March 31, 2011, was 11,288,000 with Total Current Liabilities of 7,730,000 giving a liquidity ratio of 14 to 1. The Company's Total Current Assets as of December 31, 2010, was 13,747,000 with Total Current Liabilities of 10,372,000 giving a liquidity ratio of .13 to 1. The Company's cash position was 2,641,000 on March 31, 2011 compared to 3,777,000 on December 31, 2010 respectively. The fluctuations in current assets from March 31, 2011 compared to December 31, 2010 and are directly related to the amount of cash on hand. It is important to note that Amazon.com prepares its financial statements in conformity with the Generally Accepted Accounting Principles (GAAP). GAAP requires the use of estimates and assumptions that influence the amount reported as assets, liabilities, revenues and expenses in addition to disclosures of contingent assets and liabilities as found in the consolidated financial statements and other notes to the financial statements. Other key policies used by Amazon.com in presentation and reporting on financial statements are the use of judgments, estimates and assumptions. These estimates, assumptions and judgments are reasonable, although they are based on non- financial and financial information which is available in the present (Vance 2002). On the other hand, Amazon provides a summary of its operations through the use of filings as required by Security Exchange Commission (SEC). Financial Analysis The financial statements of Amazon.com reflect management’s current expectations as highly uncertain. This is because annual actual results would be different due to some inevitable reasons. These include: fluctuations in foreign exchange rates, major world events, great and critical developments in internet and online trading, number of investments, customers expectations, preferences and tastes and their level of spending, changes characterizing major economies of the world and international growth and expansion among other reasons. As illustrated in form 10K, increase in sales made by Amazon.com is associated with price reduction on many products. On the other hand, its current cash, cash equivalents and marketable securities will be just enough or adequate for use in the next financial year’s cash requirements. Amazon.com inventories are characterized with turnover which will require Amazon.com to collect amount due from the customers before payments to be made to suppliers are due. In both years, as at Dec 2010 and March 2011, Amazon was operating at a Net Loss of 1,152,000 and 201,000 respectively. Net Cash from Operating activities were 1,586,000 for March 2011 and 3495,000 for December 2010. Net Cash from Investing Activities was 390,000 for March 2011 and 3,360,000 for December 2010. Consequently, positive values for Net Cash in Financing Activities were indicated in both quarters of the two years. The Cash flows from Operating activities, Financing activities and investing activities relates to either cash inflow or outflows. As indicated earlier on cash and cash equivalents for Amazon.com are reasonably enough to finance its subsequent cash needs. Forecasting According to form 10K of Amazon.com, its primary source of revenue will be through the sale of a wide range of products through its website. Amazon’s financial focus is on a long- term sustainable growth in cash flow. Amazon forecast to investing a lot in hiring of software engineers, computer scientists and merchandisers so as to increase its operating income which is as a result of increase in sales and effective management of operating costs. In addition, Amazon.com seeks to manage its shareholder dilution while maintaining flexibility to issuance of shares for various strategic purposes. Amazon.com expects to spend a lot in technology investment through expansion of new and existing product and technological infrastructure which is aimed at enhances customers’ experiences. Valuation Stockholders' Equity decreased when comparing March 31, 2011 4,665,000 to December 31, 2010 which were reflected at 5,070,000. The decrease in stockholders' equity from December 31, 2010 to March 31, 2011 was attributed to an increase in current liabilities in year 2010. Management believes that its current cash balance is sufficient to fund immediate administrative needs. However, long-term plans are expected to require significant additional capital and there is not any assurance that the Company will be able to obtain such funds (Lee and Hood 2011 3). Citations Conklin, DW. Cases in the Environment of Business: International Perspectives. SAGE, 2006, p151. Lee, TR & Hood, LP. A Reviewer's Handbook to Business Valuation: Practical Guidance to the Use and Abuse of a Business Appraisal. John Wiley and Sons, 2011, p3. Vance, DE. Financial Analysis and Decision Making: Tools and Techniques to Solve Financial Problems and Make Effective Business Decisions, McGraw-Hill Professional. 2002, p31. http://biz.yahoo.com/e/110128/amzn10-k.html http://finapps.forbes.com/finapps/jsp/finance/compinfo/CashFlows.jsp?tkr=AMZN&period=qtr http://finapps.forbes.com/finapps/jsp/finance/compinfo/FinancialIndustrial.jsp?tkr=AMZN http://finapps.forbes.com/finapps/jsp/finance/compinfo/IncomeStatement.jsp?tkr=AMZN&peri d=qtr http://ivythesis.typepad.com/term_paper_topics/2008/07/business-strate.html Read More