Amazon

NATIONAL ECONOMICS UNIVERSITY
Advanced Educational Program
Working Capital Management
Report: Amazon
Lecturer: PhD. Tran Phi Long
Class: Advanced Finance 60C
Group 5: 1. Dương Quỳnh Anh - 11180142

2. Nguyễn Thị Ngọc Lan – 11182535
3. Đặng Ngọc Linh – 11182610
4. Nguyễn Hồng Ngọc – 11186029
5. Phan Trang Nhung - 11183905
6. Nguyễn Lan Phương – 11184029
7. Lâm Thị Thúy Quỳnh – 11184233
Hanoi, 2021
Question 1: Background of the company and the economy during 2016-2019:
1. Amazon
● The parent company, Amazon, was founded by an American technology

entrepreneur Jeff Bezos in 1994 in the United States. At that time, it was mostly an
online bookstore.
● As time progressed, Amazon transformed into an online retailer, manufacturer of

electronic books readers, and Web services provider that became an iconic example
of electronic commerce. Its headquarters are in Seattle, Washington.
● Amazon.com is a vast Internet-based enterprise that sells books, music, movies,

housewares, electronics, toys, and many other goods, either directly or as the
middleman between other retailers and Amazon.com’s millions of customers. Its
Web services business includes renting data storage and computing resources, so-
called “cloud computing,” over the Internet.
● The key areas of focus for Amazon are low prices, convenience, selection, and
availability.
2. General environment:
a. Economy
In 2016:
● Jan 2016: Amazon passed $100 billion annual sales landmark.
● Apr 2016: Amazon’s own products (Kindle and smart speakers) pushed profit ups
(rise 28% net sales annually and $513 million or $1.07 per shares)
● Jul 2016: The Biggest Prime Day in which the customer orders surpassed the prior
year by more than 60% worldwide and 50% in the US.
● Amazon launched a drone partnership with the UK government.
● Amazon hit five consecutive quarters of products (up from $92 million compared
to 2015).
● Amazon unveiled more device development (Fire TV Stick and its smart speakers).
Overall, it was a mixed year in economic data. The US’s GDP grew by 1.7% compared to 2015,
especially wage and job gains thanks to the creation of many private sectors (including
Amazon) as well as the rising income of consumers, and the Fed’s reluctance to raise interest
rates were on the negative side. Adding those pluses and minuses suggested that the economy
was weak, but still moving in a positive direction in 2016, and was likely to continue growing
in 2017.
In 2017:
● Amazon opened the first fulfillment center in Colorado which was projected to
create 1,000 new jobs.
● Amazon payments hit 33 million customers with more than 50% of customers being
Prime Members and then it was ranked as top companies.
● Jul 2017, Amazon acquired organic foods supermarket Whole Food which boosted
Amazon sales.
● 2017’s second quarter results pushed Amazon stock off its record high.
● Amazon launched its largest wind farm to support hundreds of jobs and provided
more than ten million dollars of investment in local communities.
● More than 300,000 small businesses sold through Amazon in 2017.
In general, the economy was healthy. Consumer confidence was the highest since 2000,
unemployment was the lowest in 17 years, and the country added jobs every month for more
than seven years.
For the year overall, the economy started sluggish, picked up considerably in the spring and
summer, and then slowed a bit in the fall.
In 2018:
● Amazon’s four quarters results were significant by not only shopping but also
Amazon Web Services which helped net sales increase by 38% in the fourth quarter
and 31% annually sales.
● Amazon introduced free two-hour delivery of natural and organic products from
Whole Food Market through Prime Now.
● GoDaddy – domain registrar and ecommerce provider became the latest high profile
company to sign up to AWS which helps Amazon secure a high-profile user of its
Amazon Web Services software development and cloud storage tools.
● Amazon launched international shopping on its app and added reducing crime to its
bow as it acquired home security device company Ring.
● Amazon Web Services (AWS) sales made up almost half of first quarter revenues
as the company beats its own and analyst expectations.
● Amazon was boosted by fulfillment center openings (a solar rooftop installation and
a debt restructuring) and AWS partnerships.
● Amazon Prime Day provided more than $ 1 billion of sales.
● Founder of Amazon – Jeff Benzos became the world’s richest man.
● Amazon expanded into robotic sites which provide 1000 full-time job opportunities
for employees.
● Amazon launched and expanded grocery pickup service as well as launched smart
living.
● Amazon stock passed $2,000
● Amazon raised the minimum wage of $15 for staff and donated $2million to support
education funding.
● Amazon made peace with Apple and Google and unveiled plans to open new
headquarters in New York.
Generally, the U.S. economy entered the tenth year of its expansion in the third quarter of 2018,
already having become the second-longest expansion in U.S. history. While the nation’s real
gross domestic product (GDP) was at its highest level ever, the rate of economic growth since
the end of the Great Recession in mid-2009 had been quite restrained.
But there was a larger transformation beyond digital into an era where tech was built into every
single interaction. Leading companies were improving the way people live with new products
and services that would become indispensable in the future. Business was getting personal.
Leaders had to shift their mindsets and business models to focus on forging strong, trusted
relationships with partners, customers, employees, governments, and more.
In 2019:
● Amazon entered a merger agreement with wi-fi hardware provider euro.
● A new Kindle and skincare range was launched.

● AWS expanded to Indonesia, launched Key for Garage and impressed the markets
with Google and Whole Foods partnership.
● Amazon entered the UAE and launched Amazon Prime in June.
● The latest Amazon Fire device (a new Fire 7) and the newest addition Echo Show
5 were revealed.
● Amazon backed more renewable energy projects.
● New AWS tools and new devices (smart TVs) were launched.
● Amazon workers staged a climate strike. Staff at Amazon’s Seattle headquarters

walked out in protest over Amazon's climate policy
● Amazon expanded its tech hub and opened its own airport.
● Amazon announced its first fulfillment center in Idaho as it releases a new Kindle
Fire HD and redeems $1,000,000,000 of debt.
● Amazon pushed Prime over profits. Amazon sacrificed profits as costs rose during
the third quarter to meet one-day delivery needs and to prepare for the busy holiday
season.
● Amazon showed support for startups and scholarships.
● Amazon tax affairs was back in the spotlight (come under scrutiny again after it was
accused in a report by transparency campaigners of avoiding tax by shifting revenue
and profits through tax havens.)
Overall, In the third quarter of 2019, the U.S. economy entered the 11th year of its expansion,
making this the longest expansion in U.S. history. While the nation’s real gross domestic
product (GDP) was at its highest level ever, the rate of economic growth since the end of the
Great Recession in mid-2009 was quite restrained.
On the other hand, this year brought social responsibility to the table. Companies that were not
sure how to contribute, should speed up the process of creating a strategy. Whether it was
employee volunteerism, selection of socially responsible suppliers or grants for environmental
initiatives – getting into it was crucial for survival. For example, Amazon paid attention to
producing some renewable projects as well as donating to charitable organizations as a way to
contribute to society.
b. Sociocultural
Online shopping grew dramatically in popularity. E-commerce was convenient since there
were no geographic restrictions and consumers could have access to a selection of goods
wherever and whenever they wanted. Moreover, there was an unlimited selection of
merchandise for customers to review and compare. These advantages shifted customers’
shopping behavior from retail stores to online shopping. According to a survey of online
shoppers: 48 percent of respondents shopped online in the past 12 months, 66 percent preferred
web retailers, and 73 percent completed nearly half of their shopping online. The increasing
popularity of online shopping was providing a foundation for Amazon to exploit their core
competencies.
c. Global
With the advances in modern tech support and web security, people were getting more and
more willing to make purchases online. As the economies of emerging markets were rising
dramatically, people in those countries with increasing purchasing power were spending more
on online shopping. Services such as Amazon were able to exploit this opportunity by offering
consumers goods which were not readily available in local markets. While firms expanded
internationally, it was critical to take into account the differences in consumer preferences.
d. Technology
The Internet was an excellent source of data that provides the most timely available
information that captures the shift in consumer preferences and trends. As technology had been
rapidly advancing, businesses were being influenced by technological innovations. For
example, 3 online payment methods such as online banking and PayPal created more
convenience in purchase transactions, which in turn enhanced customers’ online shopping
experience. Also, the invention of electronic devices such as smartphones delivered easy and
convenient transaction processes, further facilitating online shopping. For instance, Amazon
released a smartphone app for their Kindle services, allowing users to conveniently access the
online sales platform and review products before purchasing.
Question 2: How does the company manage its cash? Comment [LT1]: You can improve the answer by
investigating whether the companies invest its surplus cash
in investment securities. Did not comment about the
1. Balance Sheet working capital financing strategy.
2016-2017
2016 2017 Uses of cash Sources of
(%) cash (%)
($) ($)
Assets
Cash and cash $ 19,334 $ 20,522 2.48%

equivalent
Marketable 6,646 10,464 7.97%

securities
Inventories 11,461 16,047 9.57%
Accounts 8,339 13,164 10.07%

receivable, net and
other
Property and 29,114 48,866 41.23%

equipment, net
Goodwill 3,784 13,350 19.97%
Other assets 4,723 8,897 8.71%
Liabilities and
Equity
Accounts Payable $ 25,409 $ 34,616 19.43%
Accrued expenses 13,739 18,170 9.25 %

and other
Unearned revenue 4,768 5,709 0.69 %
Long-term debt 7,694 24,743 35.59 %
Other long-term 12,607 20,975 17.47 %

liabilities
Commitment and - -
contingencies
Preferred stock,
$0.01 par value
Authorized shares –
500
Issued and
outstanding shares
– none
Common stock , $
0.01 par value
5,000
Issued shares – 500

and 507
Outstanding shares 5 5
– 477 and 484
Treasury stock, at (1,837) (1,837)
cost
Additional paid-in 17,186 21,389 8.77%

capital
Accumulated other (985) (484) 1.05%

comprehensive loss
Retained earnings 4,916 8,636 7.76%
Total $ 83,402 $ 131,310
Leverage Ratio 77% 79 %
2017-2018

(%) cash (%)
($) ($)
Assets
Cash and cash $ 20,522 $ 31,750 32.93 %

equivalent
Marketable securities 10,464 9,500 3.08 %
Inventories 16,047 17,174 3.60 %

Accounts receivable, 13,164 16,677 11.21%
net and other
Property and 48,866 61,797 41.26 %

equipment
Goodwill 13,350 14,548 3.82 %
Other assets 8,897 11,202 7.36 %
Liabilities and Equity
Accounts Payable $ 34,616 $ 38,192 11.41 %
Accrued expenses and 18,170 23,663 17.53 %

other
Long-term debt 24,743 23,495 3.96 %
Other long-term 20,975 27,213 19.91 %

liabilities
Commitment and
contingencies
Preferred stock, $0.01

par value
500
Issued and
outstanding shares –
none
Common stock , $
0.01 par value
5,000

and 507
Outstanding shares – 5 5
481 and 491
Treasury stock, at cost (1,837) (1,837)
Additional paid-in 21,389 26,791 17.24 %

capital
Accumulated other (484) (1,035) 1.76 %

comprehensive loss
Retained earnings 8,636 19,625 35.07 %
Total $ 131,310 $ 162,648

Leverage Ratio 78.90 % 73.23 %
2018-2019

(%) cash (%)
($) ($)
Assets
Cash and cash $ 31,750 $ 36,092 6.38 %

equivalent
Marketable securities 9,500 18,929 13.85 %
Inventories 17,174 20,497 4.88 %
Accounts receivable, 16,677 20,816 6.08 %

net and other
Property and 61,797 72,705 16.02 %

equipment
Operating leases - 25,141 36.93 %
Goodwill 14,548 14,754 0.30 %
Other assets 11,202 16,314 7.51 %
Liabilities and Equity

Accounts Payable $ 38,192 $ 47,183 13.21 %
Accrued expenses and 23,663 32,439 12.89 %

other
Long-term lease 9,650 39,791 44.28 %

liabilities
Long-term debt 23,495 23,414 0.12 %
Other long-term 17,563 12,171 7.92 %

liabilities
Commitment and
contingencies
Preferred stock, $0.01

par value
500
Issued and outstanding

shares – none
Common stock , $
0.01 par value
5,000

and 507
Outstanding shares – 5 5
481 and 491
Treasury stock, at cost (1,837) (1,837)
Additional paid-in 26,791 33,658 10.09 %

capital
Accumulated other (1,035) (986) 0.07 %

comprehensive loss
Retained earnings 19,625 31,220 17.03 %
Total $ 162,648 $ 225,248
Leverage Ratio 73.23 % 72.45 %
The total assets increased over the period of 4 years which means that the total uses of cash
increased by the same amount of money. In the Uses-of-cash category, the percentage of
Property and Equipment accounted for the highest proportions, which was 41.23%, 41.26% %
respectively. The major reason is that Amazon had the purpose of expanding their company
and becoming a giant retail machine which provided more different product categories.
In terms of the Sources of cash, the amount of money Amazon received from Long-term Debt
was the most significant (104.76%). Additionally, other liabilities (25.33%) was another factor
which is necessary in increasing the sources of cash. It was easy to see that Amazon used the
major part of their money from Debt and Liabilities to turn out their inventory quickly and had
a cash generating cycle for a long period of time before the money was paid to its suppliers.
Leverage Ratio
Table 1: Leverage ratio
Leverage Ratio 2016 2017 2018 2019
(Debt-to-Asset Ratio)
77% 78.9% 73.23% 72.45%
The leverage ratio can help investors understand the exact proportion of debt in Amazon’s
capital structure. According to the debt capital ratio calculation, the percentage of Amazon’s
total debt in 2017 comprised the highest level of capital structures (78.9%) , followed by 2016
with 77%. Although there was a slight decrease in the next two years, the figures for debt
remained constant at significant rates of more than 70%. This is primarily due to the rise of
property and equipment prices as well as operating leases which means that Amazon is on
expansion, and the investors can see that the company has potential developments and
extension abilities in the near future.
2. Cash Flow Statement: Four Periods ( 2014-2015-2016, 2015-2016-2017, 2016-2017-

2018, 2018-2019)
a. Operating Activities (2016-2019)
Amazon operating cash flows resulted primarily from cash received from specific customers
and co-branded credit card agreements, offsite by cash payments the company make for
products and services, employee compensation (less amounts capitalized related to internal-
use software that are reflected as cash used in investing activities), payment processing and
related transaction costs, operating leases, and interest payments on long-term obligations.
Cash received from the company's customers and other activities generally corresponded to the
company’s net sales. Because consumers primarily used credit cards to buy products,
receivables from consumers settled quickly. The increase in operating cash flow in 2016, 2017,
2018, 2019 compared to the comparable prior year period, was primarily due to the increase in
net income, excluding non-cash charges such as depreciation, amortization, and stock-based
compensation.
b. Investing Activities:
Cash provided by (used in) investing activities corresponded with cash capital expenditures,
including leasehold improvements, incentive received from property and equipment vendor,
internal-use software and website development costs, cash outlays for acquisitions, investments
in other companies and intellectual property rights, and purchases, sales, and maturities of
marketable securities.
Cash used in investing activities was all negative in the 4 period, with the variability caused
primarily by Amazon decision to purchase or lease property and equipment, purchases,
maturities, and sales of marketable securities, and changes in cash paid for acquisitions.
Table 2: Cash Capital Expenditures
Period 1 Period 2 Period 3 Period 4
Cash Capital 2014 2015 2016 2015 2016 2017 2016 2017 2018 2018 2019
Expenditures
(in billions) $4.9 $4.6 $6.7 $6.5 $9.9 $27.8 $6.7 $10.1 $11.3 $11.3 $12.7
Source: Amazon’s Annual Report
While cash capital expenditures were low in period 1, there was a considerable increase from
$6.5 billions to $11.3 billion in the next two periods . Also, the last periods showed an
insignificant growth of cash capital expenditures by $1.4 billions , all of which primarily
reflected additional capacity to support Amazon fulfillment operations and additional
investments in support of continued business growth due to investments in technology
infrastructure (the majority of which was to support AWS), during all four periods.
Stock-based compensation capitalized for internal-use software and website development costs
did not affect cash flows.
Table 3: Cash payment

Period 1 Period 2
Cash payment 2014 2015 2016 2015 2016 2017
(net of acquired
cash) $979 $795 $116 $795 $116 $14
millions millions millions millions millions billions
Period 3 Period 4
2016 2017 2018 2018 2019
$116 $14 $2.2 $2.2 $2.5
millions billions billions billions billions
In the four periods, Amazon made cash payments, net of acquired cash, which related to
acquisition and other investment activities. The cash payment chart shows that the amount of
cash raised significantly from $116 millions from 2016 to $2.5 billions in 2019, which means
that Amazon paid much attention in a famous acquisition in which it purchased other
companies and enterprises to expand its business and gain a source of profits. For example, the
biggest acquisition took place in 2017, when Amazon announced it bought the high-end
supermarket Whole Foods for a record $13.7 billion. Whole Foods became a place for Amazon
to test its distribution and sales strategy in the physical supermarket space alongside smaller
one like convenient store Amazon Go.
c. Financing Activities
Table 4: Financing Activities
Period 1 Period 2 Period 3 Period 4
(billion) (billion) (billion) (billion)

201 201 201 201 201 201 2016 201 2017 2018 2019
4 5 6 5 6 7 7
Principal $1.9 $4.2 $4.4 $4.2 $4.4 $6.4 $4.3 $6.3 $8.5 $8.5 $9.3
repayment
s on
obligations
Property $4.0 $4.7 $5.7 $4.7 $5.7 $9.6 $5.7 $9.6 $10.6 $10.6 $13.7
and
equipment
acquired
under
capital
leases
Cash outflows: Cash outflows from financing activities resulted mainly from principal
repayments on obligations related to capital leases and finance leases and repayments of long-
term debt and others which escalated by more than $10 billion. Moreover, property and
equipment acquired under capital leases were increased over the years, with the increase
reflecting investments in support of continued business growth primarily due to investment in
technology infrastructures AWS, which were expected to continue overtime.
Cash inflows: Cash inflows from financing activities primarily resulted from proceeds from
long-term debt and other.
Table 5: Proceeds from long-term debt and other
Period 1 Period 2
2014 2015 2016 2015 2016 2017

Proceeds $6.4 $353 $621 $353 $621 $16.2
from long-
billions millions millions millions millions billions
term debt
and other
Period 3 Period 4
2016 2017 2018 2018 2019
$618 $16.2 $768 $2.2 $2.5
millions billions millions billions billions
The proceeds from long-term debt and others have a significant fluctuation over the years. The
year of 2014 recorded the highest amount of cash outflows with $6.4 billion, and then it
declined dramatically to $350 million in the following year. In the last three periods, the cash
from long-term debt and others ranging from $350 million to $2.5 billion. However, the cash
inflows of Amazon were generally high because of the successes it received from long-term
investments and other projects which helped them raise the company's profit.
Besides, cash inflows from tax benefits related to stock based compensation deductions were
$6, $119 and $829 millions from 2014-2016; $273, $412 and $957 from 2015-2017; $412,
$957 millions and $1.2 billions from 2016-2018; $1.2 billions and $881 millions in the last
periods. The figures demonstrated that the tax benefits Amazon received dramatically climbed
over the years. It played a major role in releasing the tax burden for Amazon which made them
have more sources of income to invest in different markets and even themselves.
3. Conclusion
Free cash flow is a bit like profit, except it doesn’t assume that Amazon has to pay for
everything in the same time frame it sells it. And thanks to Amazon’s repayment cycle, it
usually gets money for selling an item long before it has to pay for that item. For example, it
took Walmart on average nearly three days to receive payment for goods after it paid its
suppliers, while Amazon on average receives payment about 18 days before it paid its
suppliers, according to the latest available cash conversion cycle data from the financial
research platform Santino.
Amazon’s sales were also growing, meaning it was not in danger of reversing the free cash
flow trend, which had generally been growing thanks to margins that rose faster than capital
expenditures. It had even more money coming in before the money for last quarter’s bills was
due. Therefore, its money on hand, or “free cash flow,” was always higher than its profits.
It is important to note that Amazon’s profit margins were not actually that low, depending on
what kind of company you consider. Among most retailers, single-digit margins are perfectly
normal. And thanks to Amazon’s other, higher-margin businesses — advertising and its
Amazon Web Services cloud computing services — those margins are ticking higher.
Amazon’s free cash flow is also incredibly high.
People commonly determine a stock’s value based on its future cash flow, so it directly relates
to how much a stock should cost. Many investors also think it’s a better gauge than the profit
of a company’s health.
Amazon’s access to cash enabled it to do everything from paying its employees, suppliers, and
shareholders to investing in its future. And while investing in its future lowered its profits, it
also lowered its taxes by creating less taxable income.
Investing
Amazon kept profit and free cash flows artificially low by investing money right back into its
business in the form of capital expenses, like building data centers, upgrading distribution
networks, and creating wind and solar farms. It did so without having to borrow money, which
means it did not incur interest costs.
All these investments led to lines of businesses like AWS cloud computing and advertising that
were relatively much more profitable than its e-commerce segment. Investing in itself had been
a core tenet of Amazon’s business, and it did not show signs of flagging.
Taxes
Amazon’s internal investments also kept its tax bill down, saving the company money. It was
suggested that its tax rate is low thanks in part to its huge investments in its business. President
Donald Trump had harangued the company for not paying enough in taxes. Amazon responded
that it simply paid what the government said it owed. When Amazon upgraded its warehouses
or built new data centers or solar farms, it could immediately deduct that amount, which
reduced its taxable income — and, by extension, its tax bill.
Amazon told the Wall Street Journal that they were in a low-margin industry and invested in
innovation and infrastructure, they did not make as much pretax profit as other tech companies,
so Amazon taxes were lower. Low profits formed a key element of Amazon’s success. In a
way, its low profits made it more profitable.
Question 3: How does the company manage its inventory?
1. Amazon Inventory Management System
a. General background
Managing inventory levels for companies that sell goods is a significant task. A company needs
to maintain optimal inventory levels because having too much inventory increases cost such as
storage, wear and tear, and interest. In addition, capital which could have been used for other
income generating investments is tied up. On the other hand, having inadequate inventory may
lead to loss of revenue because the company may not be able to meet demand.
This creates the need to constantly monitor the inventory so that there are no shortages and
excesses. It is also worth mentioning that inventory management has a direct effect on the
working capital and liquidity of a business. Therefore, failure to manage it may also affect other
aspects of the business and the day-to-day operations. In addition, the company can fail to raise
adequate cash flow that can pay immediate obligations. One tool that the company can use to
monitor inventory level is the inventory turnover ratio. This ratio works together with days in
inventory. This part seeks to carry out how Amazon has implemented the concept of inventory
management from 2016 to 2019.
b. Problem faced by Amazon
In the holiday season of 2013 and 2014, many of the customers were disappointed by late
deliveries of products and last-minute shipping by firms. As a result Amazon had opened more
warehouses for trying to manage its inventory and stock the stores with large collections of
almost every possible item. In advanced economies, it is a very tough decision for the
companies to invest in building warehouses and operate them profitably. On the other side, the
size of the inventories and offering of more products on its sites had also become
unmanageable. Most of the time of the store managers and the workers was spent on customers’
orders and preparation for shipping. It had become very hectic for the US base retail giant
(Backer, 2015) and on the other hand, it was a big challenge for the e-commerce giant to pick
two to three miles faster and deliver products to its customers. Furthermore, the enterprise had
opened more shipping centers and hired more seasonal workers for improving their shipping
services which helped them reduce the disappointment of the customers only up to an extent.
But this reduction in the disappointment of the customers was only up to an extent and the
further reduction could not be stalled and the company was unable to solve the problem of
quick delivery of products and services completely.
c. Types and Roles of Inventory at Amazon:
Amazon uses many types of inventory, each with a corresponding set of management
approaches, strategies, and tactics. Each type fulfills a certain role in the retail company’s
inventory and supply chain. The following subcategories types of finished goods inventory are
some of the most notable in Amazon’s practices:
1) Available Inventory
Available Inventory: This type is the inventory that is fully available and ‘ready for sale’.
Amazon stores the majority of the stuff it sells on its platform and, increasingly, the stuff other
businesses sell on its platform. In other words, the company manages a gargantuan amount of
space. Finished goods arrive at the company’s warehouses. Thus, the role of this type of
inventory is to support Amazon store operations, where the finished goods are moved from the
company’s merchandise distribution centers to be shipped to the customer.
2) Anticipation Inventory
Anticipation Inventory: Amazon uses this type to ensure optimal capacity to satisfy consumer
demand. The anticipation inventory type is based on seasonal changes and corresponding
empirical data on seasonal changes in the market. For example, let’s consider sunscreen. It's
obviously in demand in the summer, but Amazon's AI models have also detected mini-surges
around winter holidays and spring breaks — when people go on trips to warm sunny places.
The company also uses anticipation inventory for the Christmas season and some long holiday
weekends. The role of this inventory type is to enable the company to satisfy expected seasonal
increases in demand.
2. Amazon’s Inventory Strategies:
The Perpetual FIFO Method. The first in, first out (FIFO) method is used in Amazon’s
inventory management. In this method, the first items to arrive are also the first to be sold. In
other words—the first batch of products that arrived at the warehouse will also be the first to
go out the door when customers order them. Once they’re gone, they won’t be subject to a
storage fee.
Vendor Managed Inventory (VMI): This method is used by suppliers to outsource product
storage to and by buyers to reduce the amount of product receiving they're involved in. The
suppliers will restock items every time a product hits its reorder point. With millions of SKUs
to manage, Amazon doesn’t need to manually place purchase orders when stock runs low. This
method of inventory management allows suppliers to take care of their own products within a
retailer or an e- tailer’s inventory. Over half of the products listed on Amazon are sold by third
party sellers. Third party vendors send their inventory to Amazon’s warehouses and the
company takes care of the rest. From picking and packing, processing customer payments, to
sending it off for shipping – this fulfillment strategy has benefits for all parties. Amazon simply
provides a channel for vendors to sell their products.
Drop-shipment Model: Drop shipping is a supply chain management method in which the
retailer does not keep goods in stock but instead transfers customer orders and shipment details
either to the manufacturer, another retailer or a wholesaler, who then ships the goods directly
to the customer. For example, Amazon’s alliance with Ingram Micro, a prominent wholesale
dealer of electronic goods, in order to fulfill the orders of desktops, laptops and other computer
accessories. These strategic alliances helped Amazon not only to reduce the risk of holding
larger inventory and reduction in the holding cost but also helped to improve their goodwill
because the companies that Amazon allied with had the best-in-class supply chain
management.
Application of Technology in Warehouse Management: Amazon has been investing

considerably in robotic and drone technologies for the past decade and has acquired many
patents on them. Its warehouses’ alone house more than 45,000 robots. In 2012, Amazon
acquired Kiva Systems – a company that designs robots for the picking and packing process –
for $775 million. By 2014, the company had 14,000 robots for its 10 warehouses. The following
year, the count increased by 114% to 30,000 robots and in 2017 the number increased by 50%
to 45,000 robots across 20 warehouses. In addition to acquisitions, Amazon also organizes
challenges in different universities and institutes across the world in which they offer a large
sum of money for inventing a next-generation robot. In 2017, the prize money was $250,000.
3. Managing Inventory across Amazon’s Supply Chain:
a. ABC Analysis:
Category A items in Amazon’s inventory include the most valuable items that offer the highest
profit and exceed target margins are listed first, such as information systems for supply chain
management and inventory management. Items in this category are regularly monitored and
recorded. Category B items in Amazon’s inventory have the medium consumption value. The
wide range of goods that fall in between categories A and C. These items are moderately
monitored and have moderate recording accuracy. Category C involves the least monitored and
recorded inventory items. These items make profits to meet targets but do not make much
difference individually.
Amazon does not stock every single item offered on its site. It stocks only the items that are
popular and frequently purchased. If an ‘unpopular’ item is ordered, Amazon would then
request it from its distributor who then ships it to the company. The item would then be
unpacked and shipped to the respective customer.
b. Amazon Inventory Management Tools
When it comes to assuring the success of Amazon's operations, technological innovation is a

key driver. Indeed, Amazon has ensured effectiveness and efficiency in comparison to other
organizations that still employ traditional methods such as human labor. Orders can be
processed more rapidly thanks to technology, while superfluous costs can be avoided, hence,
maximizing the profits.
Along with daily inventory and storage reports, Amazon uses machine learning models to
provide data-driven recommendations through features such as:
- FBA Restock Tool
- Inventory Performance Index
- Inventory Age Report
1) FBA Restock Tool
Amazon provides a free Restock Tool to assist with inventory management. The program is
based on a machine learning model. It assists sellers in determining the quantity of inventory
to deliver and when to send it. For sellers who use FBA, the restock tool is included, and it
provides specific recommended replenishment quantities and ship dates.
The machine learning model is based on Amazon’s inputs on sales history, demand forecasting,
seasonality, fees, seller inputs on lead times, replenishment frequency, and cost of goods sold.
Taking into account what is currently in stock, the restock tool calculates the ideal inventory
quantity to store.
2) Inventory Performance Index
The Inventory Performance Index (IPI), which was introduced in 2017, allows sellers to
automatically track how successfully they manage their inventory on Amazon. Inventory
performance is a measure of inventory management and replenishment. The Inventory
Performance Index (IPI) is a metric that gauges how well Amazon merchants manage their
FBA inventory.
On July 1, 2018, Amazon started to adjust storage limits. In fact, Amazon IPI score above 400
lowers storage costs and gives sellers additional storage capacity in Amazon fulfillment
centers. Storage restrictions also change every quarter, depending on sales volume, IPI score,
and fulfillment capability.
3) Inventory Age Report
Inventory Age tools helps to understand how much inventory is being held, and see how long
it has been in fulfillment centers by using sell-through rate, which is calculated by dividing
total units shipped in the past 90 days by the average number of units in the sellers’ FBA
inventory during that same period. Improving the sell-through rate will help to increase the IPI,
so this could significantly encourage Amazon sellers towards practical inventory managing
implementation.
4. Amazon Measures of Inventory Performance
Considering the size of its business and the variety of products it offers, Walmart uses
numerous variables as measures of inventory performance. The following measures are some
of the most significant:
• Inventory size
• Inventory turnover (Days inventory outstanding)
a. Inventory Size
Table 6: Inventory
Year Inventory ($ billion) Average Inventory COGS

($ billion)
($ billion)
2015 10,243
2016 11,461 10,852 88,265
2017 16,047 13,754 111,934
2018 17,174 16,611 139,156
2019 20,497 18,836 165,536
Table 3-1: Inventory and Cost of Goods Sold of Amazon for a 4-year period (2016-2019)
The data from Table 3-1 above points out that inventory level accounts for relatively low levels
compared to cost of goods sold. This might be resulted from the fact that Amazon uses its Seller
network to outsource the largest part of its system offerings. That is, FBA will offer storage to
Sellers, so the inventory levels on Amazon’s balance sheet stay very low, leading to little funds
tied up in inventories. This further reduces CCC, and the fast cash collection enables
investment into other activities instead, such as fixed assets that incur minimal extra marginal
cost. In addition, the company uses inventory size as a gauge of cost since the corporation could
spend less on a smaller inventory. These measures reflect the cost minimization objectives that
are linked to Walmart’s cost leadership generic competitive strategy, which requires low costs
to maintain attractive low selling prices.
b. Inventory Turnover
Table 7: Inventory Ratios of Amazon, Walmart and Industry for a 4-year period (2016-2019)
Year 2015 2016 2017 2018 2019 Average
Inventory ($ billion)
Amazon 10,243 11,461 16,047 17,174 20497

Walmart 45,141 44,469 43,046 43,783 44,269
Average Inventory
Amazon 10,852 13,754 16,611 18,836
Walmart 44,805 43,758 43,415 44,026
COGS ($ billion)
Amazon 88,265 111,934 139,156 165,536
Walmart 360,984 361,256 373,396 385,301
Inventory Turnover
Amazon 8.13 8.14 8.38 8.79 8.36
Walmart 8.06 8.26 8.60 8.75 8.42
Industry 6.55 6.55 6.84 6.51 6.61
Inventory conversion period
Amazon 45 45 44 42 43.71
Walmart 45 44 42 42 43.41
Industry 56 56 53 56 55.20
Table 3-2: Inventory Ratios of Amazon, Walmart and Industry for a 4-year period (2016-2019)
Inventory turnover ratio, defined as how many times the entire inventory of a company has
been sold during an accounting period, is a major factor to success in any business that holds
inventory. It shows how well a company manages its inventory levels and how frequently a
company replenishes its inventory. Thus, optimizing inventory turnover is one of the most
critical parts of inventory control. In general, a higher inventory turnover is better because
inventories are the least liquid form of asset.
Inventory turnover between 5 to 10 is considered the ideal ratio of turnover for most industries.
In Amazon's case, the increase in inventory ratio from 8.1 in 2016 to approximately 8.8 in 2019
indicates that Amazon could sell and restock its inventory everyone and a half month. In
addition, its average inventory turnover from 2016 to 2019 being around 8.36 times per year is
higher than its average industry group, which is around 6.58 times. This implies a positive point
that Amazon is able to maintain lower on-hand inventory than its average industry. It signals a
less risky prospect since the company replenishes cash quickly and does not get stuck with
unsold goods.
The success of Amazon inventory management system could be derived from the results of
optimizing inventory processes. Firstly, as mentioned above, it is because of Fulfillment by
Amazon services, which connects its sellers’ programs. Third-party sellers maintain ownership
of their inventory, regardless of whether fulfillment is provided by Amazon or the third-party
sellers, and therefore these products are not included in Amazon’s inventories, which explains
why Amazon could keep a relatively low inventory level in the industry. Secondly, thanks to
automated technology applications, Amazon could run with low inventory at hand and gain
competitive advantages over their competitors. Indeed, its specialized software can keep track
of the inventory levels, deliveries, sales, and orders originating from Amazon sales channels.
Thus, it helps to reduce carrying cost, mitigate fees, and synchronize inventory across all
listings. Lastly, it is also due to the benefit of being an e-commerce business rather than
maintaining a store.
However, albeit increasing and having a higher inventory turnover ratio than its average
industry, Amazon inventory turnover yearly trend (2016-2019 period) is quite stable with very
little volatility. Also, when compared to its competitors- Walmart, Amazon.com ‘s average
inventory turnover ratio for the examined period is still a little lower, showing strong
competitiveness.
Question 4: How does Amazon manage its accounts receivable/accounts payable from 2016
to 2019?
1. Accounts Receivable
a. Accounts Receivable analysis
Data
Table 8: Financial data (Amazon)
2015 2016 2017 2018 2019
Accounts Receivable $10,243 $11,461 $13,164 $16,677 $20,816
Average Accounts Receivable $10,852 $12,313 $14,921 $18,747
Net Sale $135,987 $177,866 $232,887 $280,522
Table 9: Liquidity Ratios (Amazon)
2016 2017 2018 2019
Receivable Turnover Ratio 12.53 14.45 15.61 14.96
Days in Sales Outstanding 29.13 25.27 23.38 24.39
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Equation: Receivable Turnover Ratio =
)*"+&," )--./0#( 1"-"2*&3'"
456
Days in Sales Outstanding (DSO) =
1"-"2*&3'" 7/+0.*"+ 1&#2.
Figure 1: Receivable Turnover Ratio and Days in Sales Outstanding (Amazon)

Amazon’s accounts receivables turnover ratio in 2016 was 12.53 times, and reached its peak
at 15.61 times in 2018, then its figure suddenly experienced a slight decline to 14.96 times in
2019. Overall, a growth was recorded in the statistics of Amazon’s receivable turnover ratio in
the period from 2016 to 2019. Hence, it could be concluded that Amazon was managing its
accounts receivable and business effectively, and it could also indicate that the company’s
credit and collection policies were favorable.
It is noticeable that a decrease was seen in the figures for Amazon’s days in sale outstanding
with the striking change in 2018 in the given period. In specific, Amazon’s line in 2016 was
29.13 days and continued to decline to 23.38 days in 2018, and finally it went up to 24.39 days
in 2019. Thus, during the examined period, the collection period of Amazon was shorter, so
that the company could use its cash more quickly. In conclusion, the result that Amazon’s DSO
followed a downtrend can indicate successful receivables management and good collection
policies.
Factor affecting data: Credit Policy
Establishing an official credit policy is essential for a company if they have a demand for higher
accounts receivable. The reason is that the credit policy can affect the company’s volume of
sales, since a credit policy allows people to purchase products or services they might not
purchase right away. A credit policy establishes the company's position on granting and
collecting credit. Furthermore, the relationship between the credit policy and the accounts
receivable is that when a company provides payment terms on credit, accounts receivable
increase. The credit period or payment terms delineate the length of time which the client must
pay his invoice. Sales and accounts receivable increase when the payment terms are increased
but this also may result in the company needing lines of credit or other financing needs to carry
these amounts on the books in accounts receivable and still pay its bills. Shortening the credit
period has the opposite effect. Thus, in this part, the paper will view the Amazon Corporate
Credit Line in detail and will discuss how this credit policy affects the trend in its accounts
receivable.
So far, Amazon.com Inc. offers its customers two different versions of its credit lines:
− Amazon Pay-In-Full Credit Line
Pay-in-Full Corporate Credit Line charges no interest and no annual fee. You’ll have a
minimum of 55 days to pay invoices in full, which is a longer period than the typical charge
card offers.
The Amazon Corporate Credit Line pay-in-full option includes the following costs:
● APR: This option charges no introductory or ongoing APR because you must pay the
balance in full each cycle
● Late payment fee: 2% of the adjusted balance per month
● Returned check fee: $29
The repayment terms are:
● Repayment time: You have at least 55 days after receiving your invoice to pay your
bill, which is longer than the typical 20 to 30 days most charge cards give you to pay
● Monthly minimum payments: Full balance
➔ This credit line is best for large businesses and government institutions needing
accounts management flexibility. You will be able to give purchasing authority to
multiple employees and set up accounts for different departments or locations.
➔ Choose the pay-in-full line of credit only if you know you’ll be able to pay off your
Amazon.com balance every month
− Amazon Revolving Credit Line
Revolving Corporate Credit Line revolving line of credit option charges no annual fee and
charges a fixed interest rate on balances carried from month-to-month. You may pay in full
each month or pay 12.99% APR on unpaid balances. Also the APR on the revolving line is
lower than the typical small business credit card charges.
The Amazon Corporate Credit Line revolving option includes the following costs:
● Intro APR: None
● Ongoing APR: 12.99% APR for balances carried from one month to the next
● Delinquency APR: 29.99% if you cannot make a minimum payment on time, make a
payment not honored by your bank, or exceed your credit limit; the delinquency APR
may be applied indefinitely.
● Late payment fee: Up to $39.99
● Returned check fee: $29
The repayment terms are:
● Repayment time: Amazon requires you to make minimum monthly payments that are
primarily interest charges, but if you make only the minimum payment, it could take
months or years to pay off your balance
● Monthly minimum payments: $50, one-twelfth of your new balance or the sum of
finance charges, the late fee and 1% of your new balance, whichever is greater; if your
new balance is less than $50, you must pay the balance in full
➔ A revolving business line of credit is best for small and medium-sized businesses
wanting the flexibility to make minimum monthly payments or pay the balance in
full each month.
➔ If you cannot pay in full, choose the revolving line of credit, which offers
potentially smaller monthly minimum payments than a small business credit card.
Credit cards require payments of 2% to 4% of the balance.
Consequently, there are three outstanding benefits of the Amazon Corporate Credit Line that
can be considered as the motivations for encouraging customers to use the company’s service:
− Many businesses can benefit: Amazon offers credit lines tailored for businesses large and
small. Choose the revolving line of credit for easier credit approval for small businesses or
the pay-in-full line for larger businesses needing flexible spending controls.
− Fees are low: You’ll pay no interest or annual fee with the pay-in-full option and an APR
of 12.99% with the revolving line. That APR is lower than most business credit cards
charge and less expensive than other lines of credit.
− Extra time to repay: If you qualify for the pay-in-full option, you’ll have a minimum of 55
days from invoice to repay your balance. That’s a longer net repayment time than most
other options.
According to all the advantages above of the Amazon Corporate Credit Line, it can be
concluded that Amazon is trying their best to gain as many customers as they could by giving
immensely beneficial options to their clients. In our perspective, the company’s good credit
policy is the most important reason for the high accounts receivable ratio and low DSO during
this period.
Although this policy might attract more customers, it posed a threat to Amazon’s allowance
for doubtful accounts.
2016 2017 2018 2019
Allowance for doubtful

accounts $237 $348 $495 $718
Addition to the allowance $451 $626 $878 $1,000
Deduction to the allowance $403 $515 $731 $793
Closing balance of allowance $285 $459 $642 $925
Equation: Closing balance of allowance = Allowance for doubtful accounts + Addition to the
allowance - Deduction to the allowance
Amazon’s figure for the closing balance of allowance in 2016 was $285, and it had reached its
peak at $925 in 2019. This clearly showed that Amazon faced a trade-off between enhancing
more customers and reducing the chance of collecting back its receivable since the higher the
closing balance of allowance is, the lower collections the company can collect. This could
become a danger for the operation and cash flow of the company in the long run, so Amazon
should take this issue seriously.
b. Comparison: Amazon vs Best Buy vs Industry
Data
Table 11: Financial data (Best Buy)
2015 2016 2017 2018 2019
Accounts Receivable $1,280 $1,162 $1,347 $1,049 $1,015
Average Accounts Receivable $1,221 $1,255 $1,198 $1,032
Net Sale $39,528 $39,403 $42,151 $42,879
Table 12: Liquidity Ratios (Best Buy)
2016 2017 2018 2019
Days in Sale Outstanding 11.27 11.62 10.37 8.78
Table 13: Liquidity Ratios (Industry: Consumer Discretionary)
2016 2017 2018 2019
Days in Sales Outstanding 14.74 15.73 15.54 16.99
Source: Copyright © 2021 Stock Analysis on Net
Comparison
Table 14: Accounts Receivable Turnover Ratios (Amazon vs Best Buy vs Industry)
2016 2017 2018 2019
Amazon 12.53 14.45 15.61 14.96
Best Buy 32.37 31.41 35.18 41.55
Industry 24.76 23.32 23.63 21.48
Table 15: Days in Sales Outstanding (Amazon vs Best Buy vs Industry)
2016 2017 2018 2019
Amazon 29.13 25.27 23.38 24.39
Best Buy 11.27 11.62 10.37 8.78
Industry 14.74 15.73 15.54 16.99
Figure 2: Accounts Receivable Turnover Ratios (Amazon vs Best Buy vs Industry)

From the chart, Amazon’s line was much lower than that of both Best Buy and the Industry.
The industry’s ratio followed a slight fluctuation between 20 and 30 times, Best Buy’s figure
kept to an upward trend that was higher than the industry’s, meanwhile that ratio of Amazon
was only below 20 times. In general, we can see that Amazon was not only lower than its
competitor - Best Buy, but it was also under the average trend of the industry. Therefore, if we
take Amazon’s numbers and compare them to the industry in this period, it can be indicated
that Amazon managed its accounts receivable not efficiently, and the company had a high
proportion of customers who did not pay their debts quickly. It means that Amazon’s receivable
collection was threatened.
Figure 3: Days in Sales Outstanding (Amazon vs Best Buy vs Industry)
In terms of days in sales outstanding, the industry’s figure fluctuated between 10 and 20 days,
and similarly, the numbers for Best Buy were only around 10 days during this given period.
On the contrary, Amazon’s line was greatly higher than both Best Buy’s and the Industry’s,
particularly, it always remained at points above 20 days. From the higher days in sales
outstanding number of Amazon when comparing with its competitor and industry, it can be
suggested that the company was experiencing delays in receiving payments. Which could lead
to a negative cash flow and cause a cash flow problem in the long run.
Amazon allowed a longer duration to receive payments than the industry average, and the
company made a lot of sales on credit. Also, the higher days in sales outstanding of Amazon
was a sign that their customers took more time to pay, which in turn meant that the company
had to wait for the much-needed funds to be invested in business operations. It could also prove
that the firm’s credit policy might be too unsecured for the company itself. The favorable credit
terms, thereby, could help it attract more clients as they could extend their payable periods.
However, this turned out to be a disadvantage to Amazon’s collectible probability. The problem
relating to the loose credit policy of Amazon could be clearly noticeable in its higher allowance
for doubtful accounts than Best Buy.
Table 16: Allowance for doubtful accounts (Amazon vs Best Buy)
2016 2017 2018 2019
Amazon $237 $348 $495 $718
Best Buy $49 $52 $37 $23
Overall, the accounts for allowance of Amazon had experienced an upward trend and finally
reached a top of $718 in 2019 in the given period. On the other hand, Best Buy’s allowance for
doubtful accounts followed a downward trend and recorded the lowest statistic of $23 in the
last year of the period. Higher accounts for allowance means that Amazon had more accounts
expected to be uncollectible. Therefore, it faced a higher risk of bad debt, which resulted in a
decrease in its accounts receivable. What is more is that, when the allowance for doubtful
accounts is high then Amazon could be facing high bad debts, which finally could cause a loss
to the net income of all the company.
2. Accounts Payable
a. Accounts Payable Analysis
Data
2015 2016 2017 2018 2019
Accounts Payable $20,397 $25,309 $34,616 $38,192 $47,183
Average Accounts Payable $22,853 $29,963 $36,404 $42,688
Cost of Sale $88,265 $111,934 $139,156 $165,536
Table 18: Liquidity Ratios (Amazon)
2016 2017 2018 2019
Payable Turnover Ratio 3.86 3.74 3.82 3.88
Days in Payable Outstanding 94.50 97.70 95.49 94.12
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑺𝒂𝒍𝒆
Equation: Payable Turnover Ratio =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆
456
Days in Payable Outstanding (DPO) =
K&L&3'" 7/+0.*"+ 1&#2.
A higher value of payable turnover ratio than the industry average indicates that the company
pays its suppliers at a faster rate than its competitors and is generally conducive to short-term
liquidity. Overall, Amazon's accounts payable turnover ratio followed an increase from 2016
to 2019. Initially, accounts payable turnover ratio experienced a slight decrease from 3.86 to
3.74, then, following an incline to 3.88 in 2019.
Meanwhile, Amazon’s days in payable outstanding respectively indicated a decrease on

average days in paying back its accounts payable. Suppliers of Amazon usually received the
payments around 95 days, save the case of 2017 with 97 days.
Figure 4: Payable Turnover and Days in Payable Outstanding (Amazon)
In conclusion, Amazon had an improvement in paying payments to suppliers by making

suppliers receive credit amounts frequently and regularly. It indicated the company’s ability to
pay on-time payments implied healthier liquidity and financial condition. By controlling these
ratios in an effective way, in future, Amazon could reap more benefits from suppliers to
develop the company's operations such as negotiations of favorable credit terms, advantages
of early payment discounts, and others.
c. Comparison: Amazon vs BestBuy vs Industry
Data
Table 19: Financial data (Best Buy)
2015 2016 2017 2018 2019
Accounts Payable $5,030 $4,450 $4,984 $4,873 $5,257
Average Accounts Payable $4,740 $4,717 $4,929 $5,065
Cost of Sale $30,334 $29,963 $32,275 $32,918
Table 20: Liquidity Ratios (Best Buy)

2016 2017 2018 2019
Days in Payable Outstanding 57.04 57.46 55.74 56.16
Table 21: Liquidity Ratios (Industry)
2016 2017 2018 2019
Days in Payable Outstanding 66.48 71.43 72.56
Comparison
Table 22: Accounts Payable Turnover Ratios (Best Buy)
2016 2017 2018 2019
Amazon 3.86 3.74 3.82 3.88
Best Buy 6.40 6.35 6.55 6.50
Industry 5.49 5.11 5.33 5.03
Table 23: Days in Payable Outstanding Ratios (Best Buy)
2016 2017 2018 2019
Amazon 94.50 97.70 95.49 94.12
Best Buy 57.04 57.46 55.74 56.16
Industry 66.48 71.43 68.48 72.56
Figure 5: Accounts Payable Turnover Ratios

On the other hand, accounts payable turnover ratio and days in payable outstanding of Best Buy
experienced a fluctuation during the examined period, indicating that the company might have
some problems in taking advantage of the value of cash flow, in terms of short-term debts. Best
Buy paid the on-credit purchases 6.4 times, 6.35 times, 6.55 times and 6.5 times in 2016, 2017,
2018 and 2019, respectively. Moreover, from 2016 to 2018, Amazon’s accounts payable
turnover ratio fluctuated similarly with the common trend of that of the Consumer Discretionary
industry. Initially, both ratios dropped slightly to 2017, then, followed by the bounce back nearly
with the initiative ratio in 2019. Compared with Best Buy and the industry, in terms of value,
accounts payable turnover ratio of Amazon, each year, was less than a half of that of Best Buy
and much lower than that of industry, resulting in the double days of Amazon in payable
outstanding ratio. The disjunction between the two companies indicated that Amazon solved
their payments less than Best Buy, which could be problematic with Amazon in credit activities
of suppliers. Regardless of the fluctuation of Best Buy in the ratios’ trend, the statistics of Best
Buy could raise the feeling of safety of vendors during the cooperation period in the common
market of consumer discretionary industry.
Figure 6: Days in Payable Outstanding Ratios

Best Buy’s days in payable outstanding for each year were 57 days, meaning that vendors of
Best Buy could receive cash faster than Amazon. Amazon took more than a half of the time,
around 95 days to pay for their purchases on account, even significantly higher when compared
with common industry. The figure shows a considerable discrepancy as Amazon is one of a few
companies receiving payments from customers before paying for their suppliers. Amazon’s
credit policy for their customers allows them to pay after 55 days, combined with the time to
pay for suppliers, resulting in the higher days in payable outstanding ratio. Besides, a diversified
market is also the reason for the significantly longer on-credit payment time.
It is noteworthy that after a year due to 2018, while industry, on average, took more time to pay
their purchases on account, Amazon’s sellers received payments faster than a day. This situation
happened as the new policy in 2018, with the publication of Pay in Voice policy in heavy
equipment and official supplies, allowing the business customers to extend time for paying the
order. The policy, initially, created more anxiety for vendors because waiting for 30 days to
receive the payments instead of every week or two might push them into a cash crash. Based on
the statistics, on the other hand, Pay in Voice exaggerated the marketplace, attracting more
business customers and the firm’s cash flow, therefore, having effective usage. Amazon, thus,
could strengthen the time to pay for their accounts payable.
The statistics of Amazon, compared with those of industry and Best Buy, were less attractive as
the influences to generate the affair of suppliers in increasing expenses. However, in consumer
discretionary, Amazon is inevitably one of the strong firms, which contributes to the growth of
industry. Additionally, with the globalization of Amazon, vendors could take advantage in
promoting and selling their products to foreigners, developing their well-being from business
operations. Amazon, thus, sustainably received the attention and belief of suppliers as reputed
business partners.
3. Recommendations
In general view, during the surveyed period from 2016 to 2019, Amazon managed both
accounts receivable and accounts payable at acceptable conditions. However, in comparison
with Best Buy and Consumer Discretionary industry, ratios of Amazon indicated that the
company's cash flows were managed ineffectively, which could bring negative effects for the
company’s liquidity. With stringent and flagrant credit policy, allowing customers to extend
the pay times, although Amazon accelerated an influx of customers applying its policy
thoroughly, it created deterioration in bad debts, solvency of short-term debts. Furthermore, it
is irrefutable that customers could pay their credit late, leading to the fact that it took longer for
vendors to receive payments of Amazon’ purchase on account. Therefore, to resolve these
situations, tightening Amazon’s credit policies is necessary to improve the ratios and the
relationships with suppliers.
Question 5: Overall, how does the company manage its working capital? Does it affect
the stock price during the period analysis?
1. Amazon’s Working Capital Analysis
a. Amazon’s Data
Working Capital
● Formula: Working Capital = Current Assets – Current Liabilities
Figure 7: Amazon’s Working Capital

Amazon’s working capital increased only by approximately $350 million from 2016 to 2017.
The figure was almost tripled ($6,710 million) in 2018 and continued to rose to $8,552 million
in 2019. This illustrates that during the period between 2017 and 2019, Amazon required a
great amount of available capital to finance their daily operation. By maintaining a high level
of current assets, the company could reduce the risk of not meeting the current liabilities in
emergency situations. While high working capital reduced probability as the company would
not earn as much profit from investing money elsewhere, it helped lower income tax.
b. Working Capital Turnover ratio

!"# %&'"(
● Formula: Working Capital Turnover ratio =
M.+N20, O&P2#&'
Figure 8: Amazon’s Working Capital Turnover

In 2016 and 2017, the working capital turnover were high 69.2 and 76.9 days, which indicates
that management was very efficient in using a company’s short-term assets and liabilities for
supporting sales. However, the figure declined almost a half in 2018 (34.7 days) and 2019 (32.9
days). This may show that Amazon was investing in more accounts receivable and inventory
to support its sales, which also could lead to an unfavorable circumstance of a higher amount
of bad debts.
c. Liquidity
O/++"0# )(("#(
● Formula: Current Ratio =
O/++"0# Q2&32'2#2"(
O&(R &0S O&(R TU/2*&'"0#

Cash Ratio =
O/++"0# Q2&32'2#2"(
Figure 8: Amazon’s Current, Quick and Cash ratio

Current Ratio: Amazon successfully managed its working capital by staying slightly above
the current ratio of 1.0, which indicated that Amazon met its short-term obligations. Amazon
kept just enough to finance its day-to-day business while utilizing all excess funds toward
growth. Amazon balanced the two primary goals of managing working capital successfully.
Amazon had enough to pay its debt, but it was also not missing out on opportunity. Amazon’s
main goals for its working capital were in alignment with the traditional ways of working with
capital, the company was just less conservative when it came to how much excess cash and
cash equivalents it has. The rise in the amount of cash was significant from 2017 ($20,552
million) to 2018 ($31,750 million). This was because Amazon continued to be in a growth
phase. Amazon used all additional funds to invest in its future. Evidence of this was its
continued investment into its own technology and content, from $16,085 million (2016) to
$42,740 million (2019). Amazon is working on drone delivery while building its streaming
services with original Amazon serialized television shows.
Cash ratio: The figure fluctuated slightly during the 4 selected years. In general, Amazon kept
enough available cash to pay for about 40% of its current liabilities. In 2018, with the
publication of Pay In Voice policy in heavy equipment and official supplies, allowing the
business customers to extend time for paying the order. This might be the reason for the
decrease in the amount of cash available, leading to the decline in cash ratio from 0.46 (2018)
to 0.41 (2019).
d. Probability
Table 24: Amazon’s Profit Margin, ROE and ROA ratio
2016 2017 2018 2019
Profit Margin (ROS) 1.7% 1.7% 4.3% 4.1%
Return on Equity (ROE) 12.3% 11% 23.1% 18.7%
Return on Assets (ROA) 2.8% 2.3% 6% 5%

Profit margin: Although Amazon’s profit margin was relatively low in 2016 (1.7%), it reached
its peak at 4.1% in 2019. Amazon intentionally remained low profits because it took the vast
majority of the money it earned and invested it right back into the company so that it would
profit in the future.
Return on Equity (ROE): Similar to its ROS, its ROE increased from 11% (2017) to 23%
(2018). This shows that the company generated more incomes from its equity without debt
throughout the years, which could be considered as a high quality business.
Return on Assets (ROA): Amazon’s ROA fluctuated during the 4-year period. However, in
general, the figure increased to 5% in 2019, showing an improvement in the company’s use of
assets. As the assets increased significantly in 2018, the cash ratio also increased from 2.3%
(2017) to 6% (2018). While the net income increased only slightly, total assets rose from $162
million to $225 million, leading to a small decline of cash ratio to 5% in 2019.
e. Cash Conversion Cycle (CCC)
Formula: CCC = Inventory Conversion period + Average Collection period – Payables

conversion period
Figure 9: Amazon’s Cash Conversion Cycle
Source: Stock Analysis on Net

The CCC of Amazon increased from -40 days (2016) to -36 days (2019). Amazon’s CCC was
negative because it collected cash from customers before paying to its suppliers, which led to
a short average collection period and long payables conversion period.
There are 4 main aspects to take into account in order to explain the negative CCC of Amazon:
Trusted by customers: By building strong relationships with their customers and a trust-
worthy reputation, Amazon could collect money from its clients quickly. Customers would
transfer the money for their purchase before receiving the actual goods. This was the main
reason for the low average collection period.
Digitalization: With digitalization, it became easier for online stores to manage their cash
conversion cycle. Therefore, Amazon can trait its cash flow more efficiently.
Advantageous credit terms with suppliers: the company could negotiate convenient payment
terms with its suppliers. Amazon was able to stretch the payment agreement terms in a way
that allows it to run your business on credit. Therefore, it became easier to have excess cash to
invest in the business operations growth.
Affiliate networks and programs: Affiliate marketing describes the process whereby an
affiliate earns a commission for selling the products of another person or company. The
business whose product is being promoted will gain in terms of sales and marketing from
affiliates. Amazon had a successful cash business strategy which was built upon a network of
publishers around the web, that in exchange for a referral to Amazon products could get a fee.
This is the premise of affiliate marketing, on which Amazon has also built its fortune.
f. Leverage
● Debt to Equity
7.#&' V"3#
Formula: Debt to Equity ratio =
7.#&' TU/2#L
Table 25: Debt to Equity ratio
2016 2017 2018 2019
D/E ratio 0.92 1.41 0.97 0.83
Amazon’s debt to equity fluctuated during the years with the highest in 2017 with 141%. This
shows that Amazon generated more debt that year. This increase was to establish AWS - a
subsidiary of Amazon providing on-demand cloud computing platforms to individuals,
companies, and governments. Higher leverage ratios tend to indicate a company or stock with
higher risk to shareholders. However, the ratio decreased to 0.83 in 2019, which means that
Amazon reduced its debt to finance its operations compared to its equity.
● Times Interest Earned

TWX7
- Formula: Times Interest Earned =
X0#"+"(# TYP"0("(
Figure 10: Amazon’s Times Interest Earned
Amazon’s figure decreased from 0.4 (2016) to 0.37 (2019). In 2017, Amazon could cover 0.9
times of its interest charges with its pretax earnings, indicating the company's relatively high
freedom from the constraints of debt. Although a higher times interest earned ratio is favorable,
it does not necessarily mean that a company is managing its debt repayments or its financial
leverage in the most efficient way. High times interest earned means the business is not utilizing
excess income for reinvestment in the company through expansion or new projects, but rather
paying down debt obligations too quickly, which may lose favor with long-term investors.
Therefore, Amazon did not focus on meeting its debt obligations but expanding its business.
2. Comparison with Competitor and Consumer Discretionary Industry
To evaluate Amazon’s working capital management further, our group has compared its
ratios to its main competitor - Walmart and to the Consumer Discretionary industry.
a. Working Capital
Figure 11: Working Capital

Compared to Walmart - its main competitor, Amazon had the highest working capital. This
indicates that Amazon could use the more current assets to finance its day-to-day operation. It
illustrates that the company wanted to make sure that it could always meet its short-term debt
obligation. On the other hand, working capital of Walmart was negative, which meant that it
did not keep enough cash on hand to pay for its short-term operating costs. This may be
considered a bad sign as investors might think that Walmart had a liquidity problem.
b. Working Capital Turnover ratio
Table 26: Working Capital Turnover ratio (in Days)
2016 2017 2018 2019
Amazon 69,2 76,9 34,7 32,9
Walmart -52,1 -26,3 -32,8 -32,5
Industry 40,4 35,9 28,8 55,6
In general, Amazon had higher working capital turnover than the industry from 2016 to 2018.
In 2019, the ratio of the industry increased to 55,6 days while that of Amazon remained almost
the same as in 2018 (32,9 days). In contrast, Walmart had a negative working capital turnover
ratio due to the negative working capital. Although many investors consider these figures a bad
sign, Walmart pretty much controls the shelf space which in turn controls what people buy in
reality. Suppliers of Walmart found the company in a commanding position and therefore were
more than happy to extend liberal trade terms. These terms stated that Walmart had to make
the payment for the purchases in 45 days if they were able to sell the inventory. In case they
were not able to sell it, the suppliers would take the goods back.
c. Liquidity
Table 27: Current ratio, Quick ratio and Cash ratio
2016 2017 2018 2019
A W I A W I A W I A W I
Current ratio 1.045 0.86 1.08 1.04 0.76 1.09 1.098 0.8 1.12 1.097 0.8 1.06
Cash ratio 0.44 0.1 0.4 0.35 0.09 0.43 0.46 0.1 0.46 0.41 0.12 0.42
Notes: A – Amazon W - Walmart I – Industry
In general, the current ratios of Amazon were slightly lower than those of the whole industry
while the figures of Walmart maintained much lower during the 4-year period.
Amazon’s cash ratios were about 1% higher than those of the industry. On the other hand, these
ratios of Walmart were consistently lower maintained at about 0.1.
This shows that Amazon’s ability to pay its liabilities with its assets, or with cash were similar
to that of the industry while Walmart could not pay off its current liabilities with its current
assets or with cash in emergency situations. The reason for Walmart’s case was that the
company did not keep much assets and cash in order to invest back in its business.
Therefore, Amazon could meet its short-term obligations better than Walmart.
d. Probability
Table 28: ROS, ROE and ROA (%)
2016 2017 2018 2019
A W I A W I A W I A W I
ROS 1.7 2.8 6.19 1.7 2 4.12 4.3 1.3 6.7 4.1 2.9 6.74
ROE 12.3 16.9 31,8 10.9 12.2 23.5 23.1 8.4 40.9 18.7 18.2 42.9
ROA 2.8 6.9 7.4 2.3 4.8 4.7 6.2 3 7.8 5.1 6.3 7.5
Notes: A – Amazon W – Walmart I – Industry
All three ratios of both Amazon and Walmart were lower than the Industry average. In 2016
and 2017, Walmart generated slightly more profits than Amazon in relative sales, assets and
equity. However, in 2018 and 2019, Amazon’s ratios exceeded that of Walmart. This means
that in the second part of the period, Amazon generated profits more efficiently than Walmart.
e. Cash Conversion Cycle
Table 29: Cash Conversion Cycle (in Days)
2016 2017 2018 2019
Amazon -40 -41 -37 -36
Walmart 10 5 2 1
Industry 5 2 -1 0

Amazon had negative cash conversion cycle figures, which is opposite to Walmart and the
whole industry. This shows that Amazon generated revenue from customers before it has to
pay its suppliers for inventory. The negative cash conversion cycle is indicative of a strong
management team, and illustrates management's efficient use of working capital. This is simply
an interest free way to finance operations through borrowing from suppliers.
f. Leverage
- Debt to Equity
Table 30: Debt to Equity ratio
2016 2017 2018 2019
Amazon 0.92 1.41 0.97 0.83
Walmart 0.57 0.57 0.73 0.67
Industry 1.58 2.1 2.16 2.21
Both Amazon and Walmart had much lower D/E ratio compared to the Industry. Amazon had
a higher D/E than Walmart, which means that Amazon used more debt to finance its operations.
However, both companies’ ratios were relatively smaller than those of the industry.
II. Correlation between Amazon’s Working Capital and Stock Price
1. Stock Price
Figure 12: Amazon’s Stock Price

Source: Finance.yahoo.com
The increase in stock price from 794.87 (2016) to 1,846.89 (2019) indicates that Amazon’s
value rose steadily throughout the years.
2. Correlation between Amazon’s Working Capital and Stock Price
● Correlation = 0.94
The figure shows the positive relationship between Amazon’s stock value and its working
capital. Both variables increased over the years from 2016 and 2019. The good working capital
management can be considered as a positive sign for investors that Amazon was operating its
business efficiently. Therefore, the increase in its stock price reflects the rise in value of the
company and could help Amazon continue to maintain or even improve its impressive
performance.
III. Conclusion
In general, Amazon’s working capital management was good during 2016 and 2019. With high
working capital, Amazon could meet its current liabilities with its current assets. The decrease
in working capital turnover shows that Amazon invested more of its receivables in expanding
its business while still generating high sales from its working capital. Moreover, the company’s
liquidity ratios showed reasonable proportions for each type of asset available to pay for its
current obligations. In 2018 and 2019, Amazon’s probability ratios improved, which shows
that the company generated more profits. Amazon kept its debt to equity ratio lower than that
of the industry, so that it did not depend too much on debt to finance its operations. The most
noticeable numbers in Amazon’s working capital management were the negative cash
conversion cycle. This is actually a good sign, showing that Amazon earned customers’ trust
and had a good relationship with the supplier.
Question 6: Long-term annual financial statements and short-term quarterly cash budget
Basis for forecasting
Having analyzed the current working capital management of Amazon, a rough forecast of its
future financial performance and positions can be drawn with certain assumptions put forward.
Forecasting and budgeting is one of the necessary steps in working capital management, acting
as a basis for future decision making and a back-up for unforeseeable events. This also allows
managers to see the overall picture of business in the upcoming periods and potential directions
for further development. For this assignment, a set of projected financial statements for
Amazon in a period of 3 years from 2020 to 2022, along with a cash budget for 4 quarters of
2020.
The forecast will be sales-based, assuming the majority of cash flows of Amazon come from
sales. The sale forecast will first generate a projected income statement. To support the sales-
based cash flows, assets and financing sources will also be required to be projected accordingly
on a pro rata basis, and certain additional plug variables will be used to balance out the
statement of financial position.
This approach essentially starts with the projection of sales. From Amazon’s sales in the period
from 2005 to 2019, an overall upward trend is evident. The closest function for visualizing this
growth would be an exponential curve function, resulting in the use of the LOGEST function
in Excel to calculate the growth rate of Amazon in projected periods.
Figure 13: Amazon’s Net sales

However, this forecasted sales will be limited within the total addressable market (TAM) of
the retail e-commerce industry, to avoid exasperate projections. The sales will be estimated
based on its potential portion of the market that it may capture, or in a top-down approach.
Based on statistic from Statista’s report (Chevalier, 2020), the total size of the e-commerce
market increased progressively from 2014 to 2019. The same steady trend applied for
Amazon’s market share within the period, though the annual increasing amounts were
marginal.
Figure : Retail E-commerce Sales
The Statista’s report (Chevalier, 2020) continued to estimate the total revenue of the market in
the next 3 years as in this table. This forecast included products or services ordered using the
internet via any device, regardless of the method of payment or fulfillment; excludes travel and
event tickets.
Global retail e-commerce sales 2020-2022 – Statista (2020)
Table 31: Global retail e-commerce sales 2020-2022
2020 4280000
2021 4891000
2022 5424000
Assuming the economy growth on macro level and Amazon’s growth continue to be as in 2019,
Amazon’s market share growth rate was calculated using LOGEST based on the closest
exponential curve. The resulting coefficient was 1.044311, thus, the growth rate for its market
share would be 0.044311 or 4.43%. As a result, the market share for the next 3 year would be
calculated as in this function: Next year^' s market share=1.044311×This year^' s market share.
The projected sales for the required periods would be estimated accordingly.
Table 32: Projected revenue and market shares
Year Projected global Amazon projected market Amazon projected sales

revenue share = (1) * (2)
(1) (2)
*2020 $4,280,000 8.73% $373,833
*2021 $4,891,000 9.12% $446,130
*2022 $5,424,000 9.53% $516,670
*Projected values.
Long-term Income Statements and Balance Sheets
Due to a sales-based approach, the forecast will start with income statements, and followed by
balance sheets. The proportion of other accounts to sale in 2019 served as the basis for
estimation in the following year, assuming Amazon’s operation grew in similar proportion.
This forecast did not account for non-operating assets, such as debt and equity investments,
securities, assets held-for-value-appreciation, due to their volatile nature. Only net interest
expense was retained for calculation in relation to future financing needs. Therefore, 2 accounts
on the income statements excluded from calculation were non-operating income/expense (net)
and equity method investment activity. The non-operating income/expense (net) was replaced
by the net interest expense account, thus, the basis for projection of this account was the net
interest expense from 2019 at $768 million. The growth of interest expense depended in
proportion with the non-current debt on the balance sheet. Other comprehensive income was
also excluded from estimation.
In 2019, Amazon used Provision for income tax account to calculate net income. However, we
simplified this to the tax payable for the year to project the bottom line. Tax payable was
calculated at 21% based on the new federal statutory rate of the US Tax Act, in effect since
2018.
Long-term Income Statements 2020 – 2022 (in million dollars)
Table 33: Projected sales

2019 % *2020 % *2021 % *2022
of of of
sale sale sale
1 Total net sale 280522 1.00 373833 1.00 446130 1.00 516670
2 COS 165536 0.59 220599 0.59 263261 0.59 304887
3 Operating cost, excluding depreciation,
net of other operating income 78656 0.28 104820 0.28 125091 0.28 144870
4 Depreciation and amortization 21789 0.08 29037 0.08 34652 0.08 40131
5 Total operating expenses 265981 0.95 354455 0.95 423004 0.95 489888
5=2+3+4
6 Operating income 14541 0.05 19378 0.05 23125 0.05 26782
6=1 – 5
7 Total non-operating income/expense

(2019)
Interest expense (net) (2020-2022) -565 NM -1022 NM -1156 NM -1254

8 Income before tax 13976 0.05 18356 0.05 21969 0.05 25527
8=6+7
9 Provision for income tax (2019)
Income tax (21%) (2020-2022) -2374 NM 3855 NM 4614 NM 5361
9=8*21%
10 Equity method investment activity,
net of tax -14
11 Net income 11588 0.04 14501 0.04 17356 0.04 20167
11=8 – 9
On the balance sheet, marketable securities, non-current debt, and shareholders’ equity were
not sales-based, assuming no additional investment, and no additional equity issued. The only
variable in shareholders’ equity was retained earnings, which fully came from net income,
assuming no dividend paid out. The total assets value was the basis for balancing. The shortage
from Liabilities and Stockholders’ equity was covered by a plug variable of Other non-current
debt. Since the increase in non-current debt affected the interest expense on the income
statements, net income would be affected, and the shareholders’ equity would be changed as
well. Therefore, the amount of other non-current debt was calculated as follow:
● Set the amount of other non-current debt (ONCD) at X.
● On the balance sheet:
L&E=TCL+TNCL (1st pass)+ONCD+E+Net income

L&E=Total assets
● On the income statement:
Interest expense=previous year^' s value*(ONCD/(ONCD+TNCL(1st pass) )+1)
● Use Excel’s Goal seek to solve for X, and the additional debt needed was
calculated and the accounts were balanced.
Long-term Balance Sheet 2020 – 2022 (in million dollars)
2019 % 2020 % 2021 % 2022
ASSETS
Current assets
Cash and cash equivalent 36092 0.13 48097 0.13 57399 0.13 66475
Marketable securities 18929 NM 18929 NM 18929 NM 18929
Inventories 20497 0.07 27315 0.07 32598 0.07 37752
Accounts Receivables, net and other 20816 0.07 27740 0.07 33105 0.07 38339
Non-current assets
Property and Equipment, net 72705 0.26 96889 0.26 115627 0.26 133909
Operating Leases 25141 0.09 33504 0.09 39983 0.09 46305
Goodwill 14754 0.05 19662 0.05 23464 0.05 27174
Other Assets 16314 0.06 21741 0.06 25945 0.06 30047
Total Assets 225248 0.80 293877 0.79 347050 0.78 398931

LIABILITIES AND STOCKHOLDERS’
EQUITY
Accounts Payable 47183 0.17 62878
Accrued expenses and other 32439 0.12 43229
Unearned revenue 8190 0.03 10914
Total current liability (TCL) 87812 0.31 117021 0.31 139652 0.31 161734
Total non-current liability (1st pass) (TNCL) 75376 NM 75376 NM 100295 NM 113481
Other non-current debt (2nd pass) (ONCD) 24919 13186 9633
Total non-current liability (2nd pass) 100295 113481 123114
Total shareholders' equity (TE) 62060 NM 76561 NM 93917 NM 114083
Total Liabilities and Stockholders' Equity 225248 0.80 293877 0.79 347050 0.78 398931
Short-term cash budgeting
Amazon mostly focuses on e-commerce, so in nature it’s closer to a merchandise company,

and a mediator between suppliers and buyers. Therefore, budgeting cash for amazon would
mostly revolve around accounts receivable, inventory, and accounts payable, no projection of
production was included.
The projected sales in 2020 were distributed throughout the quarters, assuming Amazon
incurred seasonal sales according to 2019’s quarter’s sale proportion of total annual sales.
Depreciation and interest were assumed to incur evenly throughout the year. Capital
expenditure was assumed to be acquiring PPE only, which was done at the beginning of the
fiscal year (1st quarter), and thus, the increase in PPE was accounted as capital expenditure.
Other accounts were calculated similarly to long-term income statements.
Quarters’ Income Statements in 2020 (in million dollars)
2019Q4 2020Q1 2020Q2 2020Q3 2020Q4
% Of sale in quarter compared to total year 22.50% 22.50% 25% 30%
Total net sale 87437 84112 84112 93458 112150
Cost of sale 49635 49635 55150 66180
Operating cost, excluding depreciation 77388 23584 23584 26205 31446
Total operating cost, excluding

depreciation 73219 73219 81355 97626
Depreciation and amortization 6170 7259 7259 7259 7259
Total operating expenses 83558 30844 30844 33464 38705
Operating income 3879 53269 53269 59994 73445

Total non-operating income/expense 174 -255 -255 -255 -255
Income before tax 4053 53013 53013 59739 73189
Provision for income tax (21%) -786 -11133 -11133 -12545 -15370
Equity method investment activity, net of

tax 1
Net income 3268 41881 41881 47194 57820
Days sales outstanding in 2019 were 24.39 days. Assuming each quarter had 30 days,
receivable turnover ratio in the period was calculated at 3.69 times. We used this to compute
ending balance and calculate collection as follow:
Projected cash receipts Q1 Q2 Q3 Q4
Beginning receivable 20816 22794 22794 25327
Sales 84112 84112 93458 112150
Cash collection 82134 84112 90925 107084
Ending receivable 22794 22794 25327 30393

Days in inventory in 2019 were 42 days. Assuming each quarter had 30 days, inventory
turnover ratio in the period was calculated at 2.14 times. We used this to compute the ending
balance and calculate purchase as follows:
Table 34: Inventory
Inventory Q1 Q2 Q3 Q4
Beginning inventory 20497 23162.8689 23162.8689 25736.52095
Purchase 52301 49635 57723 71327
Cost of sale 49635 49635 55150 66180
Ending inventory 23163 23163 25737 30884
Days payable outstanding in 2019 were 94.12 days. Assuming each quarter had 30 days,
payable turnover ratio in the period was calculated at 0.96 times. We used this to compute the
ending balance and calculate payment as follow:
Table 35: Account Payables
Payables Q1 Q2 Q3 Q4
Beginning payable 47183 54695 51907 60366
Credit purchase 52301 49635 57723 71327
Payment in the period 44789 52423 49264 57101
Ending payable 54695 51907 60366 74592
The cash disbursement and cash budget variables were collected from previous calculations,
and the results of calculation are presented as follows:
Table 36: Projected cash disbursement
Projected cash disbursement Q1 Q2 Q3 Q4
Payment of account 44789 52423 49264 57101
Operational expense, excluding depreciation 23584 23584 26205 31446
Tax 11133 11133 12545 15370
Capital expenditure 24184 0 0 0
Interest and dividend payment 255 255 255 255
Total cash disbursement 103945 87395 88270 104172
Table 37: Cash Budget
Cash budget Q1 Q2 Q3 Q4
Beginning cash balance 36092 14280 10997 13652
Total cash collection 82134 84112 90925 107084
Total cash disbursement 103945 87395 88270 104172
Net cash flow -21812 -3283 2655 2913
Ending cash balance 14280 10997 13652 16565
Changes in cash balance -21812 -3283 2655 2913

REFERENCES
https://www.investopedia.com/
https://www.stock-analysis-on.net/NASDAQ/Company/Amazoncom-Inc/Ratios/Liquidity
https://www.macrotrends.net/stocks/charts/WMT/walmart/financial-statements
https://www.vox.com/recode/2019/8/21/20826405/amazons-profits-revenue-free-cash-flow-
explained-charts
https://fourweekmba.com/cash-conversion-cycle-amazon/
https://s2.q4cdn.com/299287126/files/doc_financials/2020/ar/2019-Annual-Report.pdf
https://www.tradingview.com/symbols/NASDAQ-AMZN/history-timeline/#amazon-donates-
laptops-to-seattle-school-families-2020-04-06
https://edition.cnn.com/interactive/2018/10/business/amazon-history-timeline/index.html
https://www.teodesk.com/blog/10-trends-that-will-shape-the-business-market-in-2019/
https://ir.aboutamazon.com/annual-reports-proxies-and-shareholder-
letters/default.aspx?fbclid=IwAR3mpcxwnNdHakvGhyHLpFoWFyl3nGYcKM7xk8VzJ-
xpxlClzJdiDE-91N8
https://hbr.org/2014/10/at-amazon-its-all-about-cash-flow
https://alphabridge.co/featured/amazons-cash-conversion-cycle/
https://www.cnbc.com/2018/08/21/amazon-corporate-buyers-longer-terms-some-sellers-
upset.html
http://investors.bestbuy.com/investor-relations/financial-info/annual-reports-and-proxy-
https://www.stock-analysis-on.net/NASDAQ/Company/Amazoncom-Inc/Ratios/Short-term-
Operating-Activity?fbclid=IwAR3nwvHO4bat7eEx2uyZIs5WL-
oDTUXuRIda0p8x7BJZ6XIZAWAd7Mkxul8
https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/
APPENDIX
!"# %&'"(
Receivable Turnover Ratio =
)*"+&," )--./0#( 1"-"2*&3'"
456
Days in Sales Outstanding (DSO) =
1"-"2*&3'" 7/+0.*"+ 1&#2.
O.(# .Z %&'"
Payable Turnover Ratio =
)*"+&," )--./0#( K&L&3'"
456
Days in Payable Outstanding (DPO) =
K&L&3'" 7/+0.*"+ 1&#2.
)--./0# 1"-"2*&3'" 3",20020, [ )--./0# 1"-"2*&3'" "0S20,

Average account receivable =
\
)--./0# K&L&3'" 3",20020, [ )--./0# K&L&3'" "0S20,

Average account payable =
\
Working Capital = Current Assets – Current Liabilities

!"# %&'"(
Working Capital Turnover ratio =
M.+N20, O&P2#&'
O/++"0# )(("#(
Current Ratio =
O/++"0# Q2&32'2#2"(
O&(R &0S O&(R TU/2*&'"0#

Cash Ratio =
O/++"0# Q2&32'2#2"(
!"# X0-.]"(
Profit Margin (ROS) =
!"# %&'"(
!"# X0-.]"(
Return on Equity (ROE) =
!"# TU/2#L
!"# X0-.]"(
Return on Assets (ROA) =
!"# )(("#(
CCC = Inventory Conversion period + Average Collection period – Payable's conversion

period
7.#&' V"3#
Debt to Equity ratio =
7.#&' TU/2#L
TWX7
Times Interest Earned =
X0#"+"(# TYP"0("(

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NATIONAL ECONOMICS UNIVERSITY

Advanced Educational Program

Working Capital Management

Group 5: 1. Dương Quỳnh Anh - 11180142

● The parent company, Amazon, was founded by an American technology

● As time progressed, Amazon transformed into an online retailer, manufacturer of

● Amazon.com is a vast Internet-based enterprise that sells books, music, movies,

● Jan 2016: Amazon passed $100 billion annual sales landmark.

● Amazon launched a drone partnership with the UK government.

● More than 300,000 small businesses sold through Amazon in 2017.

● Amazon Prime Day provided more than $ 1 billion of sales.

● Founder of Amazon – Jeff Benzos became the world’s richest man.

● Amazon stock passed $2,000

● Amazon entered a merger agreement with wi-fi hardware provider euro.

● A new Kindle and skincare range was launched.

● Amazon entered the UAE and launched Amazon Prime in June.

● Amazon backed more renewable energy projects.

● Amazon workers staged a climate strike. Staff at Amazon’s Seattle headquarters

● Amazon showed support for startups and scholarships.

Cash and cash $ 19,334 $ 20,522 2.48%

Marketable 6,646 10,464 7.97%

Inventories 11,461 16,047 9.57%

Accounts 8,339 13,164 10.07%

Property and 29,114 48,866 41.23%

Goodwill 3,784 13,350 19.97%

Other assets 4,723 8,897 8.71%

Accounts Payable $ 25,409 $ 34,616 19.43%

Accrued expenses 13,739 18,170 9.25 %

Long-term debt 7,694 24,743 35.59 %

Other long-term 12,607 20,975 17.47 %

Issued shares – 500

Additional paid-in 17,186 21,389 8.77%

Accumulated other (985) (484) 1.05%

Retained earnings 4,916 8,636 7.76%

Total $ 83,402 $ 131,310

Leverage Ratio 77% 79 %

2017 2018 Uses of cash Sources of

Cash and cash $ 20,522 $ 31,750 32.93 %

Marketable securities 10,464 9,500 3.08 %

Inventories 16,047 17,174 3.60 %

Property and 48,866 61,797 41.26 %

Goodwill 13,350 14,548 3.82 %

Other assets 8,897 11,202 7.36 %

Liabilities and Equity

Accounts Payable $ 34,616 $ 38,192 11.41 %

Accrued expenses and 18,170 23,663 17.53 %

Unearned revenue 5,709 6,536 4.59 %

Long-term debt 24,743 23,495 3.96 %

Other long-term 20,975 27,213 19.91 %

Preferred stock, $0.01

Issued shares – 500

Treasury stock, at cost (1,837) (1,837)

Additional paid-in 21,389 26,791 17.24 %

Accumulated other (484) (1,035) 1.76 %

Retained earnings 8,636 19,625 35.07 %

Total $ 131,310 $ 162,648

2018 2019 Uses of cash Sources of

Cash and cash $ 31,750 $ 36,092 6.38 %

Marketable securities 9,500 18,929 13.85 %

Inventories 17,174 20,497 4.88 %

Accounts receivable, 16,677 20,816 6.08 %

Property and 61,797 72,705 16.02 %

Operating leases - 25,141 36.93 %