The firm Amazon.com opened its proverbial doors for business in July 1995 with nothing more than a few people to pack books into shipping boxes out of a residential garage. Since that grandiose opening in Bellevue, Washington, Amazon.com has graduated from an extremely small business to one of the largest online retail stores in the entire world. As previously stated, Amazon initially only sold books and other reading materials and became a major competitor to firms such as Barnes and Nobles.
Slowly at first Amazon began to expand the variety of merchandise available for purchase on their website. Today, because of the bold expansion of merchandise, Amazon.com sells everything from diapers in bulk to big screen televisions sets. It is obvious that people enjoy Amazon’s large online selection with over 150 million United States citizens purchasing from the website in 2009 (Webley, 2010). Along with a bold expansion strategy, Amazon’s rapid success is also attributed to the ethical and moral standards it holds itself to. Ethics play a major role in the Amazon Company. Their corporate governance page stresses the important of their “Code of Business Conduct and Ethics” (“Corporate Governance”, 2013).
There is a link from their main site that explains what is expected of their employees and their finances. This is a readily available document for anyone to view, from the employees to customers just visiting the site. This clearly shows the importance of this topic and also their efforts toward living up to them. Procedures that the Amazon organization has put into place can be seen with this link off their main site. This is their corporate governance therefore everyone must follow it in the company.
Sections in the document cover compliance with laws, rules and regulations; conflicts of interest; insider trading policy; price fixing; bribery; payments to government personnel; recordkeeping, reporting, and financial integrity. These are just a few that are relevant to the financial environment (“Corporate Governance”, 2013). One of the most relevant is the fact they point out recordkeeping, reporting, and financial integrity. This section of their corporate governance stresses the points that are important to Amazon. They want to make sure that records are kept with the appropriate amount of detail. They do not want just minimal information.
This section also explains how recordkeeping will comply with all laws and also with the company’s internal controls. Amazon has financial accounting and legal groups; the purpose of these groups is to create procedures to maintain control of the integrity of the financial reporting system. Amazon shows that they are really looking to maintain control of their finances and the integrity of their finances by creating these groups. Therefore, being responsible with financial reporting is a high priority.
The employees are urged to report any discrepancies they see within the system and also violations they see from other employees to anyone in their management chain. This open door policy makes sure that anything that may happen that would go against their policies will be properly reported and fixed. The U.S. financial markets consist of many separate markets for diverse products offered on a range of trading platforms and exchanges. Among the many products traded are fixed-income securities, equities, foreign exchange, and derivatives. Fixed-income securities are financial instruments issued by various companies to raise money as a debt.
Investors buy fixed-income securities to receive interest payments over time and for the return of the full investment principal if securities are held to maturity. Interest paid by security issuers as a form of income for investors remains fixed during the term of the securities, and investors may sell their holdings prior to maturity for a gain or loss on their investment principal. Equities are another form of instrument that signifies an ownership position in a corporation. It also represents a claim on its proportionate share in the corporation’s assets and profits. Foreign exchange and derivatives are instruments that lock in a future foreign exchange rate.
These can be used by currency or forex traders and large multinational corporations. The Securities and Exchange Commission is in charge of protecting investors and to maintain a fair and efficient capital market. The SEC regulations oversee activities of individuals and organizations involves in the sale of securities, including brokers and brokerage firms.
The SEC operates at a high level and does not recoup losses for individual investors. The SEC has enforcement activities that are conducted by its Division of Enforcement. This office conducts investigations on individuals and corporations that are in a potential of violations of securities laws. Then they prosecute both civil suits and administrative proceedings. The SEC also runs an Office on Investor Education and Assistance. This office works to discourage investor fraud by educating investors.
They also receive complaints from individual investors and will send an inquiry on behalf of an investor seeking information concerning a dispute There are three different types of ratios that were used to analyze Amazon.com in this paper. These types are Liquidity ratios, Solvency ratios, and Profitability Ratios. According to The book Financial Management, “Liquidity ratios are used to address a very basic question about the firm’s financial health: How liquid is the firm? A business is financially liquid if it is able to pay its bills on time.”(Titman, Keown, & Martin, 2011, p. 80). The liquidity ratios used were the current ratio and the day’s receivable ratio.
The current ratio is a very broad ratio that gives a general sense for how liquid the business is within a given time frame. The current ratio for Amazon.com shows that their current liquidity is shrinking a bit but not enough to cause concern. The day’s receivable ratio shows how long it takes for Amazon.com to collect on their receivables. The amount of days it takes Amazon.com to collect their receivable s has increased by about eight days. Although it is never a good thing to take a significant amount of time to collect, 92 days is still not a cause for concern. The next type of ratio used was a solvency ratio. The solvency ratio used is the Debt to Asset Ratio.
This ratio measures the proportion of Amazon’s assets that were financed by borrowing or debt financing. According to the ratio, Amazon.com has seen about a 5.5% increase in the amount of assets financed. However, the amount is still less than the total amount of assets which is a good sign. The next type of ratios used is the profitability ratios.
The profitability ratios used are the return on equity ratio and the operating profit margin ratio. The return on equity ratio measures Amazon’s profitability by showing how much profit they generate with the money invested by shareholders. This ratio is where we see a cause for concern. Amazon has dropped by 7.4% in this department down to -.4%. The operating profit margin ratio shows how much profit is generated from each dollar of sales. This is also dropping quite considerably.
After viewing all of the ratios above, Amazon does not need to be concerned with the overall health of the business but needs to work on becoming more profitable for investors. In conclusion Amazon.com is one of the foremost pioneers and trailblazers of the online retail market. As many pioneers of industries do Amazon.com began in a small two car garage and has graduated to operating one of the largest online retail companies worldwide.
From selling books and other reading materials, to offering big screen televisions and diapers, Amazon.com is a household name. Although Amazon has experienced great success over the years, a deeper look into the firm’s liquidity, solvency, and profitability ratios has shown some signs of trouble. The firm’s liquidity ratios have been on a slight downward trend, although not significant, the ratios show some trouble. The Solvency ratios are also rising slightly, which shows that the firm is financing about 5.5% more of its assets than before.
This rise in solvency ratio is little to no concern because of the firms total assets are larger than the amount financed. Profitability ratios for Amazon are a bit of a concern and headed downhill. Profitability of Amazon.com has dropped from 7.4% to -.4%. With such a dramatic fall in profitability, Amazon must immediately look to correct this issue in order to stay ahead of the online retail industry.
Corporate Governance. (2013). Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-govConduct The Investor’s Advocate: Retrieved from http://www.sec.gov/about/whatwedo.shtml Titman, S., Keown, A. J., & Martin, J. D. (2011). Financial Management. Principles and Applications (11th ed.). : Pearson Education Webley, K. (2010, July). Online Shopping. Time, (), . Retrieved from http://content.time.com/time/business/article/0,8599,2004089,00.html