Amazon.com Financial Structure - Essay Example

Financial Analysis Current Ratio The current ratio for Amazon for the year is 04 times. Investors usually find the current ratio between the ranges of 1 to 2 as favorable because they are majorly concerned about their business growth at the expense of the company’s assets. Quick Ratio The quick ratio of Amazon for 2012 comes out to be 0.64 times which is weak figure. This means that the company is not doing really well in the industry Return on Equity The ROE for Amazon is 0.52% which is a measure of how well it is using its investments to generate revenues. Amazon has low ROE value among the competitors in its industry. Return on Assets The ROA for Amazon or year 2012 is 1.58% which is again low as compared to its competitors. This means Amazon is not putting its assets to generate income for the company. Profit Margin The profit margin of Amazon for the year 2012 is 0.07%. When we look at the industry in which Amazon competes, we regard it quite low because profit margin shows how much company is making from its sales and a figure of 0.07% is not even close to an indicator of good financial performance. P/E Ratio The price per earnings ratio of Amazon for 2012 has come out to be 143 times which indicates that the company can expect its growth to accelerate. Furthermore, this value of P/E of Amazon is among highest three in the industry. It has been gathered from the financial statements of Amazon that although sales have gone up too but the net income has lowered. The values of the financial ratios calculated do not really support the positive financial condition of Amazon (Macro Axis). Business Strategy Diamond Model proposed by Donald Hambrick and James Fredrickso enables the business to look at strategy from a different perspective. The diamonds indicate important buts of strategy which when integrate shape up a better strategy. This big picture of strategy enables firms take calculated moves as major aspects of strategy are clarified (Duke Corporate Education, 2005). We will closely look at the diamonds that help define and analyze the business strategy of Amazon. Arenas Amazon is a brand that operates online on a global level. By extending its product portfolio, it has ensured that customers of all ages possessing varying buying needs are targeted. When anyone visits the website, he or she is not asked about demographics. Amazon is interested in finding what that customer wants to buy. Customers from teenagers to college students, professors, housewives, businessmen to retired; all are the customers of Amazon. Amazon displays a list of items on the basis of customer’s buying interest rather than on their age, geographic and social status. Vehicles Amazon does not have any manufacturing facility of its own. The products and services it offers are all of other brands. It has partnered up with popular brands such as Target, Wal Mart, Toys R Us, IKEA, Virgin and others in the list to take care of their online revenues. Differentiation Amazon has differentiated itself from others in the industry due to its portfolio which has something to offer to everyone. It delivers purchased items to the customers on the same day with a trial of thirty days offer. Products offered at Amazon are of premium quality and can be purchased at affordable or discounted rates. To strengthen its brand image, Smartphone and Kindle have been launched by Amazon which has taken online shopping to an entirely new level. Another distinguishing feature of Amazon is that it displays list of products and service that could be of the interest to customers based on their previous buying behavior. Staging Amazon is making the most of its technology infrastructure to increase and strengthen its marketplace. Super fast search engines are helping in attraction of new and retention of old customers. Hardware applications have also played their part in the further growth of Amazon. Economic Logic Amazon is leaving Wal Mart far behind in its mission to offer low priced products to its customers. Amazon offers all kinds of products to its online customers at very low prices. Discount rates are also set on Amazon’s offerings. Loyal customers are provided incentives by Amazon as well. Amazon is religiously maintain low cost structure without compromising on quality standards and this probably is the reason why the brand name never fails despite of ups and downs in its financial performance. Porter Five Forces Threat of Substitutes Amazon is facing threat of substitute products and services for its offerings. Customers can purchase books from Barnes & Noble, Books-A-Million, newsstands, local book shops and discounted or old book stores. Music can be downloaded for free or minimal charges form the internet or purchased from Virgin and Best Buy. For furniture and other household items, people tend to IKEA. Similarly toys and gadgets for children are offered the best at Toys R US. In short, Amazon has a high threat of substitute products and services. Threat from New Entrants Amazon has low threat from new entrants because it is really difficult for a new company to have as much inventory as Amazon has as well as flourish in a short span of time. Threat from Competitors Amazon is facing a huge threat not only from its direct competitors but also from its indirect ones. Customers can easily avail the option of purchasing books from ebay, Barnes & Noble and countless other online book stores. Music is also available for download and purchase on various online music stores. Walmart, IKEA, Bestbuy are offering more or less the same products as those of Amazon at much less rates. Google and Yahoo are directly competing with Amazon search engine. Bargaining Power of Buyers In case of Amazon, the bargaining power of buyers is low because it serves individual customers who prefer to make purchases through Amazon without doing any negotiation over the rates. Bargaining Power of Suppliers We can say that the bargaining power of suppliers here is low. This is because Amazon has an influence over its suppliers and it chooses what goes on the web but on the other hand, Amazon has to reply on its suppliers as it does have a manufacturing plant of its own. Value Chain Analysis A classical approach that business follow to create comeptitivr advantage is value chain. It is based on a series of activities and each activity adds value. Value chain is split into primary and secondary activities. Primary activities are concerned with ensuring that the products and services reach end users and secondary activities play the supporting role for fulfillment of primary activities. Primary Activities 1) Inbound Logistics In case of Amazon, products are received from authorized suppliers and kept in the inventory until the order for purchase is made online. Forecasting makes it easy to decide how much stock must be present at a specified time. 2) Operations Operations at Amazon includes packaging of products such as books, music dvds, games, furniture, crockery etc. Customer support service is quite active. The queries of customers are responded within time and to ensure that orders don’t get late, the warehouse never sleeps. 3) Outbound Logistics Orders are sent directly to individual customers or to the retailers or whole sellers. 4) Marketing and Sales Being a customer oriented company, Amazon makes the best of marketing tools to target the needs and wants of its customers. For this purpose, the focus is majorly on the application of promotion mix and marketing communication techniques. 5) Service Service at Amazon includes dealing with complaints and offering installation or after sales service to the customers. Web training can also be listed under the caption. Secondary Activities 1) Firm Infrastructure This secondary activity at Amazon is based on the strategic planning. It includes departments such as Information technology which is the backbone of the company and other departments which have a strong controlling role such as accounting and finance. 2) Human Resource Management Amazon believes that the most vital resource rest in its employees. Hiring, training and compensation and benefits are carried out precisely so as to ensure that the best talent gets picked. Flexible work schedule is enticing for skilled workers. 3) Technology Development The most important investment done by Amazon is in its technology. Innovation is a continuous process in the department of technology because Amazon does not want to compromise on the competitive advantage. 4) Procurement This activity is responsible for acquiring goods and services at lowest possible cost but of the premium quality. Procurement aims are important to meet otherwise the repute of Amazon can be questioned. SWOT Strengths Amazon is one of the leading global brands and has been successful in retaining its image despite the losses it has to deal with due to high set up costs. Amazon is recognized as one of the exploiter companies which made the best of the tool of e commerce and offered an online buying platform to the early internet users Innovation and technology infrastructure are the strengths of Amazon. Weaknesses As Amazon has not considered the option of free shipping cost, customers tend to other online retailers. Amazon is continuously adding in new products to its database which may confuse the customers as they see Amazon as the leader in books and music. Opportunities Amazon has partnered up with Marks & Spencer, Target and Toys R Us to sell its products online. Collaborating with public and student libraries is a good way of strengthening its brand name. Threats There are a lot of online retailers which offer product and services similar to Amazon and at discounted rates. These competitors are stealing marketplace from Amazon. Competitive Advantage Amazon maintains a low cost structure as compared to brick and mortar stores because it needs no physical maintenance Products and services offered at Amazon are usually priced low as compared to competitors in the market. Amazon is the only online store which offers delivery the same day the order is placed. Amazon offers economies of scale therefore, it is very difficult for a new entrant to earn reputation equivalent to Amazon. Amazon has partnered up with other companies on a global level and offer their products for sale on its web store. Partnership with libraries has increased the brand image of Amazon. Although a number of online websites offer products and services but none can compete in quality and service to Amazon. Customers who once build a relationship at Amazon are retained as Amazon keeps on updating them about the products that match their interest. In order to build a long lasting relationship with the customers, Amazon has made the best out of its innovative ability. It offers a hardware device with the name Kindle through which the customers can have access to Amazon products and their experience with the brand can also be tracked. Kindle is helping Amazon gain more loyal customers. Launching of smart phone by Amazon also appears to be a wise move. Related Diversification Diversification is a strategy that businesses pursue in order to expand and grow. Amazon also started diversifying its products and services in order to improve its brand image and entice more customers. Amazon has followed both related and unrelated types of diversification (Charles E. Dennis, Tino Fenech, Bill Merrilees,2004). Originally known as an online book retailer, Amazon tried to strengthen this area by offering books on all subjects and categories. Based on customer’s preferences, they are always offered a list of books that were related to their previously made purchases. When Amazon had profited from this diversification strategy, it got ready to do unrelated diversification which was a risky move because it was difficult to change the perception of customers who have always associated Amazon with books. Amazon entered new markets with a variety of new products which were of course not related to books for instance, music, toys, software, DVDs, electronics, kitchen ware, household items, furniture, travel services and what not. This type of diversification has inclined more customers towards Amazon because now they know that whatever they need, they can find under the label of Amazon. Amazon has also collaborated with many popular stores such as Wal Mart and taken control of their online sales. This means that people who are Wal Mart fans can shop their products online through the platform of Amazon. Organizational Structure Amazon follows the traditional type of organizational structure where departments are properly set up and duties are assigned to each position. Amazon is a well structured organization where orders are trickled down from top to bottom systematically. Probably this is the reason behind less innovative moves taken up by Amazon because ideas flow from one step to the other gradually. Ideas are also filtered sometimes therefore, implementation requires time. However, what distinguishes Amazon from other companies in the list is its virtual network. In this type of organizational setting, there is no physical office and the employees and departments are connected through some software or through the internet. Amazon is carrying out its operations without the boundaries of brick and mortar; it does not only any products or service however, manages connections with a number of suppliers to make the orders available to the customers on time. Even the organizational setting is virtual but flow of directions remains from top to bottom. Jeffery Bezos is the CEO at Amazon and it is from his rank that the directions are stated. References Charles E. Dennis, Tino Fenech, Bill Merrilees. Electronic Retailing. New York: Routledge, 2004. Print. Charles W. L. Hill, Gareth R. Jones. Strategic Management: An Integrated Approach. 8th ed. Boston: Houghton Mifflin Company, 2008. Print. Duke Corporate Education. Translating Strategy into Action. United States of America: Duke Corporate Education, Inc., 2005. Print. Gary Dessler, Jean Phillips. Managing Now!. Boston: Houghton Mifflin Company, 2008. Print. Haydn Shaughnessy. "Why Amazon Succeeds" Forbes. n.p., 29 April 2012. Web. 29 Nov 2012. Hubert Schmitz. Value Chain Analysis for Policy-makers and Practitioners. Geneva: International Labor Organization, 2006. Print. Jeff Madura. Introduction to Business. 4th ed. USA: Thomson Higher Education, 2007. Print. Leo MacLeod. "Amazon delivers lesson on powers of market segmentation" Portland Business Journal . n.p., 16 March 2006. Web. 28 Nov 2012. Macro Axis. " Amazon fundamentals and financial ratios" Macro Axis. n.p., n.d. Web. 1 Dec 2012. Margaret Rouse. "Virtual Organization" WhatIs.com. n.p., September 2005. Web. 29 Nov 2012. Robert Hof. "Jeff Bezos: How Amazon Web Services Is Just Like The Kindle Business" Forbes. n.p., 29 Nov 2012. Web. 1 Dec 2012. Read More