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Amazon's cash burn rate

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Amazon.com, Inc. is the world's leading online retailer with over 17 million customer accounts in over 150 countries. The company sells books, music, DVDs, videos, toys, electronics software, video games, and home improvement products. Through its marketplace services- amazon.com auctions, zshops and sothebys.amazon.com- the company has created web-based marketplaces where buyers and sellers enter into transactions involving a wide range of products. As the company states in its 199 10-k:

We offer our customers a superior shopping experience by providing high value through selection, convenience, ease of use, low prices, product information and an intense focus on customer service. We are a proven technology leader, having developed electronic commerce innovations such as 1-click technology, personalized shopping services, easy to use search and browse features, secure payment protections, and wireless access to our stores.

The company's quarterly income statement and balance sheet appear on excel.

Required:

1. Comment on the company's "year over year" sales growth for the March and December quarters. Why do you suppose December 1999 sales outpaced March 2000 sales?
2. Compute the gross profit margin for each quarter and comment on any trend.
3. How well has the company been managing its "selling, general, and administrative expense'?
4. Why doesn't amazon.com have any "receivables" on its balance sheet?
5. Compute inventory turnover for each quarter (using the quarter-end inventory amount) and comment on any trend.
6. Analysts who cover internet stocks use the "cash burn rate" as an index of company health. The cash burn rate (in months) is:
Cash burn rate= cash on hand
Operating cash flow needs (per month)
Suppose an internet company is generating negative operating cash flows of -$300 each quarter, or -$100 per month. If it has $1,000 of cash on hand, its cash burn rate is 10 months. Unless operations turn cash flow positive, the company will run out of money in 10 months. Based on Amazon's historical growth and operating cash flows, what is its cash burn rate as of March 2000?

7. Why are analysts interested in Amazon's cash burn rate?

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mazon.com, Inc. is the world's leading online retailer with over 17 million customer accounts in over 150 countries. The company sells books, music, DVDs, videos, toys, electronics software, video games, and home improvement products. Through its marketplace services- amazon.com auctions, zshops and sothebys.amazon.com- the company has created web-based marketplaces where buyers and sellers enter into transactions involving a wide range of products. As the company states in its 199 10-k:

We offer our customers a superior shopping experience by ...

Solution Summary

This discusses the Amazon's cash burn rate and its implications

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