http://www.google.ca/finance?q=NASDAQ:AMZN&fstype=ii

Amazon, the biggest Electronic commerce(E-commerce) company of the world, is known for its bad condition of earnings in the past few years. However, even though Amazon “does not look nice in its financial statement” year by year, when we look in the share price of Amazon in NASDAQ, it is not difficult to find out that the shares has a rising basic tendency. And we might want to ask——Why?

As known, the tendency of share price should accord with a firm’s financial situation reflected by its annual financial statement. However, the particularity of Amazon demonstrates another important index of evaluation which is slightly ignored by us in class, that is, cash flow. The customers trading on Amazon basically pay with their credit cards and Amazon would receive the amount of money almost simultaneously. Nevertheless, as a retailer, Amazon does not give the money to its wholesalers promptly; they pay 90 days after transaction. The negative operation circle simply means Amazon owns a large amount of calculating funds all the time. We know that it can operate as a bank or a finance company by investing the funds in hand. Obviously, what Amazon can earn by doing so won’t be shown in gross profit rate in its financial statement; what counts in this case is its considerable cash flow.

So it is not surprising that a company might not be able to repay loan even though “it looks nice on amazing profit”. And when we consider the situation of a firm, it is important for us to pay more attention on its performance on cash flow.

Reference:

1.Justin Fox.  “At Amazon, it’s all about cash flow.” HBR. Oct 20, 2014

http://blogs.hbr.org/2014/10/at-amazon-its-all-about-cash-flow/

2. Cash Flow Analysis of Amazon.

http://finance.yahoo.com/q/cf?s=AMZN+Cash+Flow&annual

3. Dana Blankenhorn. “Amazon Keeps Rolling on Cash Flow”. The Street. Oct 25, 2013

http://www.thestreet.com/story/12083041/1/amazon-keeps-rolling-on-cash-flow.html