Amazon comany 1)Introduction to Amazon comany 2)If your firm\'s actual debt rati

Question

Amazon comany

1)Introduction to Amazon comany

2)If your firm's actual debt ratio is different from its "recommended" debt ratio, how should they get from the actual to the optimal? In particular, should they do it gradually over time or should they do it right now? should they alter their existing mix (by buying back stock or retiring debt) or should they take new projects with debt or equity? and What type of financing should this firm use? In particular, should it be short term or long term? what currency should it be in? and what special features should the financing have?

Explanation / Answer

Amazon.inc is an ecommerce company started operating in the US since 1993 as a book store. Their objective was to become the world's largest store which can store almost every book written at the lowest cost. This philosophy or strategy is valid because of the long tail theory. Gradually, they transformed themselves into an ecommerce giant where they were selling everyone. Now as they wanted to expand in the entire US market, therefore they needed their warehouse at every corner of the US. but if they would have gone for sudden bulk investment it would not have been possible for Amazon to sustain the huge interest amount. Therefore, they started taking short term loans and also reinvested their operating profit in expansion. Their strategy of gradual expansion and low debt ratio has continuously helped the company to expand globally as well. The increasing number of warehouse facilities in different corners of the world has increased their assets and that too if it has been financed from the profit and short term debt , has made the company to have very low debt ratio. They should continue with the same strategy of operating in the US dollar currency and low debt ratio strategy.

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