Evaluate its ability to finance expansion from internally generated cash. Thus far, Amazon has avoided purchasing large warehouses. Instead, it has used those of others. It is possible, however, that in order to increase customer satisfaction, the company may have to build its own warehouses. If this happens: Describe how your impression of its ability to finance expansion change. Project any potential implications of the change in Amazon's cash provided by operations from the prior year to the current year.

Question

Kassandra Wise

Business

8 October, 19:27

Evaluate its ability to finance expansion from internally generated cash. Thus far, Amazon has avoided purchasing large warehouses. Instead, it has used those of others. It is possible, however, that in order to increase customer satisfaction, the company may have to build its own warehouses. If this happens: Describe how your impression of its ability to finance expansion change. Project any potential implications of the change in Amazon's cash provided by operations from the prior year to the current year.

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Brendon Galloway · Answer 1

Solution and Explanation:

Calculate free cash flow for Amazon for the current and prior years.

Going with one approach here:-

Free cash flow = net profit + non cash items like depreciation

Free cash flow for current period = $ (241) million

Free cash flow for prior period = $ 274 millions

So, in this case the net cash flow is $ 33 million.

Amazon have the free cash frow from its operations of $33 million for its expansion. However this is very low if it think for capital expenditure. Expansion will require capital expenditure for smooth operation. Like in the given case there is requirement of new own warehouse. So, to go for own warehouse Amazon will be requiring more free casg flows. Efficiency needs to be build to increase the net income so that the expansion needs to take place in better way.