Early in February, the Wall Street Journal published an article on how the Amazon Company was struggling to increase income at the same rate as its expenditure. This move, according to the article, was putting a strain on the company finances. Although the company revenue was increasing, the spending and expenses were also increasing. This is because it may not be making money as much as it is spending it to conduct international trade. According to the article, this lavish expenditure among others has affected the company's profitability. Amazon share trading is as a result, falling up to the margin of 8.8%. The shares moved from $194.44 to $177.31 in a single day.
The Amazon Company has grown over the years from a small electronics company into a large international company recognized worldwide. It is evident from the article that the company has been experiencing high sales volume accompanied by spending that is not reciprocating in the same speed. This, in any economy results, in deficits that derail the company operations. This is because the company suffers a reduction in the working capital necessary for the day-to-day operations of the company. Because of this, the trading operations of the company are affected by the losses the company is making.
The article also referred to the company’s involving third parties to carry out its trading operations. Although this has helped tremendously in boosting the company sales revenue, involving a third party increases a company’s liability and reduces the total income it gets. This can be equated to a company with excess employees, regardless of the revenue made the income in hardly enough to cover all the operations costs. Third party companies help to market the company products in other countries; however, they are not mandatory and the company should consider eliminating them and conducting its international operations directly.
Surveys conducted revel that the company is growing at an alarming rate that it is not able to handle the financial strain. This is caused by out of control growth. Economic growth is a desirable aspect in any organization. However, growth must be well distributed over a period to give the company time to adjust accordingly. In my opinion, this outburst of growth experienced in Amazon Corporation is negative in that it straining the company resources, hence in the end, a sizeable investment turns out to be disastrous.
In conclusion, one of the most crucial strongholds in ensuring a sound and profitable business is the presence of a cash cushion. This one aspect is missing in the operations of Amazon Company. Business cycles must be analysed critically. Amazon did not learn from the recent financial, global recession. If not cautious, it is heading for even a bigger downfall.