Final Project II 1

Southern New Hampshire University

FIN 330

Final Project II: Risk Management and Ethical Analysis

Sarai Sternzis
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Amazon, Inc: Corporate Overview

Amazon, Inc (AMZN) is a world-leading online retailer that manufacturers, distributes

and retails goods and services using its prominent, convenient platform. Amazon has an

unmatched broad selection of products from home goods, to pharmaceuticals, office supplies,

and the list goes on. Additionally, Amazon manufactures its own line of consumer electronic

devices as well as offers TV and music streaming service. Its customer base ranges from

individuals at all ages and income-classes, to small business and large corporations. Amazon

takes pride in its customer-focused approach that encourages consumers to express and share

their opinions to other consumers using the platform.

Working Capital Management

As part of working capital management, financial managers monitor and manage current

assets and liabilities to ensure there is maximal financial efficiency. Amazon’s financial

managers may encounter several challenges in short-term planning, mainly associated with cash

flow. Cash flow management is extremely important in WCM as Amazon has an enormous

amount of money coming in and out of the business on a daily basis. It is upon the financial

managers to ensure there are sufficient funds to cover current liabilities by tracking and

analyzing cash flow trends. Some assets may be liquidized in order to cover current liabilities.

Furthermore, working capital management has to do with Amazon’s high turnover of inventory.

Financial managers must be able to properly balance costs and benefits associated with

manufacturing, distributing, and retailing the massive amount of inventory. WCM is critical to

the financial survival of Amazon. Wrongly interpreting the financial state may suggest the

company is profitable, while in reality it may be challenged to meet financial obligations.

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Economic and Political Risks

Economic threats may have high impacts over Amazon’s profitability. COVID-19 has rocked the

global economy upside down, and many corporations are struggling to keep their doors open

amid the pandemic. Generally, recessions slow down the economy and consumers are more

hesitant to spend money, which results in declining revenues for companies of all markets. With

that said, it seems as if the health crisis has contributed to Amazon’s rising revenues; a stark

contrast to most U.S companies during a recession. Amazon operated as an essential business

since the beginning of the pandemic and has not ceased operations. It gained new long-term

customer base during the lockdown, which will lead to increasing profits for years to come.

Amazon demonstrated impressive durability to a world-wide economic threat, and proved its

stakeholders and consumers it is a reliable and resilient organization to invest in.

Political risks to Amazon may primarily derive from new or amended legislation in

regard to imports, exports, and trade. Financial managers must work with a legal team to ensure

the company is contractually protected from political changes that can financially harm the

organization.

Industry-Specific Risks

Among Amazon’s top competitors are industry giants Walmart, eBay, Google and Apple. An

industry-related risk to Amazon is its solely-online business model that is a draw-back to some

consumers. Amazon’s lack of physical presence is preventing the company from reaching to

certain consumers, mainly of older generations. This risk is expected to minimize with time, as

there is a substantial market trend of shifting from traditional retail to e-commerce. Financial

managers can further contribute to minimizing this risk by making certain investment. They may
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invest in extensive marketing to reach new customers, as well as engage in investments related to

developing and improving the online platform to be as convenient as possible for all users.

Company-Specific Risks

Amazon has been experiencing challenges relating to counterfeit or unsafe products sold through

its third-party vendors. The third-party model Amazon is using requires it to carefully evaluate

each product that is sold through the platform. Amazon invested in implementing methodic

processes for their third-party vendors. Sellers must present certain documents and forms prior to

starting their own Amazon store. Amazon’s fulfillment centers handle the packing and shipping

of products for third-party sellers. This allows Amazon to inspect the items and prevent returns

and customer dissatisfaction.

CSR and Ethics

Corporate Social Responsibility describes the regulations and actions taken by organizations in

order to impact society and the world’s environment in a positive manner. CSR and

sustainability are becoming more and more important for organizations, which is why Amazon

has appointed its very first sustainability executive in 2014. The sustainability executive’s main

role is to identify and work to resolve CSR and ethical issues within Amazon’s operations. Such

issues may be unethical behavior against employees and/or consumers; providing faulty or

misconstrued financial information to stakeholders; negative environmental consequences

associated with waste and pollution due to the high company’s volume; discrimination against

certain society groups; health concerns for consumers using Amazon’s products, and more.
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CSR and Ethics Impacts

In today’s day and age, reputation can make or break even the strongest organizations. Amazon

is continuously being watched and discussed about, and it must be held accountable for all of its

doings. Public scandals, reports of unethical behavior and environmental harm can dramatically

impact the company’s revenues and stock price. Investors are hesitant to invest in companies

with a bad public reputation, and consumers prefer to shop at places that they feel good about.

Financial Manager Role

Financial managers play an important role in CSR strategies and management. It is understood

today that ethics in accounting and finance are important metrics to a company’s success just as

profitability and efficiency are. Financial managers are responsible to incorporate CSR and

ethical behaviors unto Amazon’s culture, which will contribute to the company in the long-term

both financially as well as reputationally.

CSR Ethics and Decision Making

Many resources are required for Amazon to implement and maintain CSR. The biggest obstacle

for Amazon here is the size of the company which puts Amazon in a position that it has to give

back to society in a way that reflects its high volume. Such involvement typically comes with

high costs and may put the company at a financial risk if not planned and managed

properly. Financial managers typically come up with a periodic budget for its CSR activities that

allow them to contribute while maintaining financial stability.

Although there are high costs associated with CSR, Amazon may also see financial

benefits from engaging in such activities. The positive brand image that is created is likely to
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attract customers and shareholders to purchase from and invest in the company. Considering the

immense global reach of the organization, Amazon’s CSR activities help it maintain its market

position, which will result in increasing revenues. The company may also take certain ethical

measures that do not have monetary costs such as maintaining proper employee treatment, fight

for equality and against discrimination, encourage good behavior, etc.

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References

Gurufocus (2020.) AMAZON.Com WACC %. Retrieved on October 3, 2020 from

https://www.gurufocus.com/term/wacc/NAS:AMZN/WACC-/Amazoncom#:~:text=As
%20of%20today%2C%20Amazon.com's%20weighted%20average%20cost%20of
%20capital,capital%20needed%20for%20that%20investment.

Mergent Online. (2020.) Amazon Retrieved September 13, 2020 from: https://www-
mergentonline-com.ezproxy.snhu.edu/companyfinancials.php?
pagetype=asreported&compnumber=91098&period=Annuals&dataarea=PL&range=3&
currency=AsRep&scale=AsRep&Submit=Refresh

Oberlo (2020.) Retrieved on September 12, 2020 from

https://www.oberlo.com/blog/ecommerce-trends#:~:text=Summary%3A%20Ecommerce
%20Trends,-Here's%20a%20summary&text=Ecommerce%20sales%20are%20projected
%20to,to%2025%20percent%20in%202025.

Statista (2019.) Amazon Retail Market Share, Clement. Retrieved on September 12, 2020 from
https://www.statista.com/statistics/788109/amazon-retail-market-share-usa/

The Street (2019.) Amazon's 3 Biggest Challenges for 2020, Gaus. Retrieved on September 12,
2020 from https://www.thestreet.com/investing/amazons-biggest-challenges-for-2020