Space Matrix for Amazon.

com
Internal dimensions
These are the dimensions that describe a firm’s internal strengths and weaknesses. The internal
dimensions in space matrix are Financial strength (FS), Competitive advantage (CA).

External dimensions
These are the external threats and opportunities of a firms defined through Environment stability (ES),
Industry strength (IS).

Financial strength (FS). Ratings.

Net income A decrease since 2004 makes is a weakness: +3
Cash flow The cash flows have been constant side as sales have
increased over the years: +5
Earnings per share Earnings per share has gradually decreased and so
can be a bit of a problem: +2
Working capital The working capital management has been a problem
with amazon’s currents ratios being below par: +2
Debt issued Debt position of Amazon is awful with most of its
assets financed by debt amazon faces a high risk of
default: +1

Competitive advantage (CA). Ratings.

High shipment quality Amazon.com is perhaps the successful because of its
high shipment standards and security: -1
Market share. The amazon.com only holds around 15% of American
book market and has a very low market share as
compared to its competitors: -4
Customer loyalty Amazon.com provides high customer satisfaction and
thus hold higher customer loyalty: -1
Technological know-how. Amazon depends on quality personnel to maintain
and improve its technology systems and handle
customer issues: -2
Product quality. the product offered by amazon is always high quality
and better than the product quality of its competitors:
-2
Environment stability (ES),
Rate of inflation.
Technological changes.
Barriers to the market.
Risk involved in business.
Competitive pressure.
Market stability
Industry strengths (IS)
Growth potential.
Profit potential.
Market entry barriers
Technological advantage
Financial stability.
Ratings.
The inflation rate has been constant since 2004 and is
an indicator of market’s financial soundness: -1
The rapid technological improvement has been a key
role in developing amazon’s business: -1
Being a corporation, amazon encounters many entry
and exit barriers by both the legislation of USA and
also its own shareholders: -3
As with any business there is risk involved with
amazon as well but as amazon is expanding and
treading into new business ventures. Since 2006
amazon’s business related risk is quite high: -4
Amazon’s competition in the form of eBay, Barnes and
nobles, Book A Million are very influential in the
market and hold a high market share which is
problematic for Amazon: -5
Since the dotcom industry collapse in early 1990’s the
markets have shown remarkable stability and thus
have led to many opportunities for innovative
businesses like amazon: -1
Ratings
The dotcom market has great potential and as the
online banking market increases so will the online
retailing: +6
The profitably potential of online retailing is huge as
advent of amazon and eBay has shown to the world:
+4
many legislations, cultural and social barriers that limit
entry into a market : +2
The online retailer industry is based on the advent of
technology and thus hold a significant edge over the
traditional brick and mortar or brick and brick firms: +5
the fear of theft and fraud and a somewhat traditional
approach has retrained customers from buying online:
+3
Conclusion
ES AVERAGE is -15/6 = -2.5 IS AVERAGE is 20/5 = 4
CA AVERAGE is -10/5 = - 2 FS AVERAGE is 13/5 = 2.6

Directional vector coordinates

x-axis: (-2) + (4) = 2 y-axis: (2.6) + (-2.5) = 0.1

Interpretation of Space Matrix

Based on the criteria stated above a space matrix was drawn for amazon.com to analyze which
strategies will best suit the amazon’s future business activities. After a thorough analyzes and relative
rating and scoring based on the space matrix it can be concluded that aggressive strategies should be
pursued by the amazon executives. The Amazon can either use integration, market penetration, and
product development or diversification strategies. It can also be observed that amazon has been
proactively involved and has been pursuing these strategies since the start of 2006.
Financial Ratio Analysis of Amazon.com
Liquidity ratios
Current ratio = current assets / current liabilities. all amounts in millions

Year Current assets Current liabilities Current Ratio

2005 $2,929 $1,899 1.54
2006 $3,373 $2,532 1.33

Profitability ratio
Net profit margin = net income / sales all amounts in millions

Year Profit Sales Net profit margin

2005 $359 $8,490 0.042
2006 $190 $10,711 0.017

Leverage ratios
Debt to total asset ratio = total liabilities /total assets all amounts in millions

Year Total current Total long- Total Total assets Debt to total
liabilities term liabilities liabilities assets ratio
2005 $1899 $1551 $3450 $3696 0.93
2006 $2532 $1400 $3932 $4363 0.90

Activity ratios
Total assets turnover = Sales / total assets all amounts in millions

Year Sales Total assets Total assets turnover

2005 $8,490 $3696 2.29
2006 $10,711 $4363 2.45
Interpretation of Ratios
Liquidity ratios: Current ratio
The current ratio measures the extent to which a firm can meet its short term obligations. By
standard current ratio of 2:1 is considered to be suitable but amazon’s 1.54 and 1.33 shows that
amazon lacks the ability to overcome its short-term liabilities and thus its working capital
management is lackluster.

Profitability ratio: Net profit margin

The net profit margin ratio evaluates the net profit after taxes on per dollar sales. The ratios of
0.42 and 0.017 shows that much of the sales revenue compensates excessive expenses and little
is earned though sales have increased overtime.

Leverage ratio: Debt to total assets ratios

The debt to total assets show how much of the assets have been funded by the creditors. 93%
(0.93) and 90% (0.90) of amazon’s assets have been funded by creditors; which shows a weak
position and high risk of default.

Activity ratio: Total assets turnover

This ratio checks whether the firm is generating a sufficient volume of business for its assets
investment. The ratios of 2.29 and 2.45 validates that amazon is generating enough volume of
business to justify its assets investment.