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Internal dimensions
These are the dimensions that describe a firms 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).
Ratings.
A decrease since 2004 makes is a weakness: +3 The cash flows have been constant side as sales have increased over the years: +5 Earnings per share has gradually decreased and so can be a bit of a problem: +2 The working capital management has been a problem with amazons currents ratios being below par: +2 Debt position of Amazon is awful with most of its assets financed by debt amazon faces a high risk of default: +1
Ratings.
Amazon.com is perhaps the successful because of its high shipment standards and security: -1 The amazon.com only holds around 15% of American book market and has a very low market share as compared to its competitors: -4 Amazon.com provides high customer satisfaction and thus hold higher customer loyalty: -1 Amazon depends on quality personnel to maintain and improve its technology systems and handle customer issues: -2 the product offered by amazon is always high quality and better than the product quality of its competitors: -2
Product quality.
Ratings.
The inflation rate has been constant since 2004 and is an indicator of markets financial soundness: -1 The rapid technological improvement has been a key role in developing amazons 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 amazons business related risk is quite high: -4 Amazons 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 1990s the markets have shown remarkable stability and thus have led to many opportunities for innovative businesses like amazon: -1
Competitive pressure.
Market stability
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
Profit potential.
Financial stability.
Conclusion
ES AVERAGE is -15/6 = -2.5 CA AVERAGE is -10/5 = - 2 IS AVERAGE is 20/5 = 4 FS AVERAGE is 13/5 = 2.6
Profitability ratio
Net profit margin = net income / sales Year 2005 2006 Profit $359 $190
all amounts in millions
Leverage ratios
Debt to total asset ratio = total liabilities /total assets Year 2005 2006 Total current liabilities $1899 $2532 Total longterm liabilities $1551 $1400
all amounts in millions
Activity ratios
Total assets turnover = Sales / total assets Year 2005 2006 Sales $8,490 $10,711
all amounts in millions
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 amazons 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.