Case Study
Cash Flows at Amazon.com
Abstract: This instructional case illustrates how Amazon.com’s strategy has evolved over time and how these characteristics are reflected in the financial statements. A particular emphasis is placed on the cash flow statement. Students evaluate the cash flow statement and examine its articulation with the other financial statements. Students create a direct method cash flow statement in the year of Amazon.com’s initial public offering using the information available in the financial statements.
In the summer of 1994, Jeff Bezos sacrificed a promising career in investment banking and his personal savings to start what would become “Earth’s Biggest Bookstore,” Amazon.com. He left New York and went to Seattle and like so many successful (and unsuccessful) businesses, started out in a garage.
The compelling force that drove Bezos was the 2,300% annual growth in web usage. He could see that the internet, which was in its infancy in 1994, would soon become ubiquitous. Features of the book industry made it ideal to focus on selling books, at least initially. The book industry was fragmented, both in terms of the large number of booksellers and publishers. In addition, there were millions of titles and potential customers. The typical bookstore could house a small fraction of all published books, so Amazon.com could market itself as the earth’s largest bookstore.
When Bezos founded Amazon.com, he focused on hiring talented and unconventional managers and employees. Amazon.com had rigorous requirements for new employees and an obsession for customer service. Amazon.com told temp agencies “send us your freaks.” (Spector 2002, 113). The hiring of talented employees was coupled with an austere culture, exemplified by the use of desks made of doors and 2x4s. These desks were initially used because they were inexpensive and later because they matched the culture. The result was an atmosphere that could weather the growing pains and
Abstract: This instructional case illustrates how Amazon.com’s strategy has evolved over time and how these characteristics are reflected in the financial statements. A particular emphasis is placed on the cash flow statement. Students evaluate the cash flow statement and examine its articulation with the other financial statements. Students create a direct method cash flow statement in the year of Amazon.com’s initial public offering using the information available in the financial statements.
In the summer of 1994, Jeff Bezos sacrificed a promising career in investment banking and his personal savings to start what would become “Earth’s Biggest Bookstore,” Amazon.com. He left New York and went to Seattle and like so many successful (and unsuccessful) businesses, started out in a garage.
The compelling force that drove Bezos was the 2,300% annual growth in web usage. He could see that the internet, which was in its infancy in 1994, would soon become ubiquitous. Features of the book industry made it ideal to focus on selling books, at least initially. The book industry was fragmented, both in terms of the large number of booksellers and publishers. In addition, there were millions of titles and potential customers. The typical bookstore could house a small fraction of all published books, so Amazon.com could market itself as the earth’s largest bookstore.
When Bezos founded Amazon.com, he focused on hiring talented and unconventional managers and employees. Amazon.com had rigorous requirements for new employees and an obsession for customer service. Amazon.com told temp agencies “send us your freaks.” (Spector 2002, 113). The hiring of talented employees was coupled with an austere culture, exemplified by the use of desks made of doors and 2x4s. These desks were initially used because they were inexpensive and later because they matched the culture. The result was an atmosphere that could weather the growing pains and