Amazon's External Financing Needs and Access to Capital Markets: A Financial Analysis
Overview
This case study analyzes Amazon's projected financial needs and external financing requirements as the company scales operations. It examines the projected deficit of $17 billion against revenue growth and evaluates financing options including common stocks, treasury stocks, and retained earnings to support expansion goals.
What this case study covers
- Step 5: Future External Financing Needs - projections of expenditure growth, inventory costs, property and equipment requirements, and funding gaps
- Step 6: Access to Target Sources of External Finance - assessment of Amazon's cash flow, operating income, and creditworthiness for securing external capital
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Step 5: Future External Financing Needs
There are projections that Amazon's expenditure will grow to slightly above $20 billion, implying that compensating for these increases must be presented. The company will require proper funding to finance the increases in accounts receivables and increased costs on inventories (Piper, 2011). Another financial need required by the company includes property and equipment, which is also projected to increase above $22 billion. As the company grows, there will also be expenditure on acquisitions, which is estimated to be about $6 billion. While the company revenue is expected to grow by more than $23 billion, it will never be sufficient to meet the projected financial needs (Davis, 2021). In this regard, the different areas of growth must be funded through other financial incentives.
There will be a deficit of around $17 billion, which will also increase the firm's long-term debt. In this regard, the company will need external sources of financing to fill these gaps, but can equally depend on retained dividends earnings to ensure that operations continue without challenges. There are several choices that the firm can use to seek financing incentives. First, the company can offer common stocks, which will allow investors to invest in the company. It will be an incentive to raise funds and ensure that the company can meet its expansion needs. On the other hand, the firm can also sell treasury stocks to raise the required finances.