Working Capital Management And Firm Performance: A Case Study Of Amazon

Background of the Study

The primary focus of the given chapter is to critically discuss the scope of the given study which is focused on identifying the overall influence of the working capital management on the overall performance of an enterprise (Preve and Sarria Allende 2010). In consideration with this, it is relevant to identify that the chapter would identify the background of the study, discuss the key aims and objectives alongside the research questions relevant with respect to the study. The rationale and scope of the study has also been discussed.

Following Sagner (2011), the capital employed in normal business operations of an enterprise is primarily characterised as working capital; this is mostly computed by deducting the current assets and liabilities from the total assets and liabilities of the enterprise. Here it is evident to note the fact that the management of the working capital is critical in regards to the fact that it helps in identifying the overall health of the business and whether the business would be able to meet all its obligations or not (About Amazon 2021). In this regard, it is evident to identify the fact that in a scenario where the business has a considerate level of issues to face, the working capital has a critical role to play (Baños-Caballero, García-Teruel  and Martínez-Solano 2019). Here it is evident to understand that in empirical evidence, a mixed association has been found between the overall performance of a firm and the working capital management (Baños-Caballero, García-Teruel  and Martínez-Solano 2019). Hence, the key focus of the research is on understanding and establishing a relationship between the working capital and the overall performance of the enterprise. To make the research rather focused in nature, Amazon has been chosen in regards to the study (ACCA 2021). The working capital of the enterprise is significantly higher as compared to the other retailers. However, in relation to the consumer cycle sector, the given figure is 69.58% and hence, it becomes evident to note that there exists a negative working capital and hence, considerations are required to manage it well.

The working capital has a critical role to play in the overall success of an enterprise and in order to ensure that a firm is being able to perform well, its working capital needs to be moderated and observed well (Preve and Sarria Allende 2010). As identified earlier, the working capital of Amazon is considerably low and requires improvement. Therefore, the study would assist in determining the key issues related to its low levels and help in the identification of the key factors influencing the same Once the issues would be identified and its influence on the firm’s overall performance would be evaluated, recommendations to improve the same and enhance the profitability of the firm can be provided.

Research Aim

The primary focus of the study is to engage in identifying the relationship which exists between the working capital of the organization and the financial performance of the firm.

Research Objectives

The key objectives of the study are to:

Literature Review

1.Review relevant literature on working capital and identify the way in which it influences the performance of a firm.

2.To gain 5 years financial report of Amazon and identify how it manages its working capital and how the same has impacted its performance.

3.To engage in assessment of Amazon’s financial ratio and identify the way in which the ratios have changed over the years. With the help of this, descriptive analysis would also be engaged in.

4.To discuss the key findings of the study and provide recommendations based on which the firm can improve its performance in the long run.

Research questions

• What is the impact of WC on Amazon’s performance?

This question will be answered with the help of an investigation the reasons for negative WC and what strategies can be developed to improve the same.

The key reason why engaging in the study is critical is to identify the way in which the performance of Amazon in terms of its working capital may be improved to a greater extent. Here it is evidently important to outline that the study shall contribute towards developing knowledge regarding the working capital (Bhattacharya 2021).  This shall ensure that the relationship between the working capital and profitability can be well established. Through a critical secondary analysis, the research would be able to ensure the way in which the working capital plays a critical role in organisational performance (Burney, James and Wang 2021).

The chapter outlined the research aim, objectives and provided an overall background into the study domain and problem.

Although there have been certain studies which have focused on assessing the overall influence of working capital on the overall organizational performance, however, the domain of study requires an in-depth analysis and involves critical thinking. Hence, the key focus of the given review of literature is to gain an in-depth analysis and involve critical thinking. In this concern, it is critically important to note the fact that the given review of literature is focused on understanding how the literature identifies the working capital and a firm’s performance being strongly associated with one another. In this concern, it will also focus on ensuring the key ways in which the working capital can be managed well to improve the performance of a firm at large (Dhole, Mishra and Pal 2019).

According to Johnston  (2017), a majority of the research studies in the past have reflected on the fact that the working capital and the related performance of firm have a positive association with one another. According to Kusuma  and Dhiyaullatief Bachtiar  (2018), the working capital management is a critical indicator to determine the overall financial health of a firm and here it is relevant to note that the firm’s which are essentially limited in their overall development due to the economy’s stock market are unable to realise and identify the optimum efficiency of the Working capital management.  In this concern, it may be identified that the increase in performance often leads to an increase in the overall profitability of the firm and hence, a positive relationship between these two aspects can be well established. When an organization operates on an effective Working capital management, then in this concern, they turn out to become the market leader of the supply chain and play a key role in the market. Here it is evident to understand that the settling time and investment need to be considered well when assessing the Working capital management (Le 2019).

Research Objectives

According to McLaney  (2017), in addition to the working capital management and its related impact on the overall organizational performance, the working capital also has a critical role to play in ensuring better liquidity related performance of the firm. Here it is evident to consider the fact that the time which a firm usually takes to finance their working capital with a limited short-term debt, the better performance prospects can be experienced by the firm. On the other hand, the performance of an enterprise reduces in a scenario where the firm uses short term debt. In this concern, it is essential to understand the fact that management of the working capital ensures smoother operations which contribute towards increasing the earning capacity of an enterprise at large. In this concern, it is evident to understand that this involves management of inventory, the account receivable and the related payable, a firm is essentially involved in.

According to Boisjoly, Conine Jr  and McDonald IV (2020), the operating cycle can be identified as the number of days with respect to which a company buys an inventory and the customers pay for the same. On the other hand, the cash conversion cycle can be identified as the number of days between the company paying for the inventory and the enterprise getting paid by the customers for the inventory Burney, James  and Wang (2021) mentions that the cash conversion cycle stands as a measure of the amount of time the cash is tied up in the working capital. It helps in quantifying the number of days the company takes to convert the cash outflows into the inflows which in return would help in meeting the current obligations and staying in business. Hence, for a good working capital it is critical that the cash conversion cycle needs to be kept to a minimum.

Forbes.com  (2022) outlines that the financial performance of Amazon Inc. has been increasingly considerably , however, the sales did fall short of the holiday expectations. The enterprise is a leader in the market and has taken over a considerable market share in the United States.  The net income of the company has soared by 56% due to the stake in its electric vehicle enterprise. Moreover, the annual subscription program of prime has been increasing which contributed to the profits of the enterprise to a greater extent. It is only because of its stake in Rivian that the firm performed well (Macrotrends.net 2022). The expenses of the enterprise have increased 28%. Here it is relatively critical to note that there were certain short term challenges which were faced by the firm, however, it engaged in a suitable performance engagement which ensured better results (García?Teruel  and Martínez?Solano 2007). As the business has emerged from the pandemic, the future looks bright and the enterprise is believed to be engaged in considerate profits (Forbes.com  2022). The enterprise has also increased its fees from marketplace sellers an advertising income by 18-20%.

Figure 1: Performance of the firm

Source: Digitalcommerce360 (2022).

Methodology

The given chart gives the key details of the sales of the enterprise in the North American context.

According to Afrifa (2016), a working capital can be identified to be negative in a scenario such that the current assets of the company are less than its liabilities. In this concern, it is evident to understand the fact that in a scenario where a certain enterprise is not satisfied then they should focus on improving their working capital. As the working capital is tabulated as the difference between the assets of a firm and the related liabilities, then in such a context, if the assets of the enterprise decrease in a substantial manner, the working capital becomes rather negative in nature (Wasiuzzaman 2015). Moreover, there exists an increase in the accounts plausible.  Akbar, Jiang  and Akbar  (2020)  mentions that the working capital can affect the long-term effectiveness of a particular investment and its financial strength as well in relation to the short-term liabilities. The working capital in this scenario generally tends to represent what a particular enterprise would require to meet its overall operational needs. These comprise of the obligations which the company has made to the inventory, its vendors and related accounts receivable. In this context, the prepaid expenses are also taken to be a strong part of the working capital and hence, when the valuations are being conducted, it is important the investors consider the non-cash working capital which do not include the cash and its equivalents alongside the loans and related debt payments.

Altaf  and Ahmad  (2019) also states that a positive working capital may be identified as a scenario whereby the firm possess a higher amount of assets as compared to the current liabilities. In this concern, it is evident to underline that the working capital outlines that the company is performing well, having an adequate amount of working capital to meet its obligations for over a year which is a key sign of company’s overall strength. However, very often certain enterprises keep a considerate amount of working capital in unused inventories alongside  According to Baños-Caballero, García-Teruel and Martínez-Solano (2019)., the zero working capital can be identified as the scenario where there exists equal amount of current assets as well as current liabilities. Although this increases investment effectiveness, it portrays a critical risk to the overall financial strength of the enterprise. Bhattacharya  (2021) states that the negative working capital is closely associated with current ratio and is an indication of the fact that the company may have incurred a considerate amount of cash outlay or an increase in the accounts payable which would thereby result in poor performance and show that the firm is unable to maintain its daily operations and efficiencies. Different operational situations within the context of an enterprise affect the working capital.

 Burney, James  and Wang (2021) mentions that the working capital when negative for a long term can become a serious concern for several companies as this indicates the inefficiency of the firm to earn a high amount of profits and being largely dependent on different loans and borrowings to finance their stock. In association with this, indifferent operating scenarios, the amount of working capital varies over time and hence, it needs to be moderated on a regular manner to ensure better consideration and outcomes.  In case the amount is quite low, it reflects that the enterprise is very aggressive with the finances of the enterprise (Dhole,  Mishra  and Pal 2019).

Key Findings

Dhole, Mishra  and Pal (2019) tends to critically underline the fact that a high level of working capital shows that the firm is well managed and carries an adequate level of capacity which would facilities an increased liquidity.  Pais  and Gama (2015)tends to understand that the utilisation of the key measures within the context of a firm would give way to ensuring that the working capital productivity and fitness can be focused on a significant manner. Johnston (2017) also states that by making use of benchmarks and creation of goals, better engagements may be assured.  Kusuma  and Dhiyaullatief Bachtiar (2018) mentions that in consideration to the management of an effective working capital, the inventory must be reduced to a great extent. In line with this, the inventory which is slow moving needs to be lowered in quantity and the turnover cycles have to be boosted in a systematic manner. Moreover, the enterprise must ensure that it avoids hoarding which will give way to ensuring that a higher level of networking capital estimate can be reached.

According to Le  (2019) inventory management methods and related techniques associated with stock performance measures seek to ensure that the inventory system can be optimized to a greater extent. Alongside digitalising the systems and electronic receivables alongside payables is critical. McLaney  (2017)  also mentions that to improve the working capital, the firm needs to combine the organizational culture and willingly communicate the financial information with the different members who are directly linked to the working capital performance. This ensures transparency and better performance efficiency as well (Talonpoika et al. 2016).

According to Mathuva  (2015), the restrictive current asset investment strategy has a low percent of current assets to sales. In this type of a strategy, the company hardly invests in cash and related inventory and has competitive terms of sales to curb the credit sales and engage in accounts receivable. This is highly risky in nature but at the same time ensures that the enterprise is being able to manage the related costs. This may also lead to financial shortage costs arise from illiquidity shortage of cash related the low value of marketable securities. On the other hand, the flexible strategy may be idenfied as one where there exists a high percentage of current assets with respect to the sales (McLaney 2017). The advantage of the strategy is that large working capital balances are held whereas the downside is the cost associated with owning a high level of inventory and provision of credit terms.

According to Atseye, Ugwu  and Takon  (2015), the three main strategies for the management of the working capital financing may be identified as Maturity matching, long term funding strategy and the short term working strategy. In the hedging approach, the method is ideal with moderate risk and overall profitability level.  Another key strategy relates to that of the conservative approach or the long term funding strategy where the risk level is low but at the same time profit level is also very low. Lastly, in the aggressive approach of current asset financing is also known as the short term financing strategy which has high profitability but at the same time also has high risks involved (Moussa 2019).

Recommendations

Figure 2: Working capital financing

Source: As made by the author

Short term financing can be identified as the financing as engaged in by an enterprise for a period of 2-3 years. Here the different techniques of financing may be identified as trade credit whereby the firm engages in demand and supply with the help the trade relations they have developed (Akbar, Jiang and Akbar, 2020). In consideration with this, it is evident to understand the fact that credit terms may be decided by the business. Another financing technique can be identified as commercial or secured loans which are taken by the enterprise against the assets of the business (Pais  and Gama 2015). The loans and trade credits are the immediate source of financing undertaken by businesses at large (Altaf  and Ahmad, 2019).

Hence, as the study is rather focused in nature, it becomes important to understand the fact that there have been several considerations which have focused on assessing the overall impact of the working capital on the overall organizational performance (Seth et al. 2020). Here the primary focus was to identify the negative and positive consequences of the working capital on the financial performance. In this concern, factors associated with the organizational performance and how it can be maintained may be assessed critically (Sawarni, Narayanasamy  and Ayyalusamy 2020). The given review has focused on the key way in which the working capital influences performance within a firm.

Hence, the review followed a systematic format whereby the related studies associated with the working capital and the organizational performance have been engaged in. In consideration with this, the reasons behind low negative working capital alongside the ways to maintain a high working capital have been suggested. it can be identified that it is integrally important to engage in better efficiency with respect to inventory management.

The primary focus of the study is to critically discuss the key research techniques which have been adopted for the study and provide justification for the same. In consideration with this, the chapter follows a systematic format in consideration with which the key research philosophy, research approach, design, methods and the data collection as well as the data analysis techniques. As the focus of the study is to identify the impact of working capital on the firm’s performance particularly related to Amazon.

The research philosophy decides the key set of assumptions which are essentially adopted before proceeding with the research study. It is generally of two types such as the positivist and the interpretivist research philosophy. The positivist research philosophy focuses on engaging in a non-biased approach whereby the researcher is engaged in data analysis and collection only. On the other hand, the interpretivist philosophy seeks to involve the opinions of the researcher in the study (Saunders et. al. 2009). Pertaining to this, for the given study, the positivist research philosophy has been adopted as it would ensure that the researcher is being able to engage in data collection and analysis critically (Woiceshyn  and Daellenbach  (2018).

The research approach may be identified as the key techniques using which a research is essentially planned. Pertaining to the approach, they are of two main types i.e. inductive and deductive. The deductive approach is essentially general to specific in nature and helps in deducing the key information out of the data collected (Saunders et. al. 2009). On the other hand, the inductive approach is rather focused to generic in nature and involves researcher perspective. Therefore, for the study the deductive approach has been adopted which will help in deducing critical information associated with the working capital and would ensure better understanding of the topic at large (Abildgaard, Saksvik  and Nielsen 2016).

The research design can be stated to be the overall format which is followed by the researcher. Here it is critical to outline that the two main designs related to the research are descriptive and explorative in nature (Williams 2011).  The descriptive research design seeks to engage in critically explaining the topic associated with the research (Aityan, 2022). On the other hand, the explorative research design engages in finding new theory. However, as the study is focused on identifying the way in which the working capital impacts the firm’s performance, the descriptive research design has been adopted for the study which would ensure better understanding of the key concepts.

The research methods may be identified as the key strategy adopted with respect to the study. There are two main types of research methods present which comprise of primary and secondary research methods (Williams, 2011). The primary data is essentially collected from participants using survey and interviews whereas the secondary data is collected from sources like journals, books, internet and articles. Here it is evident to note that the primary research helps in increasing the authenticity and uniqueness of the study. However, in aspects associated with finance, it is not possible to collect primary data and hence, secondary data has been collected for the study related to Amazon.

The data collection can be identified to be the key technique using which data is collected and the type of data being engaged in. The data collection techniques are of two types, quantitative data which is numerical data and the qualitative data which is the textual data and provides in depth analysis for better understanding (Feng et. al. 2021). The given research has adopted the quantitative data which would ensure that data associated with the working capital is being engaged in (Johnston 2017). Additionally, qualitative data pertaining to the judgement being made in relation to the working capital and firm’s performance is also being engaged in for comprehensive in nature.

The research is based on secondary data and hence, the annual reports and financial filings of Amazon have been used. Moreover, theoretical details related to the working capital and related aspects has been sourced from journal articles and related reports within the UK region. This will help in making the study rather reliable and authentic (Aityan 2022).

The data analysis can be identified as the key way in which the data collected is critically assessed. Pertaining to this, the study has adopted the qualitative technique whereby thematic analysis has been applied and themes and related discussion topics have been designed so that the impact can be well explained. The themes have addressed the objectives of the study and interpreted the findings well.

As secondary data is involved in the study, only sources which are authentic have been selected and the data has been recognized before application. Ownership of the data is acknowledged through citations and adequate quantity and quality of data is engaged in (Roberts 2015).

The primary focus of the chapter is to critically analyse the relationship between the working capital of the enterprise chosen for the research i.e. Amazon and understand its impact on the profitability of the enterprise. The Amazon is a giant e-commerce sales company which is critically engaged in efficient customer service, faster deliveries and profitable engagements. However, as the study is focused on understanding the working capital of the firm and the impact on the firm’s performance, the given chapter would engage in a ratio analysis whereby the working capital ratio in the form of the current ratio and the firm’s performance in the form of net profit margin, gross profit margin and the debt equity ratio.

The ratio analysis is a financial technique using which the key performance measures of the different enterprises is engaged in and compared horizontally over the years so as to identify and understand whether the firm has been able to extend its performance or whether the performance has depleted. The working capital ratio and the firm’s performance ratios have been tabulated.

As identified earlier, the working capital ratio measures the difference which exists between a firm’s assets such as accounts receivable, cash, unpaid bills alongside the raw materials and finished goods and the related current liabilities such as the debts and accounts payable.  The focus of the ratio is to measure the short term health of the business and identify the efficiency. The value of the working capital should be between 1.2 and 2 which reflects the right balance.

Working capital ratio

Table 1

2021	2020	2019	2018	2017
1.13	1.052	1.097	1.09	1.04

Source:(Amazon Financial Ratios for Analysis 2009-2022 | AMZN, 2022)

In the context of the Amazon’s performance, it can be assessed that the working capital of the organization has been ranging between 1.0-1.1. In line with this, it becomes evidently critical to assess the fact that the company is very close to a negative working capital ratio and has been managing this ratio in a systematic manner. However, certain engagements to extend the ratio have to be engaged in.

The firm’s performance can be measured with the help of profitability ratio and the debt to equity ratio. This would help in assessing how the profits of the firm have been progressing over time. In this context, it is evident to note that the gross profit ratio and the net profit ratio are being assessed to ensure that a deeper understanding of how the firm performs.

Gross profit ratio

The gross profit ratio critically analyses the overall financial health of the organization and is equal to the revenue less cost of goods being sold as a percentage of the revenue being engaged in. An ideal gross profit margin needs to be between 50 to 70 percent.

Table 2

2021	2020	2019	2018	2017
42.035	39.567	40.99	40.24	37.06

Source:(Amazon Financial Ratios for Analysis 2009-2022 | AMZN, 2022)

From the given results, it becomes evident to identify that the gross profit ratio of the organization has been ranging from 37% to 42% over the past few hours. The ratio fell down considerably in 2020 probably due to the pandemic but has improved again in 2021.

Net profit ratio

The net profit ratio seeks to engage in analysing the amount of money which a business earns after deducting the operating, interest and related expenses over a given period of time. It is the actual income of a firm after all its responsibilities have been fulfilled. The ideal net profit value is between 10 to 20%.

Table 3

2021	2020	2019	2018	2017
7%	6%	4%	4%	2%

Source:(Amazon Financial Ratios for Analysis 2009-2022 | AMZN, 2022)

Here it may be identified that over the years the net profit has been increasing. Although the gross profit margin of the firm is limited, and the firm engaged in the pandemic, then in consideration with this, even in 2020, the net profit of the firm increased. At present, it is still not 10, but the progress appears to be exponential.

Operating profit margin

The operating profit measures the amount of money left with the firm once the operating costs have been deducted. Pertaining to this, the operating profit needs to be midway between the gross and the net profit.

Table 4

2021	2020	2019	2018	2017
5%	6%	5%	5%	2%

Source:(Amazon Financial Ratios for Analysis 2009-2022 | AMZN, 2022)

Here it may be identified that over the years the net profit has been increasing. Although the operating profit margin of the firm is limited, and the firm engaged in the pandemic, then in consideration with this, even in 2020, the operating profit of the firm increased.

Liquidity ratios

The liquidity ratio measures the overall ability of the firm to meet its short term obligations which is critical to identify in the case of work capital management.

Current ratio

The current ratio divides the current assets by current liabilities. The ideal value is 1.

Table 5

2021	2020	2019	2018	2017
1.14	1.05	1.10	1.10	1.04

Source:(Amazon Financial Ratios for Analysis 2009-2022 | AMZN, 2022)

It can be identified that the firm’s current ratio is largely stable at 1.

Quick ratio

The quick ratio only considers highly liquid assets and liabilities.

Table 6

2021	2020	2019	2018	2017
1.11	1.03	1.07	1.07	1.01

Source:(Amazon Financial Ratios for Analysis 2009-2022 | AMZN, 2022)

It can be identified that the firm’s quick ratio is largely stable at close to 1.

The debt to equity ratio seeks to measure the firm’s total liabilities as compared to the shareholder’s equity in order to leverage the company is engaged in. A higher leverage ratio represents a higher level of risk to the different shareholders as present. A good debt to equity ratio may be measured as 2 or 2.5 which shows for a dollar invested in, its 2/3^rd comes from debts and the rest from equity.

The formula for D/E = Total Liabilities/Total Equity

Table 7

2021	2020	2019	2018	2017
2.04	2.44	2.63	2.73	3.74

Source:(Amazon Financial Ratios for Analysis 2009-2022 | AMZN, 2022)

From the Amazon’s results, it can be identified that the firms debt to equity ratio is adequate.  This means that an adequate amount of financing via debt is engaged in and funding is mostly done through equity.  The ratio has gone down considerably over the last few years which reflects that the firm is largely faced on equity financing.

Table 8

Gross profit		Net profit		Operations profit		Debt equity		Current ratio		Quick ratio
Mean	2018.5	Mean	0.039215	Mean	0.394684	Mean	0.046892	Mean	0.537594	Mean	1.071341
Standard Error	0.645497	Standard Error	0.007993	Standard Error	0.008511	Standard Error	0.008099	Standard Error	0.12609	Standard Error	0.015294
Median	2018.5	Median	0.042286	Median	0.399076	Median	0.052585	Median	0.458394	Median	1.073638
Mode	#N/A	Mode	#N/A	Mode	#N/A	Mode	#N/A	Mode	#N/A	Mode	#N/A
Standard Deviation	1.290994	Standard Deviation	0.015986	Standard Deviation	0.017022	Standard Deviation	0.016197	Standard Deviation	0.25218	Standard Deviation	0.030589
Sample Variance	1.666667	Sample Variance	0.000256	Sample Variance	0.00029	Sample Variance	0.000262	Sample Variance	0.063595	Sample Variance	0.000936
Kurtosis	-1.2	Kurtosis	2.120027	Kurtosis	1.949126	Kurtosis	3.324543	Kurtosis	1.429204	Kurtosis	-5.44066
Skewness	0	Skewness	-1.09098	Skewness	-1.32847	Skewness	-1.75548	Skewness	1.37661	Skewness	-0.09528
Range	3	Range	0.038136	Range	0.039217	Range	0.036229	Range	0.552331	Range	0.058135
Minimum	2017	Minimum	0.017075	Minimum	0.370684	Minimum	0.023085	Minimum	0.340628	Minimum	1.039977
Maximum	2020	Maximum	0.055211	Maximum	0.4099	Maximum	0.059314	Maximum	0.892959	Maximum	1.098112
Sum	8074	Sum	0.156858	Sum	1.578736	Sum	0.187569	Sum	2.150374	Sum	4.285365
Count	4	Count	4	Count	4	Count	4	Count	4	Count	4

The distribution reflects that the data is distributed normally.

Table 9

	Row 1	Row 2	Row 3	Row 4	Row 5	Row 6
Gross profit	1
Net profit	0.230263	1
Operations profit	0.807954	0.717654	1
Debt Equity	-0.86627	-0.62859	-0.94292	1
Current ratio	0.694434	0.274423	0.490208	-0.56321	1
Quick ratio	0.746247	0.307004	0.553391	-0.6276	0.996602	1

It can be identified that the correlation coefficient varies between the variables.

Figure 3: Profitability ratio

Source: As made by the author

Figure 4: Liquidity

Source: As made by the author

In order to identify the impact of the working capital ratio on the profitability of the enterprise, it becomes evident to identify that a correlation analysis has been done. Even from the horizontal analysis, it was identified that as the working capital of the firm has improved and so has the net profit.

Table 10

Year	Working capital ratio	Net profit ratio
2021	1.13	0.07
2020	1.052	0.06
2019	1.097	0.04
2018	1.09	0.04
2017	1.04	0.02

Source:(Amazon Financial Ratios for Analysis 2009-2022 | AMZN, 2022)

Table 11

	Working capital	Net profit
Working capital	1
Net profit	0.711066	1

Hence, the correlation value calculated between the working capital and net profit using data analysis reflects a correlation coefficient of 0.7 which can be taken to be strong and high. Hence, to conclude any change in the working capital is bound to have a change in the net profit as well.

Hence, the articles on the internet such as Forbes and other financial websites mentioned that the profitability of Amazon was stable. In this regard, it becomes evident to understand that the pandemic has been a difficult phase for the enterprise. Several countries were in severe lockdown and pertaining to this, several countries were unserviceable. However, as e-commerce popularity became largely common during the pandemic, it was identified that individuals engaged in shopping from Amazon for their everyday needs in a consistent manner. Pertaining to this, Amazon also came up with the Go fresh section to fulfil the grocery needs of the customers which contributed to the success. From the financial analysis engaged in the given section, it was critically identified that the profits made by Amazon have increased in the past few years (Prasad et al. 2019). This may be due to several reasons such as increase in the fees of the company to the market sellers, increase in prime and other advantages due to its investments. According to Peng  and Zhou  (2019), this may be identified as a smart strategy from the end of Amazon which helped them in recovering any losses which the firm was bound to make. Therefore, by increasing its fees from customers and market sellers, Amazon covered a great deal of its earnings which were otherwise restricted due to competition and pandemic. The company is current growing at a consist rate and its market share price has also been stable. Hence, by maintaining the right strike between its working capital and net profit, the firm has been able to find long term success which is sustainable yet competitive (Preve and Sarria-Allende 2010).

Therefore, the chapter reviewed the ratio analysis for the different years of Amazon and collated the data to identify the trends. A correlation analysis further confirms a strong relationship between the working capital of the firm and its profitability and performance taken in the form of the net profit.

Chapter 5: Conclusion

Therefore, the primary aim of the study was to critically analyse and understanding the manner in which the working capital of an enterprise critically affects its profitability and performance. The case of Amazon had been opted for and the study intended to identify and understand how the firm’s working capital critically influenced its overall profitability and liquidity. The study followed a systematic format whereby the introduction discussed the background of the study which was then followed by the critical analysis of the theories relating to the working capital and profitability as well as liquidity and financing. The secondary analysis had been applied to the study whereby the findings of the study have portrayed that irrespective of the pandemic, the enterprise made a considerate level of profits due to some strategic decisions taken by it. However, the working capital was found to have a significant influence on the overall profitability and performance of Amazon.

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