For purposes of this assignment, assume that you have been hired as an operational risk manager by Etsy, an online retailer of craft goods. You are meeting with a management team to discuss operational strategy, and you are invited to present an analysis of the recent management and operations at both Etsy, and Amazon (Motley Fool, n.d.) as a competitor, comparing the two firms' relative financial strategies. (Bensinger, 2015). For purposes of this comparison, you will refer back to the financial statements of Etsy, which were included in the previous (Module One) discussion. Amazon's financial statements are supplied here. Assume that the group that you are speaking to includes design specialists that are not trained in financial principles.

Tasks

Discuss whether Amazon is an appropriate aspirational peer for Etsy in that it provides a positive financial role model, evaluate trends in both Etsy and Amazon's financial performance, using peer group analysis and ratio analysis to evaluate these firms' relative performance in the following three areas:

asset management

profitability, and

use of leverage

Instructions

When preparing for this assignment, consider your assigned role in the situation, and let that guide your perspective. Look deeper at the details: facts, problems, organizational goals, objectives, policies, strategies. Next, consider the concepts, theories, tools and research you need to use to address the issues presented. Then, research, analyze, calculate, or graph to support your decisions and make recommendations.

Background Information

In this discussion, you are asked to analyze basic financial statements and other key financial metrics of Etsy (ETSY), and Amazon, a massive online retailer. You may wish to begin by reviewing the Management Discussion and Analysis (MD&A) which is found in Amazon's recent SEC filing (Amazon, 2016). Differences in managerial decisions that are evidenced within these firms' financial statements, including the use of leverage, will be the subject of this discussion. To summarize some difference between the firms, Etsy maintains an online platform which allows artisans from around the globe to distribute their goods. Etsy's revenue consists of the 3.5% fee that an Etsy seller pays for each completed transaction on its platform. Etsy's cost of revenue consists primarily of expenses associated with the operation and maintenance of our platform and data centers. Operating expenses additionally consist of marketing, product development and general and administrative expenses. Toward the end of 2014, Etsy began increasing its brand and digital marketing efforts, which involved business changes and reorganizations that moved certain teams previously focused on product-related projects into marketing. Gross merchandise sales, or GMS, is the dollar value of items sold in Etsy's marketplace within the applicable period. Etsy's GMS were $2.4 billion in 2015, up 23.6% over 2014, and $1.9 billion in 2014, up 43.3% over 2013. Etsy is not as diversified as Amazon, however, nor does it hold physical inventories, as Amazon does. Etsy operates a marketplace which connects sellers and buyers of unique goods. As of December 31, 2015, it connected a community of 1.6 million active Etsy sellers and 24.0 million active Etsy buyers, in nearly every country in the world. Nevertheless, Etsy incurred net losses of $54.1 million, $15.2 million, and $0.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. While it has incurred losses, these decreased over time. Etsy has never declared or paid cash dividends on its capital stock. It states that it intends to retain all available funds and any future earnings and does not anticipate paying any cash dividends in the foreseeable future. In 2015, Etsy generated revenue of $273.5 million, up 39.8% over 2014, and in 2014, it generated revenue of $195.6 million, up 56.4% over 2013 (Etsy, 2016). In contrast, the products offered on Amazon's consumer-facing websites primarily include merchandise and content it purchased for resale from vendors and those offered by third-party sellers; it also manufactures and sells electronic devices. It also offers other services such as computing, storage, and database offerings, fulfillment, publishing, digital content subscriptions, advertising, and co-branded credit cards. Amazon's sales increased 20%, 20%, and 22% in 2015, 2014, and 2013, compared to the comparable prior year periods (Amazon, 2016). Amazon has recently announced intentions to expand into the area of handmade-goods, such as those sold by Etsy.

Use Tables 1 through 3.

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