Instructions

When preparing for your discussion post on this case, it is recommended that you read through it several times. Read through it the first time to familiarize yourself with the case. On the second reading, 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, complete any research, analysis, calculations, or graphing to support your decisions and make recommendations.

Background Information

This discussion addresses the following Module Outcomes:

• Evaluate a firm's use of leverage using financial statement analysis. (CO#1)
• Evaluate the financial position of the firm using time and trend or peer-group analysis. (CO#1, CO#2)

In Module Two, you will learn to compute and interpret common financial ratios derived from categories of financial information that are components of a firm's basic financial statements. This module examines how these ratios are used to better understand the determinants of a firm's profitability. In this discussion, you are asked to analyze basic financial statements and other key financial metrics ofEtsy(ETSY), the firm which was introduced in our Module One Discussion Activity, and Amazon, a massiveonlineretailer. 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,Etsymaintains anonlineplatform which allows artisans from around the globe to distribute their goods.Etsy'srevenue consists of the 3.5% fee that anEtsyseller pays for each completed transaction on its platform.Etsy'scost 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,Etsybegan to 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 inEtsy'smarketplace within the applicable period.Etsy'sGMS were $2.4 billion in 2015, up 23.6% over 2014, and $1.9 billion in 2014, up 43.3% over 2013.Etsyis not as diversified as Amazon, however, nor does it hold physical inventories, as Amazon does.Etsyoperates a marketplace which connects sellers and buyers of unique goods. As of December 31, 2015, it connected a community of 1.6 million activeEtsysellers and 24.0 million activeEtsybuyers, in nearly every country in the world. Nevertheless,Etsyincurred 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.Etsyhas 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,Etsygenerated 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 byEtsy.

Use the following link forTables 1 through 3.

Discussion Prompt

For purposes of this discussion, assume that you have been hired as an operational risk manager byEtsy, anonlineretailer 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 bothEtsy, 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 ofEtsy, 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

1. To ascertain whether Amazon is an appropriate aspirational peer forEtsyin that it provides a positive financial role model, evaluate trends in bothEtsyand Amazon's financial performance, using peer group analysis and ratio analysis to evaluate these firms' relative performance in the following three areas:asset management
2. profitability, and
3. use of leverage

Post two additional replies to classmates, offering critical analyses and comments relating to their determinations and evaluations of the relative nature ofEtsyand Amazon's operations and management. Please cite sources of additional research, and examine areas where you do and do not believe that your classmates' statements make optimal use of assigned readings, or could otherwise include additional considerations.

Responses should comprise 200-600 words.

References

Amazon. (1016).Annual Report.

Bachreyhle, N. (2015).Amazon raises their fists to compete withEtsyin the handmade market space.

Bensinger, G. (2015).Amazon targetsEtsywith 'handmade' marketplace.

Etsy. (2016)Annual Report.

Motley Fool. (2016).Amazon Inc vs.EtsyInc: Will Goliath kill David?.

Etsy - Balance Sheet All numbers are quoted in thousands Period Ending 31-Dec-15 31-Dec-14 31-Dec-13 Assets Current Assets Cash And Cash Equivalents 271,244 69,659 36,795 Short Term Investments 21,620 19,184 18,075 Net Receivables 56,669 25,977 18,194 Inventory - - - Other Current Assets 9,521 12,241 3,721 Total Current Assets 359,054 127,061 76,785 Long Term Investments - - - Property Plant and Equipment 105,021 75,538 23,107 Goodwill 27,752 30,831 5,346 Intangible Assets 2,871 5,410 493 Other Assets 6,967 7,363 428 Deferred Long Term Asset Charges 51,396 - - Total Assets 553,061 246,203 106,159 Current Liabilities Accounts Payable 45,635 21,083 10,389 Short/Current Long Term Debt 24,872 12,328 6,070 Other Current Liabilities 9,615 8,042 2,760 Total Current Liabilities 80,122 41,453 19,219 Long Term Debt 7,571 3,148 38 Other Liabilities 73,450 54,153 1,428 Deferred Long Term Liability Charges 61,420 149 1,259 Total Liabilities 222,563 98,903 21,944 Stockholders' Equity Misc Stocks Options Warrants - 80,212 80,212 Common Stock 113 44 33 Retained Earnings -86,440 -32,377 -17,134 Treasury Stock - - - Capital Surplus 406,020 103,355 20,944 Other Stockholder Equity 10,805 -3,934 160 Total Stockholder Equity 330,498 67,088 4,003 Net Tangible Assets 299,875 30,847 -1,836 Table 1. Etsy Balance Sheet Etsy - Income Statement All numbers are quoted in thousands Period Ending 31-Dec-15 31-Dec-14 31-Dec-13 Total Revenue 273,499 195,591 125,022 Cost of Revenue 96,979 73,633 47,779 Gross Profit 176,520 121,958 77,243 Operating Expenses Research Development 42,694 36,634 27,548 Selling General and Administrative 135,710 91,575 48,962 Total Operating Expenses 178,404 128,209 76,510 Operating Income or Loss -1,884 -6,251 733 Income from Continuing Operations Total Other Income/Expenses Net -24,584 -3,419 -373 Earnings Before Interest And Taxes -26,468 -9,670 360 Interest Expense 1,526 590 302 Income Before Tax -27,994 -10,260 58 Income Tax Expense 26,069 4,983 854 Net Income -54,063 -15,243 -796 Table 2. Etsy Income Statement Etsy - Cash Flow All numbers are quoted in thousands Period Ending 31-Dec-15 31-Dec-14 31-Dec-13 Net Income -54,063 -15,243 -796 Operating Activities, Cash Flows Provided By or Used In Depreciation 18,717 17,291 12,388 Adjustments To Net Income 55,236 10,593 5,910 Changes In Accounts Receivables -15,764 -10,172 -7,739 Changes In Liabilities 25,126 16,884 8,741 Changes In Inventories - - - Changes In Other Operating Activities -41 -7,266 -1,962 Total Cash Flow From Operating Activities 29,211 12,087 16,542 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures -11,116 -1,304 -7,762 Investments -2,448 -1,110 2,722 Other Cash flows from Investing Activities -9,719 -18,309 -9,985 Total Cash Flows From Investing Activities -23,283 -20,723 -15,025 Financing Activities, Cash Flows Provided By or Used In Dividends Paid - - - Sale Purchase of Stock 199,041 41,915 1,140 Net Borrowings -3,377 -1,480 -1,265 Other Cash Flows from Financing Activities - -75 - Total Cash Flows From Financing Activities 199,608 45,237 -103 Effect Of Exchange Rate Changes -3,951 -3,737 446 Change In Cash and Cash Equivalents 201,585 32,864 1,860