Glen, I posting this from TMF. This Couch is a CPA who's opinions I've come to respect. He's not an Amzn bull, but he is pointing out Amzn's wonderful cash flow, which, to be honest, I had not taken into account when I scrutinized their business model.
< Taffy asks:
What I'd like to know from both of you is, Amzn's cash flow so wonderful and unique?
Yes it's wonderful, but I'm not sure if it's unique.
Let me explain why it's so good.
Day 1 - Collect $100 from a customer #1
Day 2 - Spend $100 on advertising
Day 3 - Collect $100 from customer #2 (who saw the ad on Day 2)
Day 4 - Spend $100 on advertising
Day 5 thru 44 - See days 1 thru 4
Day 45 - Pay distributor $80 for books for customer #1
Looks like a pretty good deal, huh?
This is what Dell is doing (although I'm not sure they have the generous credit terms of Amazon), and what the rest of the computer industry is fighting for.
Most companies have the same thing happening, but in reverse:
Day 1 - Receive inventory from distributor
Day 30 - Pay distributor
Day 31 - Sell inventory
Day 60 - Collect receivable from customer
This is why car dealers need to take bridge loans to finance their inventory. When you carry limited inventory, it acts like an interest-free loan. Remember, this is just timing. The total cash generated by two companies may be the same, but the timing allows one company an interest-free loan, while the other has to borrow (or use funds that could be invested in the business or other businesses). When you are growing at the rate Amazon is, this is significant. It virtually ensures that there will be cash around to pay for all these "branding activities".
When you are in a growth business, the name of the game is cash flow, cash flow, cash flow.
Understand?
CouchPoDATO
Playing the float, but not quite like AMZN> |
