The incredible growth of Amazon.com has put fear into the hearts of traditional retailers. Amazon?s stock price has soared to amazing levels. However, it is often pointed out in the fi nancial press that it took the company several years to report its first profit. The following financial information is taken from a recent annual report.

Instructionsa. Calculate free cash flow for Amazon for the current and prior years, and discuss its ability to finance expansion from internally generated cash. At one time, Amazon had avoided purchasing large warehouses. Instead, it used those of others. It is possible, however, that in order to increase customer satisfaction the company could build its own warehouses. How might your impression of its ability to finance expansion change?

b. Discuss any potential implications of the change in Amazon?s cash provided by operations from the prior year to the current year.

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($ in millions) Current Year Prior Year Current assets $31,327 $24,625 40,159 Total assets 54,505 Current liabilities 28,089 22,980 Total liabilities 30,413 43,764 Cash provided by operations Capital expenditures Dividends paid Net income (loss) 6,842 5,475 4,893 3,444 (241) 274 Sales 88,988 74,452