Jeff Bezos started Amazon company twenty-one years ago, in 1995. The expansion of the multi-billion empire is a result of the value that it places on its customers hence earning their loyalty. Annually, the company enjoys a constant increase in its net sales whereby the sale of electronic books holds a higher percentage (Lang, 2012). However, the net profits decrease over the years because of the decision to earn a higher market share. In addition, Amazon has a goal of increasing its profitability by the application of new technology. Bezos’ idea has revolutionized online sales of products. Amazon.com not only offers its customers a variety of goods but also sells them at low prices (Welch, 2015). Amazon earns a competitive advantage over other companies due to the speed, at which it delivers the orders. The company has a well-written code of ethics that guides the employees through performing their tasks. The paper analyzes how the financial markets work in the USA, and how Amazon’s employees comply with ethics in the financial environment.
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Role of Ethics in the Financial Environment
Bezos emphasizes that those who are at leader positions are accountable for guiding others through ethics compliance in the financial environment. The external surroundings of the company often makes unethical activities occur in business mainly because of poor financial management. Various risks arise once a company is proven to have an unstable financial system. Not only the consumers but also the whole economy feel the financial instability of the multi-billion corporation. First, ethics aid in making financial decisions regarding moral reasoning. Most of the choices made are not affected solely by the outcomes derived from the fiscal statements the policy-makers have to get to the bottom line of the corporation’s financial status.
Second, ethics in financial management help to attract investors. The company becomes appealing through its good reputation. Thus, the investors are confident of the fact that their funds will not be embezzled due to transparency and accountability. Amazon being publicly owned has an aim of making a profit. Therefore, ethics eliminate the unnecessary risk of making adverse impact on its growth. Fraudulent financial reports affect the company’s performance. Consequently, ethics help to avoid legal problems and distractions especially from press. The shareholders get benefits from the execution of internal control measures, and, besides, the owners of the business, in turn, gain from the company’s continued observation of financial management (Brigham, 2015).
Third, ethics in financial management not only encourage the employees but also attract potential individuals willing to work with the enterprise. According to Mudambi and Schuff (2010), Amazon gets the most productive employees because they know that they will have better treatment; it also reduces the cost of recruiting other individuals. In response, the staff members serve customers in a similar manner. It improves people loyalty that, therefore, enhances the sales. Consumers lose confidence in buying products from firms that do not uphold the code of ethics.
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Procedures Put In Place by Amazon to Uphold Ethics
Amazon has a code of ethics that guides its employees through performing the delegated duties. First, the company emphasizes the importance of following the rules and regulations, which the legal department enforces (Amazon, 2016). The employees should also avoid prioritizing their interests that aids in proper financial management providing. For instance, one can forge documents for a client in exchange for some financial favors; to ensure that it does not happen, Amazon applies harsh regulative tools to employees who violate this condition.
According to the code of business ethics in Amazon.com (2016), employees should keep the prices of the products confidential to prevent the competition with other companies. They are not allowed to discuss business terms and how their customers are given discounts. Therefore, it confirms that they are trustworthy and can be freely left to handle any confidential financial information belonging to the company. The employees should not accept any gifts that lure them to favoring certain clients even though the customer is the United States government. The company prohibits its workers from taking any payments from the government illegally. If such a need arises, the legal department is always available to offer council.
Employees should keep the financial records with details that reflect every transaction that the company undertakes. As the law states, the financial reports meant for public should be accurate and easy for understanding. The legal and finance departments are accountable for proper disclosure of internal information about the performance of the company. Bezos emphasizes the cultures that have high levels of integrity (Filson, 2004). To make work easier, once the employees learn these values, they work under less supervision, which increases their productivity. The company should consider replacing all the staff members from managerial, junior, and subordinate positions who do not comply with ethical conditions. Amazon retains only those employees who have values and are trustworthy enough to work in financial management sector.
How Financial Markets Work In USA
The United States financial market at New York stock market comprises of New York stock exchange (NYSE), National Association of Securities Dealers Automated Quotations System (NASDAQ), and regional exchanges (U.S. Department of the Treasury, 2010). The main function of the market is to facilitate exchange between sellers and buyers. On NYSE, an order is placed through a broker. Further, a firm sends it to the floor, which is then determined through an auction. On the other hand, NASDAQ has no central location, and trade is done through the network of dealers; it is usually over the counter market.
The US financial markets have both primary and secondary markets. The primary one applies to the original issuance of a credit instrument where various techniques such as auctions, sales, and direct placement are used. The purchaser of instruments in the primary markets may be able to resell them before the maturity period. The secondary market mostly involves formal exchanges and electronic trading through bids and offers. In addition, one cannot mention financial markets without adding the information about Federal Reserve where it is possible to buy and sell treasury debt instruments to conduct open market operations. The borrowers are mostly businesses and governmental units, which trade with issuers of capital providers, commercial banks, insurance companies, and investment banks acting as intermediaries in the financial markets. The main mechanism of financial market operation involves balancing supplies and demand through allocating savings and, therefore, getting high returns as well as sustainable interest rates.
The process to Comply with the Securities and Exchange Commission
Amazon is listed on the stock exchange. Therefore, it must comply with legal obligations of a public company under the Securities Act and the Securities Exchange Act. The corporation ensures the following to follow the regulation of Securities and Exchange Commission. First, it files and reports financial statements with SEC as well as stockholders report and proxy statements. Second, Miller and Berkenblit (2010) assert that it states and records the listings of the company’s common stock on NASDAQ Global market. It also discloses all corporate information to the marketplace to ensure that the public and shareholders are informed any changes in the running of the company. The company also restricts insider trading, information and personal securities transaction. Lastly, Amazon follows the rules outlined in SEC regulations (rule 144) on the sale of restricted securities and minds the fact that any short-swing profits must be reported to the organization (Cook, Krigman, & Leach, 2003).
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Evaluation of Amazon Performance during the Past Two Years
The assessment of company performance is mainly done through proper analysis of financial statements. In such cases, the financial ratios are determined to help the company define its liquidity level, the gearing level, and the profitability rate since they are vital in making comparison with other enterprises in the same industry. The data for Amazon were derived from the United States Securities and Exchange Commission paper (see Appendix):
• Current ratio:
It is an efficiency and liquidity ratio that shows the firm’s ability to pay its current liabilities using available assets (United States Securities And Exchange Commission, n.d).
• Debt ratio:
This ratio indicates the percentage of total assets financed by total liabilities.
• Return on equity:
It is a ratio that measures the ability of a company to generate revenues from the shareholders’ investments in it. It is given by:
• Days receivables (account receivables turnover ratio):
It defines how many times a firm can turn its account receivables into cash in a certain period of time. It is given by the following formulae:
Financial Health of Amazon Company Based on Above Ratios
Analyzing the ratios above, one can determine the performance results of the company based on its progress from annual reports of 2014 and 2015 as follows. First, the current ratio assists in defining the liquidity of the enterprise and how quickly the company can pay current liabilities; in this regard, a higher current ratio is more favorable. Amazon declined its ability to pay these liabilities since the ratio fell from 1.115 in 2014 to 1.075 in 2015.
Regarding debt ratio, a lower one is more stable because it shows the potential of going concern and means overall lower debt (Miller & Berkenblit, 2010). Concerning results, the company improved its overall debt performance – it reduced from 80.78% in 2014 to 79.5% in 2015.Higher return on equity ratio is favorable because investors want to know how much money is earned with the help of their investments. It also compares company’s performance to the other businesses in the same industry. In 2014, Amazon had a negative ratio but it gradually improved in 2015 and was very high at that period so investors intended to invest in this company. Lastly, it is important to analyze the days receivables figure, which measures the ability of the firm to collect the debtor’s amount. The higher one indicates the company’s efficiency in this regard. Amazon improved its rate from 24.32 days in 2014 to 26.97 in 2015 (Miller & Berkenblit, 2010).
Putting the facts together, it is worth noting that the company improved its productivity in general from 2014 to 2015. It has been reached due to the increase in investments and enhanced ability to collect debts in time. In addition, the corporation was able to reduce its debt burden. The projection is that with higher investment level and better management practices application, the company will be able to cover its current liabilities with the available assets. Considering the information above, it can be concluded that the overall financial health of Amazon is improved.
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In conclusion, Amazon is a company that highly upholds ethics in the financial environment. It has established applicable procedures to make emphasize on ethics to its employees. In addition, being a public company, Amazon complies with every legal requirement of the Securities Exchange Act. The Chief Executive Officer Bezos has placed standards for the employees in such a way that if they fail to comply with those requirements, they are likely to lose jobs. The legal department is responsible for ensuring transparency and accountability in the financial environment. From the above analysis of the economic assessment with use of financial ratios, it is seen that the company has high returns on equity. Therefore, it attracts investors and motivates them to increase their share in Amazon.