How Working Capital Can Change a Business

 

Amazon Creates Float with Working Capital

The Amazon platform provides two huge benefits as it relates to customers and suppliers:

  1. The company can sell inventory very effectively and quickly.
  2. The company has leverage over most suppliers because it is a dominant reseller.

Combined this allows the company to create substantially liquidity. An article in Barron's explained it rather well:

"In some ways, Amazon is like Berkshire Hathaway, but with better returns. Berkshire sells insurance, where premium payments roll in long before claims are paid, allowing CEO Warren Buffett to invest other people’s capital free of charge. Amazon sells inventory so quickly that it often collects from customers before it pays suppliers, creating an ongoing free float of cash to use."

Source: Jack Hough | “Amazon’s Profits Are Soaring: Why That Could Be Bad for the Stock” | Barron's | 5/6/2017 | Visit

 

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