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Amazon has a market cap of $144 billion and pays no dividend.

Amazon consistently has a negative cash conversion cycle.

The company has lower capital intensity for every dollar of sales than other large retailers.

The company had large growth in free cash flow (414%) and PPE, net (55%) during 2013.

Amazon (NASDAQ:AMZN) is an incredible business with a high degree of scalability. A competitor such as Wal-Mart (NYSE:WMT) or Target (NYSE:TGT) must invest in new stores to significantly increase sales. The scope of this article is to show the growth of AMZN from 2012 to 2013, and to quantify the competitive advantage that Amazon exhibits. To show this advantage that AMZN has over Wal-Mart, I will utilize the cash conversion cycle [CCC].

Amazon By the Numbers

Dollars in million

FYE 12

FYE 13


Employees (full time and part time;

excludes contractors and temps)




Worldwide net shipping costs (shipping

revenue less shipping costs)




A/P Days




Property and equipment, net




Cash and marketable securities




Inventory turnover




Return on invested capital



Free cash flow (Operating cash flow less

purchase of Property)




Operating cash flow




Let's see how AMZN suppliers actually fund the growth of the company.

FY 13FY 12
23.422.8(1) Days receivables {(Receivables/Sales)*365}
FY 13FY 12
$72,459$59,425Consolidated operating expenses
37.337.0(2) Days inventory {(Inventory/Op. expenses)*365}
7476(3) Payable Days (from above chart)
-13.3-16.2Cash conversion cycle {1+2-3}

The cash conversion cycle is the amount of time between a company spending cash and receiving cash per each sale. It is a measure of efficiency and how long cash is tied up in working capital. The CCC is a great way to analyze the efficiency of the organization in managing cash to generate more sales.

In 2013, AMZN held inventory for 37 days plus 23 days to collect receivables or 60 days in total. AMZN pays accounts payable in 74 days, thus achieving a negative cash conversion cycle.

Target and Wal-Mart Cash Conversion Cycles

The following cash conversion cycles are for Target and Wal-Mart at the most recent fiscal year:

Target cash conversion cycle - 8.3

Wal-Mart CCC - 11.9

For context, Accounts Payable days for AMZN was just over 7 weeks in 2006, and is now 74 days for FY 13. Taking longer to pay means Amazon gets to hold on to more of their suppliers' cash, effectively borrowing it from suppliers. By sitting on a supplier invoice for an additional three weeks, AMZN has an incredible source of cash when multiplied over $74 billion in sales.


For AMZN, Accounts Payable is an unencumbered source of value, and it comes without any interest costs. AMZN can dictate terms to suppliers, and then invest the float in high-return projects. Amazon needs very little capital to grow. Because AMZN's operations generate float, Amazon can simply move faster than its competitors. Also, large retailing competitors may have an albatross around their necks when it comes to real estate.

Given the strong FY 2013, the competitive advantage in converting sales into cash, and the fact that the stock is down roughly 25% from January, I will Accumulate this stock on further weakness. Amazon faces multiple risks in their business, including intense competition from other websites that were not within the scope of this article. AMZN has introduced many products in the past couple years, including new Kindle models and digital content subscriptions. It is unclear how successful these businesses will perform. Also, AMZN could also be liable for fraudulent or unlawful acts of sellers on the AMZN website. This article is the opinion of the author and does not represent investment advice.

Disclosure: I am long TGT, WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.