Given the following input-output table, answer questions a-h. Note that a one word answer is not acceptable. Provide explanation for your answers and show how you arrive at them.
Man Hour Required to Produce Unit of Output
Country A Country B
Good X 3 12
Good Y 2 14
a. Which country has absolute advantage in which good? Why?
b. Which country has comparative advantage in which good? Why?
c. What is the pre-trade price ratio in each country? Why?
d. What will be the post-trade price ratio or international terms of trade?
e. Which country would prefer an international terms of trade of 9? 6? Why?
f. Let WA = wage rate in A in terms of A's currency
WB = wage rate in B in terms of B's currency
R = exchange rate defined as number of units of B's currency per unit of
A's currency.
Then, in order to have balance of payments equilibrium, (WA.R)/WB must lie in some range, i.e., m < (WA.R)/WB < n.
Determine the value of m and n.
g. If WA = 5, WB = 2 and R = 3, which country will export which good?
h. Given that wages are fixed in each country at WA = 5 and WB = 2, what is the limit within which exchange rate can fluctuate in order for comparative advantage to
assert itself.
In: Economics
A short 500-600 word synopsis that: discusses whether Amazon is an appropriate aspirational peer for Etsy in that it provides a positive financial role model, evaluate trends in both Etsy and Amazon’s financial performance, using peer group analysis and ratio analysis to evaluate these firms’ relative performance in the following three areas: asset management profitability, and use of leverage
Instructions
For purposes of this assignment, assume that you have been hired as an operational risk manager by Etsy, an online retailer of craft goods. You are meeting with a management team to discuss operational strategy, and you are invited to present an analysis of the recent management and operations at both Etsy, and Amazon (Motley Fool, n.d.) as a competitor, comparing the two firms’ relative financial strategies. (Bensinger, 2015). For purposes of this comparison, you will refer back to the financial statements of Etsy, which were included in the previous (Module One) discussion. Amazon’s financial statements are supplied here. Assume that the group that you are speaking to includes design specialists that are not trained in financial principles.
Tasks
When preparing for this assignment, consider your assigned role in the situation, and let that guide your perspective. Look deeper at the details: facts, problems, organizational goals, objectives, policies, strategies. Next, consider the concepts, theories, tools and research you need to use to address the issues presented. Then, complete any research, analysis, calculations, or graphing to support your decisions and make recommendations.
Background Information
In this discussion, you are asked to analyze basic financial statements and other key financial metrics of Etsy (ETSY), and Amazon, a massive online retailer. You may wish to begin by reviewing the Management Discussion and Analysis (MD&A) which is found in Amazon’s recent SEC filing (Amazon, 2016). Differences in managerial decisions that are evidenced within these firms’ financial statements, including the use of leverage, will be the subject of this discussion. To summarize some difference between the firms, Etsy maintains an online platform which allows artisans from around the globe to distribute their goods. Etsy’s revenue consists of the 3.5% fee that an Etsy seller pays for each completed transaction on its platform. Etsy’s cost of revenue consists primarily of expenses associated with the operation and maintenance of our platform and data centers. Operating expenses additionally consist of marketing, product development and general and administrative expenses. Toward the end of 2014, Etsy began increasing its brand and digital marketing efforts, which involved business changes and reorganizations that moved certain teams previously focused on product-related projects into marketing. Gross merchandise sales, or GMS, is the dollar value of items sold in Etsy’s marketplace within the applicable period. Etsy’s GMS were $2.4 billion in 2015, up 23.6% over 2014, and $1.9 billion in 2014, up 43.3% over 2013. Etsy is not as diversified as Amazon, however, nor does it hold physical inventories, as Amazon does. Etsy operates a marketplace which connects sellers and buyers of unique goods. As of December 31, 2015, it connected a community of 1.6 million active Etsy sellers and 24.0 million active Etsy buyers, in nearly every country in the world. Nevertheless, Etsy incurred net losses of $54.1 million, $15.2 million, and $0.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. While it has incurred losses, these decreased over time. Etsy has never declared or paid cash dividends on its capital stock. It states that it intends to retain all available funds and any future earnings and does not anticipate paying any cash dividends in the foreseeable future. In 2015, Etsy generated revenue of $273.5 million, up 39.8% over 2014, and in 2014, it generated revenue of $195.6 million, up 56.4% over 2013 (Etsy, 2016). In contrast, the products offered on Amazon’s consumer-facing websites primarily include merchandise and content it purchased for resale from vendors and those offered by third-party sellers; it also manufactures and sells electronic devices. It also offers other services such as computing, storage, and database offerings, fulfillment, publishing, digital content subscriptions, advertising, and co-branded credit cards. Amazon's sales increased 20%, 20%, and 22% in 2015, 2014, and 2013, compared to the comparable prior year periods (Amazon, 2016). Amazon has recently announced intentions to expand into the area of handmade-goods, such as those sold by Etsy.
Use Tables 1 through 3.
Amazon Balance Sheet
All numbers are quoted in thousands
| Period Ending | 12/31/2015 | 12/31/2014 | 12/31/2013 | |
| Current Assets | ||||
| Cash And Cash Equivalents | 15,890,000 | 14,557,000 | 8,658,000 | |
| Short Term Investments | 3,918,000 | 2,859,000 | 3,789,000 | |
| Net Receivables | 6,423,000 | 5,612,000 | 4,767,000 | |
| Inventory | 10,243,000 | 8,299,000 | 7,411,000 | |
| Total Current Assets | 36,474,000 | 31,327,000 | 24,625,000 | |
| Long Term Investments | - | - | - | |
| Property Plant and Equipment | 21,838,000 | 16,967,000 | 10,949,000 | |
| Goodwill | 3,759,000 | 3,319,000 | 2,655,000 | |
| Other Assets | 3,373,000 | 2,892,000 | 1,930,000 | |
| Total Assets | 65,444,000 | 54,505,000 | 40,159,000 | |
| Current Liabilities | ||||
| Accounts Payable | 30,781,000 | 26,266,000 | 21,821,000 | |
| Other Current Liabilities | 3,118,000 | 1,823,000 | 1,159,000 | |
| Total Current Liabilities | 33,899,000 | 28,089,000 | 22,980,000 | |
| Long Term Debt | 8,235,000 | 8,265,000 | 3,191,000 | |
| Other Liabilities | 9,926,000 | 7,410,000 | 4,242,000 | |
| Total Liabilities | 52,060,000 | 43,764,000 | 30,413,000 | |
| Stockholders' Equity | ||||
| Common Stock | 5,000 | 5,000 | 5,000 | |
| Retained Earnings | 2,545,000 | 1,949,000 | 2,190,000 | |
| Treasury Stock | -1,837,000 | -1,837,000 | -1,837,000 | |
| Capital Surplus | 13,394,000 | 11,135,000 | 9,573,000 | |
| Other Stockholder Equity | -723,000 | -511,000 | -185,000 | |
| Total Stockholder Equity | 13,384,000 | 10,741,000 | 9,746,000 | |
| Net Tangible Assets | 9,625,000 | 7,422,000 | 7,091,000 | |
Table1. Amazon Balance Sheet
Amazon Income Statement
All numbers are quoted in thousands
| Revenue | 12/31/2015 | 12/31/2014 | 12/31/2013 | |
| Total Revenue | 107,006,000 | 88,988,000 | 74,452,000 | |
| Cost of Revenue | 71,651,000 | 62,752,000 | 54,181,000 | |
| Gross Profit | 35,355,000 | 26,236,000 | 20,271,000 | |
| Operating Expenses | ||||
| Research Development | - | - | - | |
| Selling General and Administrative | 33,122,000 | 26,058,000 | 19,526,000 | |
| Operating Income or Loss | 2,233,000 | 178,000 | 745,000 | |
| Income from Continuing Operations | ||||
| Total Other Income/Expenses Net | -206,000 | -79,000 | -98,000 | |
| Earnings Before Interest and Taxes | 2,027,000 | 99,000 | 647,000 | |
| Interest Expense | 459,000 | 210,000 | 141,000 | |
| Income Before Tax | 1,568,000 | -111,000 | 506,000 | |
| Income Tax Expense | 950,000 | 167,000 | 161,000 | |
| Net Income | 596,000 | -241,000 | 274,000 | |
| Preferred Stock And Other Adjustments | - | - | - | |
| Net Income Applicable To Common Shares | 596,000 | -241,000 | 274,000 | |
Table 2. Amazon Income Statement
Cash Flow
All numbers are quoted in thousands
| Period Ending | 12/31/2015 | 12/31/2014 | 12/31/2013 | |
| Net Income | 596,000 | -241,000 | 274,000 | |
| Operating Activities, Cash Flows Provided By or Used In | ||||
| Depreciation | 6,281,000 | 4,746,000 | 3,253,000 | |
| Adjustments To Net Income | 2,486,000 | 1,363,000 | 1,181,000 | |
| Changes In Accounts Receivables | -1,755,000 | -1,039,000 | -846,000 | |
| Changes In Liabilities | 12,608,000 | 6,898,000 | 5,315,000 | |
| Changes In Inventories | -2,187,000 | -1,193,000 | -1,410,000 | |
| Changes In Other Operating Activities | -6,109,000 | -3,692,000 | -2,292,000 | |
| Total Cash Flow From Operating Activities | 11,920,000 | 6,842,000 | 5,475,000 | |
| Investing Activities, Cash Flows Provided By or Used In | ||||
| Capital Expenditures | -4,589,000 | -4,893,000 | -3,444,000 | |
| Investments | -1,066,000 | 807,000 | -520,000 | |
| Other Cash flows from Investing Activities | -795,000 | -979,000 | -312,000 | |
| Total Cash Flows From Investing Activities | -6,450,000 | -5,065,000 | -4,276,000 | |
| Financing Activities, Cash Flows Provided By or Used In | ||||
| Dividends Paid | - | - | - | |
| Sale Purchase of Stock | - | - | - | |
| Net Borrowings | -3,882,000 | 4,426,000 | -617,000 | |
Table 3. Amazon Cash Flow Statement
Historical Etsy Information
|
Etsy - Balance Sheet All numbers are quoted in thousands |
|||
|
Period Ending |
31-Dec-15 |
31-Dec-14 |
31-Dec-13 |
|
Assets |
|||
|
Current Assets |
|||
|
Cash And Cash Equivalents |
271,244 |
69,659 |
36,795 |
|
Short Term Investments |
21,620 |
19,184 |
18,075 |
|
Net Receivables |
56,669 |
25,977 |
18,194 |
|
Inventory |
- |
- |
- |
|
Other Current Assets |
9,521 |
12,241 |
3,721 |
|
Total Current Assets |
359,054 |
127,061 |
76,785 |
|
Long Term Investments |
- |
- |
- |
|
Property Plant and Equipment |
105,021 |
75,538 |
23,107 |
|
Goodwill |
27,752 |
30,831 |
5,346 |
|
Intangible Assets |
2,871 |
5,410 |
493 |
|
Other Assets |
6,967 |
7,363 |
428 |
|
Deferred Long Term Asset Charges |
51,396 |
- |
- |
|
Total Assets |
553,061 |
246,203 |
106,159 |
|
Current Liabilities |
|||
|
Accounts Payable |
45,635 |
21,083 |
10,389 |
|
Short/Current Long Term Debt |
24,872 |
12,328 |
6,070 |
|
Other Current Liabilities |
9,615 |
8,042 |
2,760 |
|
Total Current Liabilities |
80,122 |
41,453 |
19,219 |
|
Long Term Debt |
7,571 |
3,148 |
38 |
|
Other Liabilities |
73,450 |
54,153 |
1,428 |
|
Deferred Long Term Liability Charges |
61,420 |
149 |
1,259 |
|
Total Liabilities |
222,563 |
98,903 |
21,944 |
|
Stockholders' Equity |
|||
|
Misc Stocks Options Warrants |
- |
80,212 |
80,212 |
|
Common Stock |
113 |
44 |
33 |
|
Retained Earnings |
-86,440 |
-32,377 |
-17,134 |
|
Treasury Stock |
- |
- |
- |
|
Capital Surplus |
406,020 |
103,355 |
20,944 |
|
Other Stockholder Equity |
10,805 |
-3,934 |
160 |
|
Total Stockholder Equity |
330,498 |
67,088 |
4,003 |
|
Net Tangible Assets |
299,875 |
30,847 |
-1,836 |
Table 1. Etsy Balance Sheet
|
Etsy - Income Statement All numbers are quoted in thousands |
|||
|
Period Ending |
31-Dec-15 |
31-Dec-14 |
31-Dec-13 |
|
Total Revenue |
273,499 |
195,591 |
125,022 |
|
Cost of Revenue |
96,979 |
73,633 |
47,779 |
|
Gross Profit |
176,520 |
121,958 |
77,243 |
|
Operating Expenses |
|||
|
Research Development |
42,694 |
36,634 |
27,548 |
|
Selling General and Administrative |
135,710 |
91,575 |
48,962 |
|
Total Operating Expenses |
178,404 |
128,209 |
76,510 |
|
Operating Income or Loss |
-1,884 |
-6,251 |
733 |
|
Income from Continuing Operations |
|||
|
Total Other Income/Expenses Net |
-24,584 |
-3,419 |
-373 |
|
Earnings Before Interest And Taxes |
-26,468 |
-9,670 |
360 |
|
Interest Expense |
1,526 |
590 |
302 |
|
Income Before Tax |
-27,994 |
-10,260 |
58 |
|
Income Tax Expense |
26,069 |
4,983 |
854 |
|
Net Income |
-54,063 |
-15,243 |
-796 |
Table 2. Etsy Income Statement
|
Etsy - Cash Flow All numbers are quoted in thousands |
|||
|
Period Ending |
31-Dec-15 |
31-Dec-14 |
31-Dec-13 |
|
Net Income |
-54,063 |
-15,243 |
-796 |
|
Operating Activities, Cash Flows Provided By or Used In |
|||
|
Depreciation |
18,717 |
17,291 |
12,388 |
|
Adjustments To Net Income |
55,236 |
10,593 |
5,910 |
|
Changes In Accounts Receivables |
-15,764 |
-10,172 |
-7,739 |
|
Changes In Liabilities |
25,126 |
16,884 |
8,741 |
|
Changes In Inventories |
- |
- |
- |
|
Changes In Other Operating Activities |
-41 |
-7,266 |
-1,962 |
|
Total Cash Flow From Operating Activities |
29,211 |
12,087 |
16,542 |
|
Investing Activities, Cash Flows Provided By or Used In |
|||
|
Capital Expenditures |
-11,116 |
-1,304 |
-7,762 |
|
Investments |
-2,448 |
-1,110 |
2,722 |
|
Other Cash flows from Investing Activities |
-9,719 |
-18,309 |
-9,985 |
|
Total Cash Flows From Investing Activities |
-23,283 |
-20,723 |
-15,025 |
|
Financing Activities, Cash Flows Provided By or Used In |
|||
|
Dividends Paid |
- |
- |
- |
|
Sale Purchase of Stock |
199,041 |
41,915 |
1,140 |
|
Net Borrowings |
-3,377 |
-1,480 |
-1,265 |
|
Other Cash Flows from Financing Activities |
- |
-75 |
- |
|
Total Cash Flows From Financing Activities |
199,608 |
45,237 |
-103 |
|
Effect Of Exchange Rate Changes |
-3,951 |
-3,737 |
446 |
|
Change In Cash and Cash Equivalents |
201,585 |
32,864 |
1,860 |
Table 3. Etsy Cash Flow Statement
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The reason we use the word favorable and unfavorable when evaluating variances is made clear when we look at the closing of accounts. To see this, consider that (1) all variance accounts are closed at the end of each period (temporary accounts), (2) a favorable variance is always a credit balance, and (3) an unfavorable variance is always a debit balance. Write a half page memo to our instructor with three parts that answer the fallowing three requirements. (Assume that variance accounts are closed to Cost of Goods Sold.)
Required -
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