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Memos for teams 3, 4, 8 and 9

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2. Ratio Team Assignments
by Ken Tate (team 9) - 04/29/01

Target completion time in this Tuesday 05/01 evening.
Yesterday Ken and I went to the meeting with Professor Rock. In the meeting several tasks were assigned to groups of teams. In our case we are together with teams 3, 4 and 8 and the task is to value Amazon. After the meeting the representatives from these teams divided the tasks in four parts.

1) Get the DCF
2) Get the comparables, major investors, WACC and beta.
3) Review the assumption for the model based on historical trends
4) Review-formulate forward looking assumptions

Our team is in charge of #3) Review the assumption for the model based on historical trends.

Ken broke this part into 5 sections and I send them to you, a assigned them to each one in alphabetical order of last name. If you want to do a task that is assigned to other person you can swap with him directly.

The tasks are:

1 (Calderon) Profitability Analysis Ratios - ROE, ROA, ROIC, etc.
2 (Dominguez) Turnover Control Ratios - Inventory turnover, asset turnover, etc.
3. (Palazzi) Cash cycle Analysis - Days inventory, days receivables, days payable, etc.
4. (Tate) Leverage/Liquidity ratios - Current ratio, quick ratio, debt to equity, etc.
5. (Wong) Sustainable Growth Rate Analysis - Given AMZN's operational performance,
how fast can it grow once profitable (assuming profit margins of 5%, 10%, etc.)?

We should just look at these areas on a quarterly basis for the past two years. The end goal in mind is having everyone put together a single slide that will illustrate what has been going on for with respect to their operational or financial ratios (i.e., asset turnover has been decreasing as the company has added more products, etc.) We can use this information to feed into the assumptions that will drive the DCF model.

1. Summary of the meeting with Professor Rock (04/28/2001)
by Natalie Brain - 04/28/01

Organization:
The counterpart for each team in Section A is the Team # + 5. In other words, Team 4's counterpart is therefore Team 9 (section B). We are supposed to pool our resources with Team 9 for doing the work, but assume that each team presents the results of that work to their respective sections.

Division of Work:

Team 1&6: Set forth proposition. Summarize what the Class of '99 students determined in their previous study and then outline what the other teams will be doing.
Teams 2&7: What happened from the 4th quarter '99 until now. When and why? What happened to momentum players? How did the what actually happen compare with the valuation?
Teams 3&8 and 4&9: Do the valuation of Amazon now. Update the valuation done in '99. Get Forrester Research Reports and Wall Street Analyst reports and pull projections, etc.
Teams 5&10: Is this a viable business? What will things look like 5 years from now? Who will be around and who won't? Tell him the shape of things to come.

Due Date:
Present on May 10th.

Deliverable:
A single PowerPoint document from all of us.

Other:
Please keep in close contact with Prof. Rock along the way.

Team 4 specific info:

Dany Maklouf (danymak@mit.edu) came to the meeting interested in participating in the project (although not yet assigned to a team). He was interested in working on the valuation piece of the project, and has therefore joined Team 4.

Workplan
Teams 3, 4, 8, 9 (valuation of Amazon teams) got together to discuss a preliminary working plan.
It was decided that the following division of work was reasonable (subject to team approval):
1. Prepare DCF model.
2. Comparable company analysis. Calculate WACC and Beta.
3. Forward looking industry assumptions (sales growth/competitor actions). Do this via industry reports, etc.
4. Historical trends- ratio analysis, and look for Financial accounting adjustments appropriate to Amazon.

Team 4 has preliminarily been assigned to #2 above. This is subject to Team 4 approval. Dany has familiarity with Bloomberg and calculating this. Specific things to be sought from Bloomberg:

Ratios
Beta
Capital Structure
Sales
Growth Rates

Means of Communication between teams 3,4,8,9:
Within teams 3,4,8,9, the method of communication will be via a website where the work in process document will be kept. Team members will be able to download the document at any time...uploading will be done via e-mail to danymak@mit.edu.
The web address is: web.mit.edu/danymak/www/amazon

Prof. Rock also suggested that a web-savvy student maintain a website for the entire project (Teams 1-10) where we keep the full working document. That site has yet to be determined.

Next Steps:

Team 4 meeting
As we only have 12 days left...meeting as soon as possible is important. Dany has offered to be the pointperson to identify the times Team 4 members are available to meet early next week. He will be following up with you shortly.

Team 3,4,8,9 meeting
As I had to leave a few minutes earlier than the Team 3,4,8,9 planning meeting ended...Dany promised to coordinate the next meeting time.