Question

Analysis of Financial Statements: AMAZON For this milestone, you will continue to develop material to be included in your financial analysis paper. C. Based on the information you have gathered, analyze the changes in the financial reports regarding the account balance.
i. What are the reasons for these changes?
D. Describe the type of valuation method that your company uses and explain why it uses this method.
i. What are the benefits of this method?

Answer 1

C. The changes in account balances with regards to different accounting heads are shown below:

	Year
(in $ millions)	2016	2015	Absolute change	% change
Cash	15,890.00	14,557.00	1,333.00	9.16%
Total net sales	135,987.00	107,006.00	28,981.00	27.08%
Interest expense	484.00	459.00	25.00	5.45%
Net income	2,371.00	596.00	1,775.00	297.82%
Current asets	45,781.00	35,705.00	10,076.00	28.22%
Total assets	83,402.00	64,747.00	18,655.00	28.81%
Current liabilities	43,816.00	33,887.00	9,929.00	29.30%
Stockholder's equity	19,285.00	13,384.00	5,901.00	44.09%

i. Cash increased by 9.16% in 2016 on a year-on-year (y-o-y) basis due to increase in cash from operating activities and financing activities. Amazon used more cash for investing activities in 2016 compared to the year ago period but this was less than the increase in cash from operating and financing activities. Total net sales increased on the back of increase of both net product sales as well as net service sales. The company’s net income increased by a massive 297.82% due to reduced operating expenses as a percentage of sales. Current assets increased by 28.22% due to substantial increases in cash and cash equivalents, marketable securities, and accounts receivables. Stockholder’s equity increased by around 44% due to increase in additional paid-in capital and retained earnings.

D. The company does the valuation of its inventories using the first-in-first-out method and also the principle of lower of cost or market value. For its investment in private companies Amazon acknowledges the valuations of private companies are complex and the company evaluates its equity and equity warrant investments in private companies for impairment. Valuation of financial instruments is based on quoted prices for identical assets and liabilities in active markets.

i. Benefits of the first-in-first-out method and lower of cost or market value for the valuation of inventories is that the assumed flow of costs corresponds with the normal physical flow of goods. Further no manipulation of income is possible. Lower of cost or market value offers the advantage of valuing the inventories on a going-concern basis.