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Amazon.com Inc. (AMZN)
Analysis of Income Taxes
Advanced level
- Accounting Policy on Income Taxes
- Income Tax Expense (Benefit)
- Effective Income Tax Rate (EITR)
- Components of Deferred Tax Assets and Liabilities
- Adjustments to Financial Statements: Removal of Deferred Taxes
- Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)
- Adjusted Net Profit Margin
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Accounting Policy on Income Taxes
Income tax expense includes U.S. (federal and state) and foreign income taxes. Certain foreign subsidiary earnings are subject to U.S. taxation under the U.S. Tax Act, which also repeals U.S. taxation on the subsequent repatriation of those earnings. Amazon.com intends to invest substantially all of the foreign subsidiary earnings, as well as the capital in the foreign subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which Amazon.com would incur significant, additional costs upon repatriation of such amounts.
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.
Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent Amazon.com believes they will not be realized. Amazon.com considers many factors when assessing the likelihood of future realization of the deferred tax assets, including the recent cumulative loss experience and expectations of future earnings, capital gains and investment in such jurisdiction, the carry-forward periods available to Amazon.com for tax reporting purposes, and other relevant factors.
Amazon.com utilizes a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. Amazon.com considers many factors when evaluating the tax positions and estimating the tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Amazon.com includes interest and penalties related to the tax contingencies in income tax expense.
Source: 10-K (filing date: 2019-02-01).
Income Tax Expense (Benefit)
Amazon.com Inc., income tax expense (benefit), continuing operations
US$ in millions
Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).
Item | Description | The company |
---|---|---|
Current taxes | Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. | Amazon.com Inc.’s current taxes decreased from 2016 to 2017 and from 2017 to 2018. |
Deferred taxes | Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. | Amazon.com Inc.’s deferred taxes increased from 2016 to 2017 and from 2017 to 2018. |
Provision for income taxes, net | Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. | Amazon.com Inc.’s provision for income taxes, net decreased from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level. |
Effective Income Tax Rate (EITR)
Amazon.com Inc., effective income tax rate (EITR) reconciliation
Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
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Federal statutory tax rate | ![]() |
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Effective tax rate | ![]() |
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Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).
Item | Description | The company |
---|---|---|
Effective tax rate | Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. | Amazon.com Inc.’s effective tax rate decreased from 2016 to 2017 and from 2017 to 2018. |
Components of Deferred Tax Assets and Liabilities
Amazon.com Inc., components of deferred tax assets and liabilities
US$ in millions
Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).
Item | Description | The company |
---|---|---|
Gross deferred tax assets | Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. | Amazon.com Inc.’s gross deferred tax assets increased from 2016 to 2017 and from 2017 to 2018. |
Deferred tax assets, net of valuation allowance | Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. | Amazon.com Inc.’s deferred tax assets, net of valuation allowance decreased from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
Net deferred tax assets (liabilities), net of valuation allowance | Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. | Amazon.com Inc.’s net deferred tax assets (liabilities), net of valuation allowance decreased from 2016 to 2017 and from 2017 to 2018. |
Adjustments to Financial Statements: Removal of Deferred Taxes
Amazon.com Inc., adjustments to financial statements
US$ in millions
Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).
Amazon.com Inc., Financial Data: Reported vs. Adjusted
Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)
Amazon.com Inc., adjusted financial ratios
Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).
Financial ratio | Description | The company |
---|---|---|
Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Amazon.com Inc.’s adjusted net profit margin ratio improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted financial leverage | A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
Amazon.com Inc.’s adjusted financial leverage ratio increased from 2016 to 2017 but then decreased significantly from 2017 to 2018. |
Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. | Amazon.com Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Amazon.com Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Amazon.com Inc., Financial Ratios: Reported vs. Adjusted
Adjusted Net Profit Margin
Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).
2018 Calculations
1 Net profit margin = 100 × Net income (loss) ÷ Net sales
= 100 × ÷
=
2 Adjusted net profit margin = 100 × Adjusted net income (loss) ÷ Net sales
= 100 × ÷
=
Profitability ratio | Description | The company |
---|---|---|
Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Amazon.com Inc.’s adjusted net profit margin ratio improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).
2018 Calculations
1 Financial leverage = Total assets ÷ Stockholders’ equity
= ÷
=
2 Adjusted financial leverage = Total assets ÷ Adjusted stockholders’ equity
= ÷
=
Solvency ratio | Description | The company |
---|---|---|
Adjusted financial leverage | A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
Amazon.com Inc.’s adjusted financial leverage ratio increased from 2016 to 2017 but then decreased significantly from 2017 to 2018. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).
2018 Calculations
1 ROE = 100 × Net income (loss) ÷ Stockholders’ equity
= 100 × ÷
=
2 Adjusted ROE = 100 × Adjusted net income (loss) ÷ Adjusted stockholders’ equity
= 100 × ÷
=
Profitability ratio | Description | The company |
---|---|---|
Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. | Amazon.com Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-01-29), 10-K (filing date: 2015-01-30).
2018 Calculations
1 ROA = 100 × Net income (loss) ÷ Total assets
= 100 × ÷
=
2 Adjusted ROA = 100 × Adjusted net income (loss) ÷ Total assets
= 100 × ÷
=
Profitability ratio | Description | The company |
---|---|---|
Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Amazon.com Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |