.Analysis of Income Taxes
Difficulty: Advanced
Income Tax Accounting Policy
Income tax expense includes U.S. (federal and state) and foreign income taxes. Tax legislation commonly known as the Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, Amazon.com intends to continue to invest most or all of these earnings, as well as the capital in these subsidiaries, indefinitely outside of the U.S. and does not expect to incur any significant, additional taxes related to 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 that 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: Amazon.com Inc., Annual Report
Income Tax Expense (Benefit)
Amazon.com Inc., income tax expense (benefit), continuing operations
USD $ in millions
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | U.S. Federal | |||||
| | U.S. State | |||||
| | International | |||||
| | Current taxes | |||||
| | U.S. Federal | |||||
| | U.S. State | |||||
| | International | |||||
| | Deferred taxes | |||||
| | Provision for income taxes, net |
Source: Based on data from Amazon.com Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Current taxes | The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. | Amazon.com Inc.'s current taxes increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
| Deferred taxes | The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. | Amazon.com Inc.'s deferred taxes declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
| Provision for income taxes, net | The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. | Amazon.com Inc.'s provision for income taxes, net increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
Effective Income Tax Rate (EITR)
Amazon.com Inc., effective income tax rate (EITR) reconciliation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Federal statutory tax rate | % | % | % | % | % |
| | Effective tax rate | % | % | % | % | % |
Source: Based on data from Amazon.com Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Effective tax rate | A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. | Amazon.com Inc.'s effective tax rate declined from 2015 to 2016 and from 2016 to 2017. |
Components of Deferred Tax Assets and Liabilities
Amazon.com Inc., components of deferred tax assets and liabilities
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Loss carryforwards U.S., Federal/States | |||||
| | Loss carryforwards, Foreign | |||||
| | Accrued liabilities, reserves, & other expenses | |||||
| | Stock-based compensation | |||||
| | Deferred revenue | |||||
| | Assets held for investment | |||||
| | Depreciation & amortization | |||||
| | Other items | |||||
| | Tax credits | |||||
| | Gross deferred tax assets | |||||
| | Valuation allowance | |||||
| | Deferred tax assets, net of valuation allowance | |||||
| | Depreciation & amortization | |||||
| | Acquisition related intangible assets | |||||
| | Other items | |||||
| | Deferred tax liabilities | |||||
| | Net deferred tax assets (liabilities), net of valuation allowance |
Source: Based on data from Amazon.com Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Gross deferred tax assets | The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. | Amazon.com Inc.'s gross deferred tax assets increased from 2015 to 2016 and from 2016 to 2017. |
| Deferred tax assets, net of valuation allowance | The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. | Amazon.com Inc.'s deferred tax assets, net of valuation allowance increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
| Net deferred tax assets (liabilities), net of valuation allowance | For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. | Amazon.com Inc.'s net deferred tax assets (liabilities), net of valuation allowance increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
Analyst Adjustments: Removal of Deferred Taxes
Amazon.com Inc., adjustments to financial data
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Adjustment to Total Liabilities | ||||||
| | Total liabilities (as reported) | |||||
| | Less: Noncurrent deferred tax liabilities, net | |||||
| | Total liabilities (adjusted) | |||||
| Adjustment to Total Stockholders' Equity | ||||||
| | Total stockholders' equity (as reported) | |||||
| | Less: Net deferred tax assets (liabilities) | |||||
| | Total stockholders' equity (adjusted) | |||||
| Adjustment to Net Income (loss) | ||||||
| | Net income (loss) (as reported) | |||||
| | Add: Deferred income tax expense (benefit) | |||||
| | Net income (loss) (adjusted) | |||||
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Amazon.com Inc., adjusted ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Net Profit Margin | ||||||
| | Reported net profit margin | % | % | % | % | % |
| | Adjusted net profit margin | % | % | % | % | % |
| Financial Leverage | ||||||
| | Reported financial leverage | |||||
| | Adjusted financial leverage | |||||
| Return on Equity (ROE) | ||||||
| | Reported ROE | % | % | % | % | % |
| | Adjusted ROE | % | % | % | % | % |
| Return on Assets (ROA) | ||||||
| | Reported ROA | % | % | % | % | % |
| | Adjusted ROA | % | % | % | % | % |
| 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 improved from 2015 to 2016 and from 2016 to 2017. |
| 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 declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Amazon.com Inc.'s adjusted ROE improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Amazon.com Inc.'s adjusted ROA improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
Adjusted Net Profit Margin
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) (USD $ in millions) | |||||
| | Net sales (USD $ in millions) | |||||
| | Net profit margin1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) (USD $ in millions) | |||||
| | Adjusted net profit margin2 | % | % | % | % | % |
2017 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 × ÷ = %
| 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 improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Financial Leverage
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Total assets (USD $ in millions) | |||||
| | Total stockholders' equity (USD $ in millions) | |||||
| | Financial leverage1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted total stockholders' equity (USD $ in millions) | |||||
| | Adjusted financial leverage2 | |||||
2017 Calculations
1 Financial leverage = Total assets ÷ Total stockholders' equity
= ÷ =
2 Adjusted financial leverage = Total assets ÷ Adjusted total stockholders' equity
= ÷ =
| 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 declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
Adjusted Return on Equity (ROE)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) (USD $ in millions) | |||||
| | Total stockholders' equity (USD $ in millions) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) (USD $ in millions) | |||||
| | Adjusted total stockholders' equity (USD $ in millions) | |||||
| | Adjusted ROE2 | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net income (loss) ÷ Total stockholders' equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net income (loss) ÷ Adjusted total stockholders' equity
= 100 × ÷ = %
| 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 improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
Adjusted Return on Assets (ROA)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) (USD $ in millions) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income (loss) ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net income (loss) ÷ Total assets
= 100 × ÷ = %
| 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 improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
