.Analysis of Investments
Difficulty: Advanced
Investment Accounting Policy
Amazon.com generally invests the excess cash in investment grade short- to intermediate-term fixed income securities and AAA-rated money market funds. Such investments are included in "Cash and cash equivalents" or "Marketable securities" on the accompanying consolidated balance sheets. Marketable securities are classified as available-for-sale and reported at fair value with unrealized gains and losses included in "Accumulated other comprehensive loss."
Equity investments are accounted for using the equity method of accounting if the investment gives Amazon.com the ability to exercise significant influence, but not control, over an investee. Equity-method investments are included within "Other assets" on Amazon.com's consolidated balance sheets. Amazon.com's share of the earnings or losses as reported by equity-method investees, amortization of basis differences, and related gains or losses, if any, are classified as "Equity-method investment activity, net of tax" on the consolidated statements of operations.
Equity investments without readily determinable fair values and for which Amazon.com does not have the ability to exercise significant influence are accounted for using the cost method of accounting and classified as "Other assets" on the consolidated balance sheets. Under the cost method, investments are carried at cost and are adjusted only for other-than-temporary declines in fair value, certain distributions, and additional investments.
Equity investments that have readily determinable fair values are classified as available-for-sale and are included in "Marketable securities" on Amazon.com's consolidated balance sheets and are recorded at fair value with unrealized gains and losses, net of tax, included in "Accumulated other comprehensive loss."
Amazon.com periodically evaluates whether declines in fair values of the investments below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as Amazon.com's ability and intent to hold the investment until a forecasted recovery occurs. Additionally, Amazon.com assesses whether Amazon.com has plans to sell the security or it is more likely than not Amazon.com will be required to sell any investment before recovery of its amortized cost basis. Factors considered include quoted market prices; recent financial results and operating trends; implied values from any recent transactions or offers of investee securities; credit quality of debt instrument issuers; other publicly available information that may affect the value of Amazon.com's investments; duration and severity of the decline in value; and Amazon.com's strategy and intentions for holding the investment.
Source: Amazon.com Inc., Annual Report
Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities
Amazon.com Inc., adjustment to Net Income (loss)
USD $ in millions
Adjusted Ratios: Mark to Market Available-for-sale Securities (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 | % | % | % | % | % |
| 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 revenue. | Amazon.com Inc.'s adjusted net profit margin improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by 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 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: Mark to Market Available-for-sale Securities | ||||||
| | Adjusted net income (loss) (USD $ in millions) | |||||
| | Net sales (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 revenue. | Amazon.com Inc.'s adjusted net profit margin improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
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: Mark to Market Available-for-sale Securities | ||||||
| | Adjusted net income (loss) (USD $ in millions) | |||||
| | 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) ÷ Total stockholders' equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by 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: Mark to Market Available-for-sale Securities | ||||||
| | Adjusted net income (loss) (USD $ in millions) | |||||
| | Total assets (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 total assets. | Amazon.com Inc.'s adjusted ROA improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
