.Analysis of Operating Leases
Difficulty: Advanced
An operating lease is treated like a rental contract. Neither the leased asset nor the associated liability is reported on the lessee statement of financial position, but the rights may be very similar to the rights of an owner. The lessee only records the lease payments as a rental expense in income statement.
Present Value of Future Operating Lease Payments
Amazon.com Inc., future operating lease payments
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Total undiscounted future operating lease payments1 (USD $ in millions) | |||||
| | Discount rate2 | % | % | % | % | % |
| | Total present value of future operating lease payments (USD $ in millions) | |||||
1 Source: Amazon.com Inc. Annual Reports
2 Internal rate of return on capital and finance leases
| Year | Future operating lease payments (as reported)1 | Year | Future operating lease payments (estimated) | Present value at % |
|---|---|---|---|---|
| 2018 | 2018 | |||
| 2019 | 2019 | |||
| 2020 | 2020 | |||
| 2021 | 2021 | |||
| 2022 | 2022 | |||
| 2023 and thereafter | 2023 | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Total: |
1 Source: Amazon.com Inc. Annual Reports
| Year | Future operating lease payments (as reported)1 | Year | Future operating lease payments (estimated) | Present value at % |
|---|---|---|---|---|
| 2017 | 2017 | |||
| 2018 | 2018 | |||
| 2019 | 2019 | |||
| 2020 | 2020 | |||
| 2021 | 2021 | |||
| 2022 and thereafter | 2022 | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total: |
1 Source: Amazon.com Inc. Annual Reports
| Year | Future operating lease payments (as reported)1 | Year | Future operating lease payments (estimated) | Present value at % |
|---|---|---|---|---|
| 2016 | 2016 | |||
| 2017 | 2017 | |||
| 2018 | 2018 | |||
| 2019 | 2019 | |||
| 2020 | 2020 | |||
| 2021 and thereafter | 2021 | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total: |
1 Source: Amazon.com Inc. Annual Reports
| Year | Future operating lease payments (as reported)1 | Year | Future operating lease payments (estimated) | Present value at % |
|---|---|---|---|---|
| 2015 | 2015 | |||
| 2016 | 2016 | |||
| 2017 | 2017 | |||
| 2018 | 2018 | |||
| 2019 | 2019 | |||
| 2020 and thereafter | 2020 | |||
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total: |
1 Source: Amazon.com Inc. Annual Reports
| Year | Future operating lease payments (as reported)1 | Year | Future operating lease payments (estimated) | Present value at % |
|---|---|---|---|---|
| 2014 | 2014 | |||
| 2015 | 2015 | |||
| 2016 | 2016 | |||
| 2017 | 2017 | |||
| 2018 | 2018 | |||
| 2019 and thereafter | 2019 | |||
| 2020 | ||||
| 2021 | ||||
| 2022 | ||||
| 2023 | ||||
| Total: |
1 Source: Amazon.com Inc. Annual Reports
Analyst Adjustments for Operating Leases
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 Assets | ||||||
| | Total assets (as reported) | |||||
| | Add: Operating leased assets1 | |||||
| | Total assets (adjusted) | |||||
| Adjustment to Total Debt | ||||||
| | Total debt (as reported) | |||||
| | Add: Operating lease obligations2 | |||||
| | Total debt (adjusted) | |||||
| Adjustment to Earnings before Interest and Tax (EBIT) | ||||||
| | EBIT3 (as reported) | |||||
| | Add-back: Rental expense under operating lease agreements4 | |||||
| | Less: Depreciation expense, operating leased assets5 | |||||
| | EBIT (adjusted) | |||||
| Adjustment to Interest Expense | ||||||
| | Interest expense (as reported) | |||||
| | Add: Interest expense, operating lease obligations6 | |||||
| | Interest expense (adjusted) | |||||
1, 2 Equal to total present value of future operating lease payments. See Details »
4 Source: Amazon.com Inc. Annual Reports
Adjusted Ratios for Operating Leases (Summary)
Amazon.com Inc., adjusted ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Total Asset Turnover1 | ||||||
| | Reported total asset turnover | |||||
| | Adjusted total asset turnover | |||||
| Debt to Equity2 | ||||||
| | Reported debt to equity | |||||
| | Adjusted debt to equity | |||||
| Return on Assets3 (ROA) | ||||||
| | Reported ROA | % | % | % | % | % |
| | Adjusted ROA | % | % | % | % | % |
| Interest Coverage4 | ||||||
| | Reported interest coverage | |||||
| | Adjusted interest coverage | |||||
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Amazon.com Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Adjusted debt-to-equity | A solvency ratio calculated as adjusted total debt divided by total shareholders' equity. | Amazon.com Inc.'s adjusted debt-to-equity improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as 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 interest coverage | A solvency ratio calculated as adjusted EBIT divided by adjusted interest payments. | Amazon.com Inc.'s adjusted interest coverage improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level. |
Adjusted Total Asset Turnover
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net sales (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | Total asset turnover1 | |||||
| Adjusted for Operating Leases | ||||||
| | Net sales (USD $ in millions) | |||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted total asset turnover2 | |||||
2017 Calculations
1 Total asset turnover = Net sales ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Amazon.com Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Debt to Equity
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Total debt (USD $ in millions) | |||||
| | Total stockholders' equity (USD $ in millions) | |||||
| | Debt to equity1 | |||||
| Adjusted for Operating Leases | ||||||
| | Adjusted total debt (USD $ in millions) | |||||
| | Total stockholders' equity (USD $ in millions) | |||||
| | Adjusted debt to equity2 | |||||
2017 Calculations
1 Debt to equity = Total debt ÷ Total stockholders' equity
= ÷ =
2 Adjusted debt to equity = Adjusted total debt ÷ Total stockholders' equity
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted debt-to-equity | A solvency ratio calculated as adjusted total debt divided by total shareholders' equity. | Amazon.com Inc.'s adjusted debt-to-equity improved from 2015 to 2016 but then deteriorated significantly 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 Operating Leases | ||||||
| | Net income (loss) (USD $ in millions) | |||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income (loss) ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Net income (loss) ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as 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 Interest Coverage
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Earnings before interest and tax1 (EBIT) (USD $ in millions) | |||||
| | Interest expense (USD $ in millions) | |||||
| | Interest coverage2 | |||||
| Adjusted for Operating Leases | ||||||
| | Adjusted EBIT (USD $ in millions) | |||||
| | Adjusted interest expense (USD $ in millions) | |||||
| | Adjusted interest coverage3 | |||||
2017 Calculations
2 Interest coverage = EBIT ÷ Interest expense
= ÷ =
3 Adjusted interest coverage = Adjusted EBIT ÷ Adjusted interest expense
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted interest coverage ratio | A solvency ratio calculated as adjusted EBIT divided by adjusted interest payments. | Amazon.com Inc.'s adjusted interest coverage ratio improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level. |
Estimation of Depreciation Expense, Operating Leased Assets
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Rental expense under operating lease agreements1 | |||||
| | Less: Estimated interest expense, operating lease obligations2 | |||||
| | Estimated depreciation expense, operating leased assets |
1 Source: Amazon.com Inc., Annual Reports
Estimation of Interest Expense, Operating Lease Obligations
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Operating leased assets, at beginning of year1 (USD $ in millions) | |||||
| | Discount rate2 | % | % | % | % | % |
| | Estimated interest expense, operating lease obligations3 (USD $ in millions) | |||||
2 Internal rate of return on capital and finance leases
2017 Calculations
3 Estimated interest expense, operating lease obligations = Operating leased assets, at beginning of year × Discount rate
= × =
Present Value of Operating Lease Payments, at Beginning of Year
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Total present value of future operating lease payments1 (USD $ in millions) | |||||
| | Rental expense under operating lease agreements2 (USD $ in millions) | |||||
| | Discount rate3 | % | % | % | % | % |
| | Total present value of operating lease payments, at beginning of year4 (USD $ in millions) | |||||
1 Equal to total present value of future operating lease payments. See Details »
2 Source: Amazon.com Inc., Annual Reports
3 Internal rate of return on capital and finance leases
2017 Calculations
4 Total present value of operating lease payments, at beginning of year = (Total present value of future operating lease payments + Rental expense under operating lease agreements) ÷ (1 + Discount rate)
= ( + ) ÷ (1 + %) =
