Question

eBook Calculator Vertical analysis Amazon.com, Inc. is the largest Internet retailer in the United States, Amazon's income statements through income from operations for two recent years are as follows (in millions): Amazon.com, Inc. Operating Income Statements For the Years Ended December 31 (in millions) Year 2 Year 1 Product sales $70,080 $60.903 Service sales 18.908 13,549 Total sales $88.988 $74,452 Cost of sales $62.252 $54,181 Fulfillment 10,766 8,585 Marketing 4,332 3,133 Technology and content 9,275 6,565 General and administrative 1,552 1,129 Other operating expense (income), net 133 114 Total operating expenses $88,810 $73,707 Income from operations 3178 $745 Required: a. Prepare a vertical analysis of the two operating income statements. Round percentages to one decimal place Amazon.com, Inc. Operating Income Statements For the Years Ended December 31 (in millions) Year 2 Year 1 Amount Percent Amount Percent Product sales Service sales Total sales Check My Work

Answer 1

*'Vertical analysis- also called as common size analysis.

*Is a technique that expresses each financial statement items as a percentage of a base amount.

*% = Basis / Net Sales * 100

(%) a. Vertical Analysis: Amazon.com, Inc. Operating income statement For the years ended December 31 Year 2 Year 1 Amount ($) (%) Amount ($) Product sales $ 70,080 78.75% $ 60,903 81.80% Service sales $ 18,908 21.25% $ 13,549 18.20% Total sales $ 88,988 100.00% $ 74,452 100.00% Cost of sales $ 62,752 70.52% $ 54,181 72.77% Fulfillment $ 10,766 12.10% $ 8,585 11.53% Marketing $ 4,332 4.87% $ 3,133 4.21% Technoloy and content $ 9,275 10.42% $ 6,565 8.82% General and adminstrative $ 1,552 1.74% $ 1,129 1.52% Other operating expenses (income), net $ 133 0.15% $ 114 0.15% Total operating expenses $ 88,810 99.80% $ 73,707 99.00% Income from operations $ 178 0.20% $ 745 1.00% Al

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• The vertical analysis indicates that the income from operations decreased between the two years.
• Total expenses Increased as a percent to total sales.
• This Increase is explained by the Increase in fulfillment, marketing, technology and content, and general and administrative expenses.
• There was a sizable decrease in the cost of sales. However, this decrease was not sufficient to offset the Increase in the other expenses;
• Thus total expenses Increased and income from operation decreased as a percent of total sales between the two years.
• Management should investigate the reasons for the expense Increase paying special attention to technology and content.

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