Running head: Amazon Outline
Amazon Outline
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Amazon Outline 2
Abstract
The research paper's objective is to discuss ethical concerns centered on Amazon's
financial reporting. Amazon operates in the online retail industry and boasts dominating the
North American and European markets. Amazon has often experienced ethical issues concerning
its financial reporting techniques. That is to say, most of Amazon's stakeholders demand more
transparency, integrity, and accountability regarding Amazon's financial statements.
Despite Amazon's efforts to ensure integrity in its financial statements, it was accused of
avoiding paying federal taxes. Therefore, it had to compromise its financial statements to appear
that it was paying taxes. Amazon's net annual net income for 2018, 2019, and 2020 was 10.1
billion USD, 11.6 billion USD, and 21.3 billion USD.
The research paper strives to analyze Amazon's financial statements to ascertain whether
its financial reporting standards follow guidelines by different financial regulation bodies,
primarily the American Institute of Certified Public Accountants. Nevertheless, the research
paper aims to analyze Amazon’s growth using different financial statements, such as the
common-sized income statement and balance sheet. Amazon's recent annual net incomes depict
its steady growth. Therefore, analyzing its financial statement will help ascertain whether the
reported annual net incomes reflect Amazon's true financial position.
History
In 2012, Amazon was accused of failing to pay adequate taxes in the United Kingdom in
the year 2011. After generating sales of 2.9 billion pounds, Amazon only paid 1.8 million pounds
in corporation taxes (''Ethical Unicorn'', 2019). Tax avoidance is only one of the ethical issues
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facing Amazon. Recently, concerned stakeholders accused Amazon of underpaying its
warehouse and fulfillment centers employees (''Ethical Unicorn'', 2019). The stakeholders argued
that Amazon focused on improving its profits at the expense of its employees. An average
warehouse employee would often take home an annual wage of 24300 USD compared to an
average Walmart employee who would take home 40000 USD of yearly wages.
In 2019, Environmental stakeholders also accused Amazon of omitting critical data in its
annual environmental sustainability report (''Ethical Unicorn'', 2019). Amazon gave no
information concerning how its textiles and electronic products were impacting the environment.
In general, Amazon has had a series of ethical issues over the years attributed to its desire to
maintain a good public image and make more profits.
Financial information
In the first quarter of the year, Amazon's net sales that ended on March 31st, 2021, stood
at a whopping 108.52 billion USD. The net sales depicted an increase in Amazon's net sales by
43.8% from 75.4 billion in the first quarter of 2020 (''Amazon Financial Report'', 2021). Its
international net sales were 30.6 billion USD. The international net sales rose by 60.4% from
19.1 billion USD in the first quarter of 2020 (''Amazon Financial Report'', 2021). However, the
increase in net sales is an indication that Amazon spent more on its operating income. That way,
it could make more profits by reaching more consumers locally and internationally.
Amazon's operating income was 8.865 billion USD, an increase of 103.2% from the 2020
operating income of 3.989 billion USD (''Amazon Financial Report'', 2021). However, it is
critical to analyze Amazon's financial reporting criteria to evaluate whether Amazon obeyed
regulations set by accounting and financial regulation bodies.
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Amazon’s common-sized income statement
Fiscal year is January-December. All values USD Millions. 2020
Sales/Revenue 386,064
Sales Growth 37.62%
Cost of Goods Sold (COGS) incl. D&A 233,307 60.43%
COGS excluding D&A 216,559 56.09%
Depreciation & Amortization Expense 16,748
Depreciation 16,239
Amortization of Intangibles 509
COGS Growth 40.94%
Gross Income 152,757 39.57%
Gross Income Growth 32.85%
Gross Profit Margin 39.57%
SG&A Expense 129,933
Research & Development 42,740
Other SG&A
Analysis of Amazon’s common-sized income statement
In Amazon’s 2020 income statement, the percentage values of different income statement
elements expressed as a percentage of the value of sales keep decreasing as one moves from top
to bottom. The cost of goods sold as an element of the income statement accounts for the highest
percentage value. On the other hand, the gross profit margin as an element of the income
statement accounts for the lowest percentage value. The primary reason is that gross profit is
attained after subtracting expenses.
The value of 39.57% means that Amazon does not have substantial profit margins. If
Amazon was to have substantial profit margins, the percentage value for the gross profit margin
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as an element of the income statement should have been at least 50%. A value of 50% and above
indicates that Amazon would be able to meet its long and short-term financial obligations.
Amazon’s balance sheets
2021 2021 2020 2020
30/06 31/03 31/12 30/09
Total Current Assets 140848 121408 132733 112969
Cash and Short Term
89894 73270 84396 68402
Investments
Cash - - - -
Cash & Equivalents 40380 33834 42122 29930
Short Term Investments 49514 39436 42274 38472
Total Receivables, Net 26835 24289 24309 20593
Accounts Receivables -
26835 24289 24309 20593
Trade, Net
Total Inventory 24119 23849 23795 23735
Prepaid Expenses - - - -
Other Current Assets, Total - - 233 239
Total Assets 360319 323077 321195 282179
Property/Plant/Equipment,
176848 160789 150667 134100
Total - Net
Property/Plant/Equipment,
- - - -
Total - Gross
Accumulated Depreciation,
- - - -
Total
Goodwill, Net 15350 15220 15017 14960
Intangibles, Net - - - -
Long Term Investments 4700 2900 3200 1600
Note Receivable - Long Term - - - -
Other Long Term Assets, Total 22573 22760 19578 18550
Other Assets, Total - - - -
Total Current Liabilities 117792 115404 126385 101912
Accounts Payable 66090 63926 72539 58334
Payable/Accrued - - - -
Accrued Expenses 39849 39783 42983 34172
Notes Payable/Short Term - - - -
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Debt
Current Port. of LT
1158 1156 1155 155
Debt/Capital Leases
Other Current liabilities, Total 10695 10539 9708 9251
Total Liabilities 245516 219757 227791 199404
Total Long Term Debt 66507 48798 49876 50419
Long Term Debt 50279 31868 31816 32929
Capital Lease Obligations 16228 16930 18060 17490
Deferred Income Tax - - - -
Minority Interest - - - -
Other Liabilities, Total 61217 55555 51530 47073
Total Equity 114803 103320 93404 82775
Redeemable Preferred Stock,
- - - -
Total
Preferred Stock - Non
- - - -
Redeemable, Net
Common Stock, Total 5 5 5 5
Additional Paid-In Capital 48724 45160 42865 40307
Retained Earnings
68436 60658 52551 45329
(Accumulated Deficit)
Treasury Stock - Common -1837 -1837 -1837 -1837
ESOP Debt Guarantee - - - -
Unrealized Gain (Loss) - - - -
Other Equity, Total -525 -666 -180 -1029
Total Liabilities &
360319 323077 321195 282179
Shareholders' Equity
Total Common Shares
506 504 503 502
Outstanding
Total Preferred Shares
- - - -
Outstanding
* In Millions of USD (except for per share items)
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Table showing trend analysis
2020 2021 Increase/ Percentage
decrease increase/decrease
Balance sheet
element
Total assets 140848 132733 +8115 6%
Total liabilities 245516 227791 +17725 7.8%
Total equity 114803 93404 +21399 23%
Total shareholders’ 360319 321195 +39124 12.2%
equity
Amazon’s total assets, liabilities, equity, and shareholders’ equity increased from 2020 to
2021. The increase represents an increase in Amazon’s investment portfolio. The demand for
more online retail services, primarily during the Covid-19 pandemic that started in 2020 onwards
indicates that Amazon has to invest more by borrowing more, increasing its short and long-term
liabilities. The increasing short and long-term liabilities prompts Amazon to purchase more
current and fixed assets to improve productivity. The increasing shareholders’ equity indicates
that many investors have confidence in Amazon’s growth in the future.
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Conclusion
The conclusion section will determine whether Amazon's financial reporting and ethical
standards are acceptable and follow strict guidelines defined by relevant regulatory bodies.
Recommendations
The recommendations section will list Amazon's measures to improve its ethical culture
and financial reporting standards.
Summary
The summary section will highlight essential concepts discussed in the research paper. It
will consider elements, primarily Amazon's ethical and financial analysis.
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References
''Amazon Financial Report''. (2021, April 29). [Link] Announces First Quarter Results.
Retrieved from Amazon:
[Link]
Announces-First-Quarter-Results/[Link]
''Ethical Unicorn''. (2019, January 12). The Ethical Issues with Amazon. Retrieved from
[Link]