Management Discussions

Management Discussions

Management discussion and analysis provide information that is necessary for understanding the perspective of company leadership of audited consolidated financial statements and notes for the previous year. The MD&A of the company offers information and statements that inform its prospects termed as forward-looking information. The section provides an overview of the 2015 Annual Report on Form 10-K.

Management Discussions

Amazon’s inventories consist of products available for sale that are majorly accounted for based on the first-in-first-out approach and valued at the market value. The valuation requires the management to make judgments using the currently available data, about the probable method of disposition, including sales to customers, returns to product vendors, and projected recoverable values of every category of placement. The future assumptions related to Amazon’s inventory disposition are uncertain and changes in the projections, which may result in write-downs in the future.

The management assesses annual goodwill impairment or when circumstances lead to change that depict the carrying value that may not be recoverable. The company conducts an impairment test to measure goodwill based on a quantitative assessment to show the fair value of the reporting unit. The company’s credit and financial market volatility affect the measurement of its fair value through the weighted average cost of capital applied in determining the rate of discount and stock price that are short-term in nature. However, Amazon management has not made significant changes in the methodology of accounting used in the assessment of goodwill for impairment.

The management discussion further focuses on stock-based compensation awards at fair value. Amazon recognizes that stock-based compensation refers to a compensation expense during the period of service for gifts projected to vest. The company determines the units of restricted stocks by use of shares and quoted price of common stock estimated on the grant date using the Black-Scholes model. The company’s recent cash pronouncements depict the success of liquidity through cash flows gained from operations, market securities balances, and cash equivalents. The cash provided by operating activities was $3.5 billion for the previous financial year. The company’s operating cash flows stream from sellers, customers, enterprises, and developers, among others.

Results of Operations

The company has categorized its operations segments, including International, North America, and AWS. In the quarter of 2016, the company started to allocate compensation based on the stock along with other operating expenses to its segment results. The above segments depict Amazon’s approach to evaluating the performance of the business and operations management.

The company’s net sales include service and products from digital media content and subscriptions, shipping fees, and commissions. The sales growth in the three segments reflects I unit increase in sales. Additionally, Amazon’s operating income for the financial year increased to $1.3 billion from $464 million. The increase in operating profit in the market segments, especially in North America, is due to improved sales units and favorable foreign exchange in the international market. Amazon’s cost of sales consisting of price of purchase among consumer products and digital media content costs, which show a general increase.

Financial Condition

The financial results of the year depict a strong performance in the market. The company’s annual revenue was $2.4 billion, gross profit of $638 million, and average realized price of $52.7. The company’s net earnings attributable to equity shareholders in 2018 were $185 million compared to the previous financial year of $318 million. The trend shows a decreased net earnings that resulted from contract cancellation, higher foreign exchange derivatives, and lower gains on fuel services, and outstanding services from Bruce Power Partnership.

At the conclusion of the 2014 financial year, the company had cash and short-term investments of $567 million in a blend of treasury bills, short-term deposits, and total debt of $1.5 billion. Amazon’s cash from continuing operations was 8% lower than the preceding year due to increased payments associated with CRA litigation settled by working capital. The net income of the company in the 2018 financial year was $10,073, and total assets were $162,648 in the fiscal year ended December 31, 2018.