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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $62,752 $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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 178 $ 745
a. Prepare a vertical analysis of the two operating income statements. Round percentages to one decimal place.
b. Use the vertical analysis to explain the decrease in income from operations.
Answers:
a.
Amount Percent Amount Percent
Product sales$70,080 78.8% $60,903 81.8%
Service sales18,908 21.2% 13,549 18.2%
Total sales$88,988 100.0% $74,452 100.0%
Cost of sales$62,752 70.5% $54,181 72.8%
Fulfillment10,766 12.1% 8,585 11.5%
Marketing4,332 4.9% 3,133 4.2%
Technology and content 9,275 10.4% 6,565 8.8%
General and administrative 1,552 1.7% $ 1,129 1.5%
Other operating expense (income), net 133 0.2% 114 0.2%
Total operating expenses $88,810 99.8% $73,707 99.0%
Income from operations $ 178 0.2% $ 745 1.0%
b. The vertical analysis indicates that the income from operations declined from 1.0% to
0.2% of sales between the two years. Total expenses increased from 99.0% to 99.8%
of total sales. This increase is explained by the increase in fulfillment (11.5% to
12.1%), marketing (4.2% to 4.9%), technology and content (8.8% to 10.4%), and general
and administrative (1.5% to 1.7%) expenses. There was a sizable decrease in the cost
of sales from 72.8% to 70.5% of total sales. However, this decrease was not sufficient
to offset the increases in the other expenses; thus, total expenses increased and
income from operations decreased as a percent of total sales between the two
years. Management should investigate the reasons for the expense increases,
paying special attention to technology and content.