Analyze Amazon.com

Amazon.com, Inc. (AMZN) is the largest Internet retailer in the United States. Amazons income statements through operating income for two recent years are as follows (in millions):

Amazon.com, Inc. Income Statements For the Years Ended December 31 (in millions)

Line Item Description	Year 2	Year 1
Revenues:
Product sales	$160,408	$141,915
Service sales	120,114	90,972
Total revenues	$280,522	$232,887
Operating expenses:
Cost of sales	$(165,536)	$(139,156)
Fulfillment	(40,232)	(34,027)
Technology and content	(35,931)	(28,837)
Marketing	(18,878)	(13,814)
General and administrative	(5,203)	(4,336)
Other operating expense (income), net	(201)	(296)
Total operating expenses	$(265,981)	$(220,466)
Operating income	$14,541	$12,421

Required:

a. Prepare a vertical analysis of the two income statements. Round percentages to one decimal place.

Amazon.com, Inc. Income Statements For the Years Ended December 31 (in millions)

Line Item Description	Year 2 Amount	Year 2 Percent	Year 1 Amount	Year 1 Percent
Revenues:
Product sales	$160,408	fill in the blank 1%	$141,915	fill in the blank 2%
Service sales	120,114	fill in the blank 3%	90,972	fill in the blank 4%
Total revenues	$280,522	fill in the blank 5%	$232,887	fill in the blank 6%
Operating expenses:
Cost of sales	$(165,536)	fill in the blank 7%	$(139,156)	fill in the blank 8%
Fulfillment	(40,232)	fill in the blank 9%	(34,027)	fill in the blank 10%
Technology and content	(35,931)	fill in the blank 11%	(28,837)	fill in the blank 12%
Marketing	(18,878)	fill in the blank 13%	(13,814)	fill in the blank 14%
General and administrative	(5,203)	fill in the blank 15%	(4,336)	fill in the blank 16%
Other operating expense (income), net	(201)	fill in the blank 17%	(296)	fill in the blank 18%
Total operating expenses	$(265,981)	fill in the blank 19%	$(220,466)	fill in the blank 20%
Operating income	$14,541	fill in the blank 21%	$12,421	fill in the blank 22%

b. Use the vertical analysis to explain the increase in operating income.

The vertical analysis indicates that the mix of revenues fill in the blank 1 of 8

has changed hasn't changed

from Year 1 to Year 2. Product sales fill in the blank 2 of 8

decreased increased

, while service sales fill in the blank 3 of 8

decreased increased

in total revenues. Operating expenses fill in the blank 4 of 8

decreased increased

slightly in total revenues with the result that operating income fill in the blank 5 of 8

decreased increased

in total revenues. Of the operating expenses, marketing fill in the blank 6 of 8

decreased increased

in total revenues, which might be related to the change in the mix of revenues. The other operating expenses fill in the blank 7 of 8

remained relatively unchangedhas changed

. Overall, the change in the mix of revenues fill in the blank 8 of 8

did not seemseemed

to affect operating income.