E12-23 Analyze, Forecast, and Interpret Both Income Statement and Balance Sheet

Following are in income statement and balance sheet of Amazon.com Inc.

AMAZON.COM INC. Consolidated Statements Of Operations
$ Mil		Dec. 31. 2015		Dec. 31. 2014
Net product sales		$ 79,268		$ 70,080
Net service sales		27,738		18,908
Total net sales		107,006		88,988
Operating expenses
Cost of sales		71,651		62,752
Fulfillment		13,410		10,766
Marketing		5,254		4,332
Technology and content		12,540		9,275
General and administrative		1,747		1,552
Other operating expense (income), net		171		133
Total opereationg expenses		104,773		88,810
Income from operations		2,233		178
Ineterest income		50		39
Ineterest expense		(459)		(210)
Other income (expense), net		(256)		(118)
Total non-operarting income (expense)		(665)		(289)
Income (loss) before income taxes		1,568		(111)
Provision for income taxes		(950)		(167)
Equity-method investment activity, net of tax		(22)		37
Net income (loss)		$ 596		$ (241)
AMAZON.COM INC. Consolidated Balance Sheets
$ Mil, except par value		Dec. 31. 2015		Dec. 31. 2014
Current assets
Cash and cash equivalents		$ 15,890		$ 14,557
Marketable securities		3,918		2,859
Inventories		10,243		8,299
Accounts recievable, net and other		6,423		5,612
Total current assets		36,474		31,327
Property and equipment, net		21,838		16,967
Goodwill		3,759		3,319
Other assets		3,373		2,892
Total assets		$ 65,444		$ 54,505
Current liabilities
Accounts payable		$ 20,397		$ 16,459
Accrued expenses and other		10,384		9,807
Accrued revenue		3,118		1,823
Total current liablities		33,899		28,089
Long-term debt		8,235		8,265
Other long-term liabilities		9,926		7,410
Stockholders' equity
Preferred stock, $0.01 par value: Authorized shares-500
Issued and outstanding shares-none		0		0
Common stock, $0.01 par value: Authorized shares-5000
Issued shares-494 and 488 Outstanding shrares-471 and 465		5		5
Treasury stock, at cost		(1,837)		(1,837)
Additional paid-in capital		13,394		11,135
Accumulated other comprehensive loss		(723)		(511)
Retained earnings		2,545		1,949
Total stockholders' equity		13,384		10,741
Total liabilities and stockholders' equity		$ 65,444		$ 54,505

a. Forecast Amazons 2016 income statement and balance sheet using the forecast assumptions, which are expressed as a percentage of total net sales unless otherwise indicated ($ in millions).

Net product sales growth		15%
net service sales growth		40%
cost of sales		67.0%
Fulfillment		12.5%
Marketing		4.9%
Technology and content		11.7%
General and administrative		1.6%
Interest income		$60
Interest expense		$520
Income tax expense (% pretax income)		38.0%
Inventories		9.6%
Accounts receivable, net and other		6.0%
Other assets		3.2%
Accounts payable		19.1%
Accrued expenses and other		9.7%
Unearned revenue		2.9%
Other long-term liabilities		9.3%

Forecast no change in the following income statement accounts: Other operating expense, Other income (expense); and Equity method investment activity.

Forecast no change in the following balance sheet accounts: Marketable securities, Goodwill, Preferred stock, Common stock, Treasury stock, APIC, and AOCL.

Assume that in 2016, CAPEX will be 4.3% of Sales and depreciation expense will be 28.9% of the PPE balance at the start of the year.

The company will repay $238 million of long-term debt in 2016.

The company pays no dividends.

b. What does the forecasted adjustment to balance the accounting equation from part a reveal to us about the forecasted cash balance and related financing needs of the company? Explain.

E12-24 Forecast the statement of Cash Flows

Refer to the Amazon.com Inc. financial information from E12-23. Prepare forecast of its FY2016 statement of cash flows.