Group 4 Micro-Exercise

Micro-Exercise 4: The "Upside-Down" Balance Sheet & Missing Non-Current Subtotal (US GAAP)

GROUP 4: AMAZON.COM, INC. (NASDAQ: AMZN)

Welcome Team 4 (Amazon.com, Inc.)!

Because Amazon is incorporated in the United States, it prepares its financial statements (Item 8 of SEC Form 10-K) under US GAAP rather than European IFRS. In this guided exercise, you will open Amazon's 2025 Annual Report (Form 10-K PDF) to experience how US GAAP flips the Balance Sheet upside down, how to manually calculate Non-current assets when the subtotal line is missing, and how AWS and AI infrastructure shape Amazon's $716.92 billion empire.

Educational Objective

To learn how to navigate a U.S. SEC Form 10-K, locate the Consolidated Statements of Operations (Page 48 of the PDF) and Consolidated Balance Sheets (Page 50 of the PDF), understand US GAAP's reverse liquidity ordering, manually calculate Non-current assets (Total assets - Total current assets), and inspect segment performance in Note 10 (Segment Information).

🌐 THE STORY BEHIND THE NUMBERS: Why US GAAP Flips the Balance Sheet Upside Down—And How AI Made Amazon an "Asset-Heavy" Titan!

In our first three exercises, you analyzed European companies (CD PROJEKT, ORLEN, and Jerónimo Martins) that report under International Financial Reporting Standards (IFRS). Now, welcome to Wall Street! Because Amazon.com, Inc. is incorporated in the United States, it files an annual report called Form 10-K with the U.S. Securities and Exchange Commission (SEC) prepared under U.S. Generally Accepted Accounting Principles (US GAAP).

Cultural Shock #1: The "Upside-Down" Balance Sheet

When you open a European IFRS Balance Sheet, it starts at the top with long-term Non-current assets (factories, property, intangibles) and ends at the very bottom with Cash. When you open Amazon's Consolidated Balance Sheets (Page 50 of the PDF) under US GAAP, the entire structure is flipped upside down! US GAAP orders assets and liabilities by liquidity—from most liquid to least liquid:

It starts at the very top with Cash and cash equivalents ($86,810 million) and Marketable securities ($36,219 million) under Current assets ($229,083 million total).
Even more importantly for financial analysts: Amazon's Balance Sheet does NOT print a subtotal line for "Total non-current assets"! Right below Total current assets, it lists four long-term asset lines (Property and equipment, net, Operating leases, Goodwill, and Other assets) and jumps straight to Total assets ($818,042 million). To find Non-current assets for your worksheet, you must calculate it yourself!

Cultural Shock #2: An Online Retailer with $357 Billion in Physical Property & Equipment?!

Many people still think of Amazon as an "asset-light" website that just sells books and packages online. Look closer at the numbers! First, in the Consolidated Statements of Operations (Page 48 of the PDF), Net service sales ($420.66 billion—AWS cloud, third-party seller fees, advertising, and Prime subscriptions) now represent 58.7% of Amazon's $716.92 billion total revenue, far surpassing direct Net product sales ($296.27 billion, or 41.3%). Second, to power the global AI revolution (including custom Trainium AI chips and data centers for AWS) and over 1 million warehouse robots, Amazon spent a mind-blowing $128.3 billion in net cash CAPEX in 2025 alone (and plans ~$200 billion in 2026!). As a result, physical Property and equipment, net ($357,025 million) is by far the single largest line item on Amazon's $818.0 billion Balance Sheet!

🎬 Watch Before You Start (8 mins): Check out Bloomberg's breakdown of Amazon's 2025 full-year results, AWS growth, and its massive AI data-center CAPEX wave: https://www.youtube.com/watch?v=er_a0RspFB8

📋 WORKFLOW FOR TEAMS 1–5: Paper First, Screen Second!

Use your printed paper worksheet as a scratchpad to extract the Y2024 figures from the PDF report and calculate your ratios. Once you have written down and rounded your answers on paper (whole numbers only, no decimals!), transfer them into the interactive online form below and click Check until every box turns 100% Green! Keep your paper worksheet ready for our live classroom comparison!

Step-by-Step Walkthrough (How to Read the Amazon 2025 Annual Report / 10-K PDF)

Follow these exact steps in the Amazon 2025 Annual Report (PDF). (Tip: Notice that the PDF has 92 pages in total. Pages 1–11 contain CEO Andy Jassy's 2025 Shareholder Letter and the famous 1997 Shareholder Letter, while the official SEC Form 10-K starts on Page 12 of the PDF. Always use the PDF page numbers shown in your PDF viewer!)

STEP 1: Check the Reporting Currency and Units

Go to Page 47, Page 48, or Page 50 of the PDF: Look right below the main title at the top of each financial table: (in millions, except per share data) and the $ sign.
What this means for you: All dollar figures in Amazon's primary financial statements are reported in millions of U.S. Dollars ($ millions). For example, $1,000 in the table means $1,000 million, which is $1.0 billion.
How to convert from USD millions to USD billions: Divide the number from the table by 1,000 (move the decimal point 3 places to the left) and round as instructed!

STEP 2: Navigate to Item 8 – Consolidated Financial Statements (Pages 47–50 of the PDF)

Go to Page 44 of the PDF (numbered page 33 at the bottom of the 10-K page): This is the Index to Consolidated Financial Statements inside Item 8. Notice the unusual order of financial statements in Amazon's 10-K—because Amazon is obsessed with cash flow (as stated in the 1997 letter on Page 10 of the PDF!), it actually prints its Cash Flow Statement FIRST, before the Income Statement and Balance Sheet!
Go to Page 47 of the PDF (10-K page 36) – CONSOLIDATED STATEMENTS OF CASH FLOWS:
1. Look at the rightmost column (2025). Under OPERATING ACTIVITIES, find Net cash provided by (used in) operating activities: Amazon generated a colossal $139,514 million ($139.51 billion) in operating cash flow in 2025 (up from $115,877 million in 2024)!
2. Right below it, under INVESTING ACTIVITIES, look at Purchases of property and equipment: Amazon spent $(131,819) million ($131.82 billion gross) in cash on property and equipment in 2025! After subtracting Proceeds from property and equipment sales and incentives ($3,499 million), net cash capital expenditures were $128,320 million ($128.3 billion), as reconciled in the Free Cash Flow table on Page 39 of the PDF (10-K page 28).
Go to Page 48 of the PDF (10-K page 37) – CONSOLIDATED STATEMENTS OF OPERATIONS (The Income Statement):
1. Look at the top three lines in the 2025 column:
  - Net product sales: $296,266 million ($296.27 billion, or 41.3% of total net sales – goods sold directly by Amazon).
  - Net service sales: $420,658 million ($420.66 billion, or 58.7% of total net sales – AWS cloud, third-party seller commissions/fulfillment, advertising, and Prime subscriptions).
  - Total net sales: $716,924 million ($716.92 billion, up 12.4% from $637,959 million in 2024).
2. Scroll down to Operating income: $79,975 million ($80.00 billion), and Net income at the bottom: $77,670 million ($77.67 billion).

STEP 3: Inspect the "Upside-Down" Balance Sheet & Calculate Missing Non-Current Assets (Page 50 of the PDF)

Go to Page 50 of the PDF (10-K page 39) – CONSOLIDATED BALANCE SHEETS (as of December 31, 2024 and 2025):
1. Verify the Reverse Liquidity Order: Look at the very first line under ASSETS -> Current assets: Cash and cash equivalents is right at the top ($86,810 million in 2025), followed by Marketable securities ($36,219 million), Inventories ($38,325 million), and Accounts receivable, net and other ($67,729 million).
2. Check Total current assets: The subtotal line reads $229,083 million ($229.08 billion, or 28.0% of Total Assets).
3. Notice the Missing Total non-current assets Subtotal! Below Total current assets, Amazon lists four long-term asset lines without a subtotal:
  - Property and equipment, net: $357,025 million ($357.03 billion – 43.6% of all assets! Detailed in Note 3 on Page 65 of the PDF, where Servers and networking equipment alone cost $172,492 million and Land and buildings cost $155,121 million gross).
  - Operating leases: $86,054 million (Right-of-use leased warehouses, data centers, and stores under US GAAP ASC 842).
  - Goodwill: $23,273 million (mostly from acquiring Whole Foods Market, One Medical, MGM, etc.).
  - Other assets: $122,607 million (includes Amazon's massive $60.6 billion combined convertible notes and preferred stock investment in AI lab Anthropic, detailed on Page 60 of the PDF, plus $21.3 billion in Prime Video/Music content!).
4. How to Calculate Total non-current assets for Your Worksheet: Subtract Total current assets ($229,083 million) from Total assets ($818,042 million): 818,042 - 229,083 = $588,959 million ($588.96 billion, or 72.0% of Total Assets!) (You can double-check this by adding the four long-term lines: 357,025 + 86,054 + 23,273 + 122,607 = 588,959 million!)
5. Bonus Check – Working Capital on the Liability Side: Look under Current liabilities: Accounts payable is $121,909 million—more than 3 times larger than Inventories ($38,325 million)! Just like Biedronka in Team 3, Amazon collects from customers fast and uses supplier payables to fund its operations.

STEP 4: Check the 3-Segment Breakdown in Note 10 (Pages 78–82 of the PDF)

Go to Page 79 of the PDF (10-K page 68) – Note 10 – SEGMENT INFORMATION:
- Inspect the table comparing Amazon's 3 reportable segments in 2025:
  1. North America: Net sales of $426,305 million (59.5% of total sales) and Operating income of $29,619 million.
  2. International: Net sales of $161,894 million (22.6% of total sales) and Operating income of $4,750 million.
  3. AWS (Amazon Web Services): Net sales of $128,725 million (18.0% of total sales), but generating $45,606 million in Operating income—meaning AWS generates 57.0% of Amazon's entire $79,975 million operating profit!
- Also look at the table at the top of Page 80 of the PDF (10-K page 69), which disaggregates 2025 revenue into 7 streams: Online stores ($269,287M), Third-party seller services ($172,162M), AWS ($128,725M), Advertising services ($68,635M), Subscription services ($49,619M), Physical stores ($22,561M), and Other ($5,935M).

🎯 Task / Question for Team 4 (Y2024 Data)

Please complete STEP 2 (Consolidated Statements of Operations on Page 48), STEP 3 (Consolidated Balance Sheets on Page 50), and STEP 4 (Segment Information in Note 10 on Page 79) for Y2024 data! (Watch the columns carefully: on Page 48, 2024 is the middle column; on Page 50, December 31, 2024 is the left column!)

📋 WORKFLOW: Paper First, Screen Second!

Use Your Printed Worksheet First (Scratchpad): Before typing anything on the screen, use the printed paper worksheet provided by your instructor to extract the Y2024 figures from Pages 48, 50, and 79 of the Amazon 2025 Annual Report PDF and manually calculate the missing 2024 Non-current assets subtotal (Total assets - Total current assets) and its percentage share.
Whole Numbers Only (No Decimals!): Enter exact values in $ millions directly from the 2024 column, and round percentages to the nearest whole number (e.g., write 69 instead of 69.46%).
Transfer Your Answers to the Online Form Below: Type your 10 answers into the interactive Y2024 Checker below and click Check until every box turns 100% Green!

BACK TO MODULE 3

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