Amazon.com 2015 Annual Report Download - page 29

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Because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle3. On
average, our high inventory velocity means we generally collect from consumers before our payments to suppliers come due.
Inventory turnover4 was 8 for 2015 and 9 for 2014 and 2013. We expect variability in inventory turnover over time since it is
affected by several factors, including our product mix, the mix of sales by us and by third-party sellers, our continuing focus on
in-stock inventory availability and selection of product offerings, our investment in new geographies and product lines, and the
extent to which we choose to utilize third-party fulfillment providers. Accounts payable days5 were 77, 73, and 74 for 2015,
2014, and 2013. We expect some variability in accounts payable days over time since they are affected by several factors,
including the mix of product sales, the mix of sales by third-party sellers, the mix of suppliers, seasonality, and changes in
payment terms over time, including the effect of balancing pricing and timing of payment terms with suppliers.
We expect spending in technology and content will increase over time as we add computer scientists, designers, software
and hardware engineers, and merchandising employees. Our technology and content investment and capital spending projects
often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems
and operations. We seek to invest efficiently in several areas of technology and content, including AWS, and expansion of new
and existing product categories and service offerings, as well as in technology infrastructure to enhance the customer
experience and improve our process efficiencies. We believe that advances in technology, specifically the speed and reduced
cost of processing power and the advances of wireless connectivity, will continue to improve the consumer experience on the
Internet and increase its ubiquity in people’s lives. To best take advantage of these continued advances in technology, we are
investing in initiatives to build and deploy innovative and efficient software and electronic devices. We are also investing in
AWS, which offers a broad set of global compute, storage, database, and other service offerings to developers and enterprises
of all sizes.
Our financial reporting currency is the U.S. Dollar and changes in foreign exchange rates significantly affect our
reported results and consolidated trends. For example, if the U.S. Dollar weakens year-over-year relative to currencies in our
international locations, our consolidated net sales and operating expenses will be higher than if currencies had remained
constant. Likewise, if the U.S. Dollar strengthens year-over-year relative to currencies in our international locations, our
consolidated net sales and operating expenses will be lower than if currencies had remained constant. We believe that our
increasing diversification beyond the U.S. economy through our growing international businesses benefits our shareholders
over the long-term. We also believe it is useful to evaluate our operating results and growth rates before and after the effect of
currency changes.
In addition, the remeasurement of our intercompany balances can result in significant gains and charges associated with
the effect of movements in foreign currency exchange rates. Currency volatilities may continue, which may significantly
impact (either positively or negatively) our reported results and consolidated trends and comparisons.
For additional information about each line item summarized above, refer to Item 8 of Part II, “Financial Statements and
Supplementary Data—Note 1—Description of Business and Accounting Policies.”
Critical Accounting Judgments
The preparation of financial statements in conformity with generally accepted accounting principles of the United States
(“GAAP”) requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses,
and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The
SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the
company’s financial condition and results of operations, and which require the company to make its most difficult and
subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this
definition, we have identified the critical accounting policies and judgments addressed below. We also have other key
accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our
results. For additional information, see Item 8 of Part II, “Financial Statements and Supplementary Data—Note 1—Description
of Business and Accounting Policies.” Although we believe that our estimates, assumptions, and judgments are reasonable, they
are based upon information presently available. Actual results may differ significantly from these estimates under different
assumptions, judgments, or conditions.
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(3) The operating cycle is the number of days of sales in inventory plus the number of days of sales in accounts receivable
minus accounts payable days.
(4) Inventory turnover is the quotient of trailing twelve month cost of sales to average inventory over five quarter ends.
(5) Accounts payable days, calculated as the quotient of accounts payable to current quarter cost of sales, multiplied by the
number of days in the current quarter.