Financial Modeling and Valuation

CHAPTER 1

The Income Statement 3

Revenue 4

Cost of Goods Sold 4

Gross Profit 4

Operating Expenses 5

Other Income 6

EBITDA 6

Depreciation and Amortization 8

EBIT 8

Interest 9

EBT 9

Taxes 9

Net Income 10

Non-Recurring

and Extraordinary Items 10

Distributions 11

Net Income (as Reported) 11

Shares 11

Earnings per Share (EPS) 12

Amazon’s Income Statement 12

Revenue 14

Getting to EBITDA 20

Digging up Depreciation 20

Cost of Goods Sold 23

Gross Profit 23

Fulfillment 25

Technology and Content 25

Marketing, General and Administrative,

Other Operating Expense (Income), Net 27

Total Operating Expenses 27

EBITDA 27

Beyond EBITDA 28

Depreciation and Amortization 28

EBIT 29

Other Income 30

Interest 31

EBT 31

Taxes 31

Net Income from Continuing Operations 32

Non-Recurring

and Extraordinary Items 32

Net Income (after Non-Recurring

Events) 33

Distributions 33

Net Income (as Reported) 33

Shares and EPS 34

Income Statement – Making Projections 35

Revenue 35

Cost of Goods Sold 40

Operating Expenses 45

Depreciation and Amortization 46

Other Income 49

Seven Methods of Projections 49

Interest Income 53

Taxes 53

Non-Recurring

Events 55

Distributions 55

Equity Method Investment Activity 55

Dividends 57

Shares 57

Basic Shares Outstanding 57

Diluted Shares Outstanding and the Treasury Method 57

Earnings per Share 60

CHAPTER 2

The Cash Flow Statement 67

Cash from Operating Activities 67

Revenue 69

Cost of Goods Sold 69

Operating Expenses 69

Depreciation 69

Interest 69

Taxes 70

Cash from Investing Activities 71

Cash from Financing Activities 71

Financial Statement Flows Example 72

Amazon’s Cash Flow Statement 78

Cash from Operating Activities 78

Cash from Investing Activities 81

Cash from Financing Activities 82

Cash Flow Statement – Making Projections 84

Cash from Operating Activities 85

Depreciation and Amortization 85

Stock-Based

Compensation 85

Other Operating Expense 88

Other Expense (Income) 90

Deferred Taxes 91

Changes in Operating Working Capital 91

Cash from Investing Activities 92

Proceeds from Property and Equipment Sales

and Incentives 98

Items Based on Cash Available 98

Cash Flow from Financing Activities 101

Effect of Exchange Rate on Cash 101

CHAPTER 3

The Balance Sheet 107

Assets 107

Current Assets 107

Cash and Cash Equivalents 107

Accounts Receivable 107

Inventory 108

Prepaid Expense 109

Non-Current

Assets 110

Property, Plant, and Equipment (PP&E) 110

Intangible Assets 110

Liabilities 110

Current Liabilities 110

Accounts Payable 110

Accrued Liabilities 111

Short-Term

Debts 111