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Review of financing activities of Amazon for 2007
The financing activities section of the cash flow captures the issuance and repurchase of a company’s own debt instruments such as bonds and shares. It also captures the number of dividends bought. Table 1.0 shows the investing section of the cash flow statement for 2006 and 2007.
Table 1.0.
From the table, in 2006, the net cash flow used in financing activities amounted to US$ (400) million. In 2007, cash flow generated from financing activities amounted to US$ 50 million which is an improvement from the previous year. The cash outflows from financing activities reported in 2006 resulted from repayment of long-term debt, payments on capital lease obligations, and repurchases of common stock. Repayments of long-term debt and capital lease obligations amounted to US$ 383 million. The company purchased 8 million shares in 2006 amounting to US$ 252 million. These two major cash flows contributed to the cash outflow from investing activities in 2006. The company reduced repayment of long-term debt and capital lease obligation in 2007 thus yielding cash inflow from investing activities. All other items under this section remained relatively stable apart from excess tax benefits from stock-based compensation which increased by the US $ 155 million.
Review of investing activities of Amazon for 2007
The investing activities section of the cash flow statement gives information on the acquisition and sale of long-term investments. It also captures information on the purchase and resale of property, plant, and equipment. Table 1.1 shows the investing section of the cash flow statement for 2006 and 2007.
Table 1.1.
From the table, in 2006, the net cash flow used in investing activities amounted to US$ (333) million. In 2007, cash flow generated from financing activities amounted to US$ 42 million, which is an improvement from the previous year. The biggest variation in the net cash flow resulted from purchases, maturities, and the sale of marketable securities. Purchase of fixed assets, including internal-use software and website development, increased by US$ 8 million from 2006 to 2007. Acquisitions increased by the US $ 43 million from 2006 to 2007. The sale and maturity of marketable securities and other investments declined by US$ 573 million from 2006 to 2007. Finally, purchases of marketable securities and other investments declined by US$ 1,000 million. This decline contributed to the cash inflow recorded in 2007. The low cash inflow generated from investing activities as a result of investment in technology infrastructure, related assets, and development of new products and features. The company also incurred costs in acquiring subsidiary companies and buying intellectual properties. In a conclusion, it is clear that the company carried out massive investments especially in 2006 hence the low cash inflows.
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