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On pages 18-19 of the 2018 Amazon 10-K filing, there is a section labeled “Overview” in which Amazon basically describes where they focus their financial attention, and in the discussion that follows they outline some of the things that affect their cash flows and reported profits. On page 22 of the textbook, in the second paragraph after the heading The Ability to Use Numbers and Financial Tools to Make and Analyze Decision, the authors caution “We’ll start with the basic fact that cash and profit are different.” We will come back to this in a future module, but for now, let’s look a little closer at that statement as it pertains to Amazon. In their 2018 10-K filing, on page 37 they show the Consolidated Statement of Operations which is their profit-and-loss statement (commonly referred to as the Income Statement). Net income is the total revenue minus the total expenses and is the “bottom line” profit for the firm. Compare what they are reporting as profit for 2016, 2017, and 2018 to the amount of free cash flow they are reporting on page 29 for the same time periods. Compare and contrast the net profit and the free cash flow for 2016, 2017, and 2018 Which of those measures is Amazon more focused on, according to page 18 of their 10-K filing?
