What Is Amazons True Free Cash Flow?
Amazon (AMZN) spends a lot of money on capital leases for new fulfillment center builds, which under a quirk of GAAP do not show up as capital expenditures in the cash flow statement, but directly add to fixed assets on the balance sheet. Amazon does provide this information under their cash flow statement, but conveniently leaves it out when calculating free cash flow, and every analyst does the same, vastly overstating the company’s free cash flow. For instance, in the twelve months ending Sept 2010, the company calculated its free cash flow as $1,829 million (cash flow from operations of $2,617 million less $788 million for purchase of fixed assets). However, the company also spent $333 million on acquiring fixed assets under capital leases and a further $214 million for what it calls “fixed assets acquired under build-to-suit leases.” Their 10-Q reveals that the latter item is a capital lease for an expansion to their headquarters. Taking into account these two items, free cash flo
