🚨 Why does Amazon love 'cash' more than 'profit'? How to read the cash flow that Bezos prioritized most

Hello, Kato-chan here.

When reading the financial statements of U.S. companies, which numbers do you check first? Is it the 'sales growth rate,' or the 'net income' at the bottom line of the income statement (PL)?

In fact, what Amazon founder Jeff Bezos has prioritized most for many years and has strongly advocated both inside and outside the company was not the 'profit' on the PL, but the 'cash' on the cash flow statement (CS).

Why does Amazon value 'cash' so much?

The answer is clearly written in the first 'Shareholder Letter' from 1997, the year Amazon went public.

Net income is merely an 'accounting calculation result' involving various rules such as depreciation. However, cash is the 'blood' of a company that does not lie. No matter how much profit appears on the books, if you do not have cash on hand to use freely, you cannot make 'investments for future growth' such as building new logistics networks or expanding AWS servers.

For many years, Amazon has built its current massive empire by betting the enormous cash generated from its business on the next stage of growth, even if it meant keeping accounting profits near zero.

The true strength of a company depends on 'how much cash it can generate on its own.'

So, this time, to get closer to the source of Amazon's strength, I would like to unravel their financial strategy in detail, starting from the most important item that appears at the very beginning of the cash flow statement: 'Cash flow from operating activities.'

AMAZON.COM, INC. FORM 10-Q For the quarterly period ended June 30, 2026

[Analysis part of cash flow from operating activities]

Now, let's look at the actual statement and explore the 'source of cash' that Bezos loved.

Please focus on the first block of the statement, 'OPERATING ACTIVITIES'. This shows how much cash the company generated from its core business.

Let's look at the column on the far right, 'Twelve Months Ended June 30, 2026'.

The 'Net income' on the top line is $135.281 billion. However, if you look at the bottom of that block, 'Net cash provided by operating activities', you can see that it generated $161.403 billion, which is significantly higher than the net income.

There is overwhelmingly more 'cash' on hand than 'profit' on the books. Why does this reversal phenomenon occur?

The secret is hidden in the items that adjust the 'gap' between net income and cash flow. Two points in particular are worth noting.

1. Adding back the massive 'depreciation and amortization' Looking at 'Depreciation and amortization...' at the top of the adjustment items, a staggering amount of $75.2 billion is added (added back). Depreciation and amortization is the cost of equipment invested in the past (such as huge logistics centers and AWS data centers) that is recorded as an 'expense' in installments according to accounting rules. In other words, although it is heavily reducing profit on the PL, no cash actually left the company during this period, so it is added back as cash on hand in the cash flow statement.

2. Powerful working capital control We cannot overlook the fact that 'Accounts payable' within 'Changes in operating assets and liabilities' is a positive $13.921 billion. This means that by 'intentionally delaying payments to suppliers (making them wait)', the company is keeping cash on hand for longer. Collecting payments from customers immediately while delaying payments to suppliers—Amazon's overwhelming bargaining power and skill in cash management are reflected in these numbers.

In this way, if you only follow the accounting figure of 'profit,' you will misjudge Amazon's true potential and how much 'cash-generating power' it has in its core business.

[The mechanism of 'profit' seen from the income statement]

I mentioned earlier that Amazon generates operating cash flow that exceeds its net income. So, what does their 'Income Statement (PL)' actually look like?

Let's look at the latest income statement for the six months ended June 30, 2026.

Looking at the 'Net income' at the bottom, they have generated a staggering profit of $92.902 billion. Since it was $35.291 billion in the same period last year, one might mistakenly think, 'Amazon's core business profit has exploded!'

However, there is an accounting 'trap' here.

Go back up the PL a little and look at the item 'Other income (expense), net.' A huge positive of $69.062 billion is recorded here. This is not profit from the core business, but merely temporary or book-value gains (non-cash gains/losses) such as valuation gains on stocks held.

In fact, in the cash flow statement we checked earlier, this non-operating income was adjusted by being subtracted entirely. If you only look at the net income indicator, you will misjudge the company's true earning power due to this 'noise'.

Another point of note: Huge upfront investment

Furthermore, looking at the 'Operating expenses' block of the PL, it is clear where Amazon is investing its funds.

• Technology and infrastructure: $62.725 billion

• Fulfillment: $56.922 billion

In six months, they have spent a total of over $100 billion on AWS data centers, system maintenance and development, and their massive logistics network. These are the true nature of the 'huge depreciation add-backs' we confirmed in the cash flow statement earlier.

On the PL, these investments weigh heavily as 'expenses' and push down operating income, but from a cash flow perspective, this is merely building a powerful engine for future growth.

Indeed, Bezos' philosophy of 'maximizing future cash flow rather than making the accounting look good' comes through powerfully from this entire statement.

[Where does the earned cash go? The strongest profit engine 'AWS']

In the PL earlier, we confirmed that Amazon is investing a huge amount of over $62 billion in 'technology and infrastructure' in six months. So, where are they directing that vast amount of capital?

The answer, and what shows their true current strength, is the data by business segment.

Looking at the operating income by segment for the six months ended June 30, 2026, a surprising fact emerges.

• North America: $17.39 billion

• International segment: $3.141 billion

• AWS segment: $30.782 billion

While the company's total operating income is $51.313 billion, 'AWS' alone accounts for approximately 60% of the total.

Let's take a closer look at the net sales composition by service.

Massive retail businesses such as Online stores ($134.686 billion) and Third-party seller services ($88.358 billion) drive overall sales. However, in terms of profit, the structure is strongly supported by 'high-margin businesses' such as AWS ($79.819 billion), which follows them in sales scale, and the rapidly growing Advertising services ($37.052 billion).

And the most exciting part of deciphering financial statements is the movement of total segment assets.

Assets in the AWS segment expanded from $252.588 billion at the end of 2025 to $350.170 billion at the end of June 2026, an increase of approximately $100 billion in just half a year.

Here lies the figure of the 'ultimate cash flow machine' that Bezos built.

Collect daily cash (operating cash flow) from the retail business at a furious pace, and reinvest it generously into AWS data center expansion and the like. The infrastructure built in this way then becomes the strongest engine that earns 60% of the company's total profit, continuing to generate even more massive cash...

The reason they have pursued the maximization of cash flow rather than the maximization of profit is precisely because they believed in this 'power of compound interest through reinvestment' more than anyone else.

[Amazon's alchemy proven by the balance sheet]

The 'powerful working capital control' we saw earlier in the cash flow statement and the 'huge investment in AWS' we confirmed in the business segments. How are these ultimately accumulated as the company's profile?

What proves this is the balance sheet, which shows the company's financial position. Please pay attention to the changes in just half a year from the end of 2025 to the end of June 2026.

1. Zero-interest magic funds: 'Accounts payable'

First, looking at the LIABILITIES section, 'Accounts payable' has expanded significantly from $121.9 billion to $147.4 billion (approximately 22 trillion yen).

This is the amount of 'debt' for which payments to suppliers are intentionally delayed. Amazon pools this massive amount of third-party capital, which incurs no interest, and fully utilizes it as growth capital. The 'power to hold onto cash longer' that we confirmed in the cash flow statement is clearly visible on the balance sheet at an overwhelming scale of $147.4 billion.

2. Earned cash transformed: 'Property and equipment'

Next, let's look at 'Property and equipment, net,' which forms the core of the ASSETS section.

This has surged from $357 billion to $446 billion, an increase of approximately $89 billion in just half a year. Total assets have also surpassed the $1 trillion mark. This is the physical reality of the 'AWS data centers' and 'massive logistics network' we confirmed in the P&L earlier.

Without being caught up in the 'book appearance' of net income, they maximize their cash on hand (utilization of accounts payable) and convert it at a furious speed into overwhelming future competitive advantages (infrastructure equipment).

The massive expansion of the balance sheet tells the story of how the 'cash flow supremacy' cycle, which Jeff Bezos has maintained since the company went public, is still spinning with tremendous momentum.

【Amazon's current position as indicated by the ultimate metric: 'Free Cash Flow'】

Now, having unraveled the operating cash flow, P&L, and balance sheet in order, we have seen 'how Amazon earns cash and reinvests it'.

Finally, let's conclude this article by checking the ultimate metric that Jeff Bezos loved most: 'Free Cash Flow (FCF)'.

Amazon clearly defines FCF as 'cash flow from operating activities' minus 'purchases of property and equipment (after deductions such as proceeds from sales)'. It is a metric that shows how much 'freely usable cash' ultimately remains on hand while maintaining corporate growth.

Take a look at the calculation results for the latest trailing twelve months ending June 2026.

• Cash flow from operating activities: $161.403 billion

• Purchases of property and equipment, etc.: negative $169.007 billion

• Free cash flow: negative $7.604 billion

Surprisingly, FCF, which was a positive $18.184 billion in the same period last year, has now sunk into the negative.

Normally, one might feel anxious, wondering, 'Is it okay to invest more than the cash earned?'

However! This is precisely the very image of the 'strongest Amazon'.

Digging deeper into the details of investment activities, we can see that in the first half of 2026 alone, they made a staggering $96.3 billion in capital expenditures on technology infrastructure and the like. And most of that is to support the business growth of AWS.

That is not all. To seize hegemony in the next generation, they are executing AI investments on an unbelievable scale, including a total of $28.7 billion in OpenAI Series C preferred stock ($13.7 billion in the second quarter alone) and $10 billion in Anthropic non-voting preferred stock, all involving cash.

In other words, Amazon is betting the entire $160 billion-plus in cash it has generated on 'the infrastructure and AI of the next decade,' even if it means temporarily pushing its near-term free cash flow into the negative.

The intense determination to 'maximize future cash flow' has remained unchanged since the IPO in 1997. This discipline, which borders on madness, of abandoning the superficial appearance of numbers to relentlessly pursue intrinsic corporate value is the biggest reason why Amazon is Amazon.

By following the movement of 'cash' rather than 'profit,' the true nature of a company comes into view. The cash flow statement is packed with such business romance.

I hope you all will also try to feel the pulse of companies from the primary information on EDGAR.

See you next time! This was Kato-chan.

Everything is for the readers!!!

#KatoChanAnalysis

(Disclaimer: This text is for informational purposes only and does not constitute a solicitation for specific stocks, investment advice, or a guarantee of the completeness of financial analysis. Investing involves risks. Please make final investment decisions at your own responsibility.)

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