Here it is, a groove, slightly transformed. Just a bit of a break from the norm.. Oh wait, that's the wrong song, sorry about that. We were talking about cash flow or accounting or something. Pardon my ADHD. For new people, here are links to part one and part two of this article. You should definitely read those. I'm tearing apart one of the stock market's most favorite holdings, and their shareholders are UPSET about it. That would be Amazon (AMZN). The stock price is already down over $41 billion, so that's understandable. This series, however, has never been about making the stock price go down. It's about helping you, the investor, know when you might be paying too much. With that, let's get to the best part of the cash cycle, the balance sheet. Where we left on in part 2 was on the bottom line of the cash flow statement. This number: Hey, great! That's a positive number! And looky here, it's translating into a larger number in the "cash and cash equivalents" on the balance sheet. Well that's good, right? Wow, just look at all that cash, there's like.. 68% more of it there than the year before. How could Amazon possibly be having problems then? Well.. it's because of this: WHOA, THERE'S LIKE 259% MORE DEBT. I increased the size of those words by 259% so you could get an idea of the change. And we're not done yet. If you were to fast forward to the end of the balance sheet, you would see these here: "Ok, well hey Mr. Waterman, those tangible assets are higher so everything must be ok right? Please tell me why everything is not just fine here." They're only higher so far. I left something out near the top of the balance sheet with regards to current assets. It's this little diddy right here: I'm about to drop a harsh bit of reality on you right here. "Property, plant, and equipment" is the estimated value of the company's real estate and the equipment inside of there operating. These numbers are probably accurate estimates of resale value. Well, they would be if the company wasn't in a position where it had to sell them anyway. I'll explain. Have you ever seen an ad for a used computer on Craigslist or similar? I added a picture at the top of an old, dusty computer for your reference. The price is way below what it might cost you to go out and build a new one yourself, and that's for two reasons: 1) Technology has advanced since that time, and now new parts do more for the same amount of money, and 2) The operating life of the original hardware is shorter than new products. These statements are also true of the kinds of things you might find in an Amazon warehouse. If a competitor were buying the assets, they would have to retrofit them to their new operation, and Amazon would get even lower offers if the company were in a bankruptcy settlement. Why offer a good price if you know that they have no choice but to take it? For those reasons, I never value real estate at more than half of it's current carrying value on the books. Half of 16,967,000 is... 8,483,500. Decrease net tangible assets by this amount, and you get a negative net worth of -$1,061,500. But the numbers above are in thousands, so this is actually -$1.061 billion. Sorry, Amazon shareholders. You are the partial owners of a business that both doesn't earn money, and has a negative net worth. In spite of this, Amazon continues to announce their growth initiatives. They just bought a fleet of trucks, they leased a fleet of planes, a fleet of cargo ships, and on and on. There was another company once that had assets that weren't worth very much and at the same time, the stock market thought they had endless growth potential. Their name was Enron.