Sheila Everts Sue Dent-Rhodes Bill Garlick Netflix Analysis Sheila Everts Sue Dent-Rhodes Bill Garlick

1997 – Netflix founded 2002 – Initial public offering 2007 – Introduced streaming 2013 – Netflix original series House of Cards, Orange is the New Black, The Square Membership in total has been increasing, DVD memberships have been decreasing About Netflix Netflix. (n.d.)

Ratios Ratio 2015 2014 Gross margin 32.3% 31.8% Debt-to-equity ratio 3.59 2.79 Current ratio 1.54 1.47 Quick ratio Days sales outstanding 0.00 Days payable outstanding 19.88 19.34 Return on Assets 1.2% 3.8% Netflix has no inventory – That’s why current and quick ratios are the same Netflix has no accounts recievable – that’s why DSO is 0 Used debt to acquire conent rights in 2015, that’s why increase in D2E ratio IMPORTANT NOTE: Netflix has quite a bit of of off-balance sheet reporting As of December 31, 2015, streaming content obligations were comprised of $2.8 billion included in "Current content liabilities" and $2.0 billion of "Non-current content liabilities" on the Consolidated Balance Sheets and $6.1 billion of obligations that are not reflected on the Consolidated Balance Sheets as they do not yet meet the criteria for asset recognition. Ratios Berman, K., Knight, J., & Case, J. (2013); Netflix. (2016)

The Investor Perspective The “Big Five” Revenue Growth from one year to the next Earnings per (EPS) Earnings before interest, taxes, depreciation, and amortization (EBITDA) Free Cash Flow (FCF) Return on Total Capital (ROTC), or Return on Equity (ROE) Berman, K., Knight, J., & Case, J. (2013)

Revenue Growth from one year to the next – According to Stanton (2016) Netflix may need to accept ads to increase revenue. Because of the monthly fee is at the top of the services worth. Based on the research Netflix users may pay more then $10 a month to keep the service ad free. Although Netflix has original series or movies this has increased revenues. Earnings per (EPS) is the net income for the quarter divided by the average number of shares, investors expect this number to increase over time Berman, K., Knight, J., & Case, J. (2013). The EPS is currently $95.44 Nasdaq (2016). Netflix (n.d.)

Earnings before interest, taxes, depreciation, and amortization (EBITDA) To calculate EBITDA begin with net earnings then add, interest, taxes, depreciation, and amortization. Netflix has increased EBITDA for the passed three years. Free Cash Flow (FCF) when this ratio is low it may mean the company is trying to make EBITDA strong it is known as a accounting gimmick Berman, K., Knight, J., & Case, J. (2013). Return on Total Capital (ROTC), or Return on Equity (ROE) is used by investors to determine if it is worth putting their money with this company, they’re looking to see a profit of the investment. As of December 2015 the ROE was 5.94% Netflix (n.d.). Nasdaq (2016)

ROA ( return on assets / mixed ratio) 2014 ROA 2.43% Growth NETFLIX, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) ROA ( return on assets / mixed ratio) 2014 ROA 2.43% Growth Off balance is due to future costs of revenue in 2015 The strength comes from financial viability Creativeness towards future Competiveness with Hulu, HBO, and Amazon Netflix. (2016)

CONSOLIDATED STATEMENTS OF CASH FLOWS NETFLIX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Netflix cash flow burn increased Gross profit margin, unsustainable + operational margin decreased Subscriptions increased Flow has steadily decreased while the debt has increased. More $ to acquire business opportunities, paying debit, repurchasing stock and paying dividends 2014 over $1 billion invested in licensed streaming limited cash & cash equivalent Netflix. (2016)

References Berman, K., Knight, J., & Case, J. (2013). Financial intelligence: A manager's guide to knowing what the numbers really mean. Boston, MA: Harvard Business Review Press. Nasdaq. (2016, June 17). NFLX company financials - financial ratios. Retrieved from Nasdaq: http://www.nasdaq.com/symbol/nflx/financials?query=ratios Netflix. (n.d.). About Netflix. Retrieved from Netflix: https://media.netflix.com/en/about-netflix Netflix, Inc. (2016). Form 10-K 2016. Retrieved from SEC EDGAR website https://www.sec.gov/Archives/edgar/data/1065280/000106528016000047/nflx201510k.htm "Netflix, Inc. (NFLX) Earnings Per Share." NASDAQ.com. N.p., n.d. Web. 16 June 2016. Stanton, D. (2016, January 6). To raise new revenue, Netflix and Amazon Prime might need to accept ads. Retrieved from GTK: https://www.gfk.com/pt-br/insights/press-release/to-raise- new-revenue-netflix-and-amazon-prime-might-need-to-accept-ads/