Netflix was founded in 1997 as a DVD rent-by-mail service. It has been recorded both locally and globally as one of the leading media company for entertainment. It has a market capitalization value of more than $10 billion dollars, thus is large cap company. According to recent analyses of the company’s market cap estimated it to be about $60.8 billion. The company has a past good history of satisfying financial performance, therefore can be considered to be one of the most suitable investment options. This paper will analyze the company’s financial statements, stock performance and its firm or equity value for the past three years. The paper will then assess the financial strength of the company and give approvals on whether you should proceed or decline to invest in the company’s stock.
The financial ratios are the most suitable measures of financial performance of a company.Indeed, there is need to focus on various financial ratios of Netflix Inc. to evaluate its financial strength. Let first focus on current ratio, which is a financial metric used to measure the leverage of a company, and the company has enough current assets to offset its short-term obligations when its current ratio is more than one. This indicates high leverage over three years. However, the current ratio indicates decrease over time thus the company’s leverage drops, illustrating the dropping financial performance. Secondly, the debt to equity ratio, which shows that the company was more than 100% over the three years thus the company’s capital structure was affiliated on equity financing which is a good financial performance. The cash flows of the company were positive for the first two years indicating a good performance the company also had slightly improving earnings per share over the last three years. This shows a good performance of the company’s stock on the market. The price to earnings ratio also improved in the three years showing an excellent stock performance on the market. The company also had a high return on equity which dropped in the second year and later started to improve slightly indicating good performance. The net profit margin also dropped and later started to improve in the second year showing good performance. Lastly, the company had a significantly high three-year return on its stock over the three years.
The financial and stock performance of the company indicates excellent financial results of the company. The company has good leverage and solvency due to high current ratio and debt to equity ratio and hence does not face the risk of insolvency or bankruptcy shortly. A high value of the company’s equity is noted in the first two years thus positive cash flows. The company’s stock is very active due to improving earnings per share and price to earnings ratio. Finally, the stock performance and improving return on equity and net profit margin indicate that the company is experiencing a significant organic growth based on the high three-year returns. Therefore, I advise you to invest in the company due to its growing value and assurance of considerable returns on your investment. Netflix Income Statement .
| Netflix Income Statement | ||||
| All numbers in thousands | ||||
| Revenue | 12/31/2016 | 12/31/2015 | 12/31/2014 | |
| Total Revenue | 8,830,669 | 6,779,511 | 5,504,656 | |
| Cost of Revenue | 6,029,901 | 4,591,476 | 3,752,760 | |
| Gross Profit | 2,800,768 | 2,188,035 | 1,751,896 | |
| Operating Expenses | ||||
| Research Development | 852,098 | 650,788 | 472,321 | |
| Selling General and Administrative | 1,568,877 | 1,231,421 | 876,927 | |
| Non Recurring | – | – | – | |
| Others | – | – | – | |
| Total Operating Expenses | – | – | – | |
| Operating Income or Loss | 379,793 | 305,826 | 402,648 | |
| Income from Continuing Operations | ||||
| Total Other Income/Expenses Net | 30,828 | -31,225 | -3,060 | |
| Earnings Before Interest and Taxes | 410,621 | 274,601 | 399,588 | |
| Interest Expense | 150,114 | 132,716 | 50,219 | |
| Income Before Tax | 260,507 | 141,885 | 349,369 | |
| Income Tax Expense | 73,829 | 19,244 | 82,570 | |
| Minority Interest | – | – | – | |
| Net Income From Continuing Ops | 186,678 | 122,641 | 266,799 | |
| Non-recurring Events | ||||
| Discontinued Operations | – | – | – | |
| Extraordinary Items | – | – | – | |
| Effect Of Accounting Changes | – | – | – | |
| Other Items | – | – | – | |
| Net Income | ||||
| Net Income | 186,678 | 122,641 | 266,799 | |
| Preferred Stock And Other Adjustments | – | – | – | |
| Net Income Applicable To Common Shares | 186,678 | 122,641 | 266,799 | |
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