Which method did each company use when calculating the net cash provided by operating activities? Explain.
Amazon company uses the indirect method of cash flow to report the cash flow. The fact is supported by the operating activities on the part of the net cash flow as on the beginning of operating activities. The operating activities section commences with showing us the net income and later reconciles with the net income to the net cash of Amazon company (Neumann, 2017). The reconciliation of net income to the net cash of Amazon company is either through the decrease and increase of non-cash items (Neumann, 2017). The non-cash items in Amazon net cash flow operating activities are the depreciation and depletion of intangible assets and the amortization of intangible assets in the Amazon company. The deferred tax is also a part of the non-cash items in the net cash flow of Amazon company. The deferred tax of assets is of higher value compared to its tax base. Amortization in operating activities section indicates the how the intangible assets have been put into finite projected life by Amazon company.
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Netflix company uses the direct cash flow analysis in reporting its operating activities. Netflix company lists the company’s cash flows in the operating activities section. The direct cashflow system indicates the inflows and outflows of cash generated by Netflix company (Neumann, 2017). In the operating activities section, Netflix cashflow system indicates the cash generated and received from the customer from the DVD and movie sales. The cashflow system shows the cash received by Netflix company from the interests generated from Netflix company operations. The inflow direct cashflow system of the Netflix company also shows the total cash generated in the operating activities from the dividends acquired from the income which are the proceeds acquired from short term investments. Netflix company cashflows also indicate the proceeds acquired from maturities which are short term. The direct cash system of Netflix Company also indicates the cash outflows of the operating activities involved by the company. Netflix cashflow statement shows the cash paid through the purchasing equipment and machinery. The other cash flow outflow indicated by the company is the cash paid to purchase investments which are short term.
What was the most significant (i.e., monetarily largest) item reported by each company in its investing section and its financing section?
The largest significant item that has been reported by the Amazon company is the sale and maturity of investment that Amazon company investment activities were involved (Neumann, 2017). Amazon company benefited from the maturity and sale of investments as in 2012 the company acquired $4.24 Billion from the investments. In 2013 the sale and maturity of investments dropped drastically. Amazon company acquired $2.31 Billion from the sale and maturity of investments. However, the sale and maturity of investments in this year were still the most significant. In 2014, the sales and maturity of the investments increased to $3.35 Billion. The sales and maturity of investments were still the most significant in 2014.The largest significant item under the financing activities was the issuance of long-term debt in 2012 with an amount of $3.38 Billion. In 2013, the most significant item was the issuance of long-term debt but dropped to $394 M. In 2014, the most significant item was the long-term debt which increased significantly to $6.36 Billion.
The largest significant item in Netflix company under the financing section was the by the excess tax benefits based-compensation company (Gabrielle, 2017). In 2012, Netflix company the excess tax benefits based-compensation was $454.3M. The of excess tax benefits based-compensation amount increased in 2013 to $. In 2014, $81.663M the excess tax benefits based-compensation was still the most significant item with a figure of $89.341M. The most significant item under the investing activities section was the excess tax benefits based-compensation (Pfeifer and Conroy, 2017). The excess tax benefits based-compensation recorded a figure of $408.43 M in 2012. In 2013 the figure of sale and maturity of investments increased to $527.25 M. However, in 2014 the figure decreased to $363.8 M in the sale and maturity of investments of Netflix company.
What were these two companies’ trends regarding net cash provided by operating activities during this period?
The net cash flow of Amazon company under the operating activities increases over the years. However, the net cash flow the operating of Amazon company had a figure of $4.18 Billion. The value of the accounts payable was at a figure of $2.07 Billion. The liabilities of the company were at a value of $275 M. The figures show Amazon company had enough cash to carry out carry out its operational activities and manage its debts. In other terms, Amazon company had enough resources to manage its financing activities. In 2013, the value of the operating cash flow items increased to $5.48 Billion (Tan, 2017). The figure of the amount of cash generated from the accounts payables was $1.89 Billion, and the liabilities were recorded at $399M.In 2014, Amazon company recorded a value of $6.84 B which showed an increase. The accounts payable were at a figure of $1.76 B, and the liabilities were at a value of $ 741M.The figure shows that Amazon can sustain itself operating financial activities.
The Netflix company cashflow items show the operating activities of the company over the years. Netflix company in 2012 reported a value of $21.56B in the net operating activities of the company. In this year, the figure showed that the company could sustain its operating activities over the years. In the following year,2013 operating activities net operating figure increased to $9. 783M.In 2014 the figure of net operating expenses was $16.43M in which the figure dropped significantly (Pfeifer and Conroy, 2017). Netflix company reported the figure of assets was higher than that of the liabilities. Netflix company can sustain the operational activities of the firm.
References
Gabrielli, G. (2017). Netflix Inc. valuation (Doctoral dissertation).
Neumann, J. J. (2017). A Framework for Cashflow Valuation Models within Student-Managed Investment Funds. Journal of Financial Education, 43(1), 120-140.
Pfeifer, P. E., Conroy, R. M., & Pfeifer, P. E. (2017). Valuation of Netflix, Inc. Darden Business Publishing Cases, 1-13.
Tan, Z. (2017). Application of Discounted Cash Flow Model Valuation–Wal-Mart.
