Analysis of Netflix and Amazon Balance Sheets

Are any of the accounts increasing or decreasing? If so, what indicators explain this trend? 

From the balance sheets, it is clear that accounts from both Netflix and Amazon are increasing. 

Netflix 

Total assets and total liabilities from Netflix have been increasing over the years as shown in table 3. The current assets have progressively increased from $3.9 billion in 2014 to $7.7 billion in 2017. Current assets components include the cash and cash equivalents, short-term investments, and other current assets. The cash and cash equivalent from Netflix have been increasing progressively from 2014 to 2017. In 2014 and 2015, the cash and cash equivalents increased from $1.1 billion to $1.8 billion. There was a decrease in 2016 to $1.5 billion and a sharp increase to $2.8 billion in 2017. The long-term assets of the company were mainly from fixed assets, intangible assets, and other assets all of which increased progressively. Total assets from the company have gradually increased from 2014 to 2017 in the values $7.0, $10.2, $13.6, and $19.0 in billions. Liabilities and stockholders' equity also make up the balance sheet. They both contribute to increasing accounts. For instance, the accounts payable have increased from $0.3 billion in 2014 to $0.7 billion in 2017. The long-term liabilities and other liabilities were also rising as shown on the balance sheet. Total liabilities increased from $5.2 billion, $8 billion, $11 billion, and $15.4 billion from 2014, 2015, 2016, and 2017 respectively. Common stock retained earnings, and other equities make up the total equity from the company. From the table, total equity increased over the four years. 

Amazon 

Accounts from Amazon balance sheets shows that the company's finances have been increasing over the years as shown in table 4. The main accounts showing this increase are current assets, long-term assets, current liabilities, long-term liabilities, and stockholders equity. Current assets increased from $31.2 billion in 2014 to $60.2 billion in 2017. Fixed assets, goodwill assets, and other assets values have been increasing steadily in the four years. Total assets increased from $28.1 billion in 2014, $33.9 billion in 2015, $43.8 billion in 2016, and $57.8 billion in 2017. Total liabilities increased from $43.8 billion in 2014 to $103.6 billion in 2017. Total equity progressively increased from $10.7 in 2014 to $27.7 in 2017. Total liabilities and equity increased progressively from 2014 to 2017. 

Which of these accounts are distinctive to each business? Why? 

Netflix 

Liabilities were more distinct for Netflix, followed by assets, and least significant were stockholders equity. Total liabilities were the highest in amount compared to all other accounts in the four years. Long-term assets are more distinct with $11.3 billion compared to current assets with $7.7 billion. Out of the current assets, other current assets are more significant, followed by cash and cash equivalent and finally the short-term investments. The short-term investment was least significant that the company did not invest in any in 2017. Other assets made up the highest volume of long-term assets followed by fixed assets and finally the intangible assets. Common stock and retained earnings were averagely the same but least significant. 

Amazon 

Just like Netflix, Amazon has its total liabilities being more significant followed by total assets and finally stockholders equity. The current liability account was much significant compared to other liability accounts like the long-term debt and other accounts. Long-term assets were higher compared to current assets. Unlike Netflix, Amazon has smaller accounts in stockholders equity which include common stock, capital surplus, retained earnings, treasury stock and other equity. Of all the smaller accounts, the most significant were capital earnings followed by retained earnings and the least significant are treasury stocks. 

Based on the presented financial ratios, can you determine if the firm is improving or deteriorating? Why or why not? 

From the balance sheets, there are some financial ratios that can be used to determine the financial performance of the company. The financial ratios include current ratio, quick ratio, and cash ratio. 

Table 1 shows the financial ratios to Netflix. The higher levels of cash and cash equivalents show that the company has higher liquidity and thus able to expand. The lower levels of cash and cash equivalents in 2016 resulted from the company's measure to invest in licensed streaming content (Tarver, 2018). The values of current ratios expressed in percentage were 148 in 2014, and it increased to 154 in 201 5. There was a sharp decline in 2016 with a value of 124 and an increase in 2017 with a value of 140. First, all current ratio values from 2014 to 2017 were above 100%. As such, the company had abilities to meet its obligations for all the four years. However, the abilities were highest in 2015 and lowest in 2016. The values of quick ratio increased over the four years expect in 2016 where there was decline. The values were 0.6, 0.65, 0.3, and 0.52 from 2014 to 2017 in order. Quick ratios define the company's ability to meet its short-term liabilities (Warren & Jones, 2018). Cash ratio is calculated by dividing cash and cash equivalents by the current liabilities. The company's debt to equity ratio from 2014 to 2017 increased from 0.48 to 1.81. There was a steady increase in the cash ratio for all the years except 2016. From the values of current ratios and quick ratios, it is evident that the company's financial performance has been improving over the year except 2016. However, the debt to equity ratio shows that the company has aggressively used debts to finance its growth. Importantly, Netflix was able to manage its debts sufficiently. 

Netflix 

Table 1 : NetFlix financial ratios 

Key ratio	2017	2016	2015	2014
Current ratio	1.4	1.25	1.54	1.48
Debt to equity ratio	1.81	1.26	1.07	0.48
Quick ratio	0.52	0.3	0.65	0.60

Source 1 : msn.com 

Amazon 

The current ratio for Amazon has been decreasing over the four years as shown in table 2. The values decreased from 1.12 in 2014 to 1.04 in both 2016 and 2017. The company's quick ratio has also been decreasing from 0.82 in 2014 to 0.76 in 2017; however, there was a slight increase from 0.77 to 0.78 in 2017. Amazons debt to equity ratio for the years 2014, 2015, and 2016, decreased from 5.07, 4.89, and 4.32 respectively. The debt to equity ratio increased from 4.32 in 2016 to 4.74 in 2017. The financial ratio from the company shows that the company's financial performance has been deteriorating over the years. 

Important, however, the company has been able to finance its liabilities using its assets. The ability to finance liabilities is shown by the current ration that is above 100%. The quick ratio shows that amount of liquid assets available for every liability. Usually, a higher quick ratio shows that a company can comfortably finance current liabilities. According to Uechi, et al., (2015) a good current ratio is one that is above 1. For Amazon, the values of the current ratio were not only decreasing but were also below 1. Thus, the company financial position had been declining as its ability to finance current liabilities was reducing. The reduction in the level of debt to equity ratio shows that the company was less aggressive in using debts to expand. The lower levels of debt to equity ratio would also mean that the company was making sufficient revenue that allowed for expansion without a need to borrow. 

Table 2 : Amazon Financial ratios 

Key ratio	2017	2016	2015	2014
Current ratio	1.04	1.04	1.08	1.12
Quick ratio	0.76	0.78	0.77	0.82
Debt to equity ratio	4.74	4.32	4.89	5.07

Source 2 : msn.com 

References 

Nasqad (2018). Netflix Company Financials. Web. retrieved from https://www.nasdaq.com/symbol/nflx/financials?query=balance-sheet 

Nasqad (2018). Amazon Company Financials. Web. Retrieved from https://www.nasdaq.com/symbol/amzn/financials?query=balance-sheet 

Uechi, L., Akutsu, T., Stanley, H. E., Marcus, A. J., & Kenett, D. Y. (2015). Sector dominance ratio analysis of financial markets.  Physica A: Statistical Mechanics and its Applications ,  421 , 488-509. 

Tarver, E. (2018). Making Sense of Netflix's Balance Sheet. Investopedia. Retrieved 6 April 2018, from https://www.investopedia.com/articles/investing/080315/how-analyze-netflixs-balance-sheet.asp 

Warren, C. S., & Jones, J. (2018).  Corporate financial accounting . Cengage Learning. 

Appendixes 

Table 3 : Netflix Balance sheet 

Period Ending:	Trend	12/31/2017	12/31/2016	12/31/2015	12/31/2014
Current Assets
Cash and Cash Equivalents		$2,822,795	$1,467,576	$1,809,330	$1,113,608
Short-Term Investments		$0	$266,206	$501,385	$494,888
Net Receivables		$0	$0	$0	$0
Inventory		$0	$0	$0	$0
Other Current Assets		$4,847,179	$3,986,509	$3,121,125	$2,318,557
Total Current Assets		$7,669,974	$5,720,291	$5,431,840	$3,927,053
Long-Term Assets
Long-Term Investments		$0	$0	$0	$0
Fixed Assets		$319,404	$250,395	$173,412	$149,875
Goodwill		$0	$0	$0	$0
Intangible Assets		$10,371,055	$7,274,501	$4,312,817	$2,773,326
Other Assets		$652,309	$341,423	$284,802	$192,246
Deferred Asset Charges		$0	$0	$0	$0
Total Assets		$19,012,742	$13,586,610	$10,202,871	$7,042,500
Current Liabilities
Accounts Payable		$674,649	$510,474	$393,880	$271,327
Short-Term Debt / Current Portion of Long-Term Debt		$0	$0	$0	$0
Other Current Liabilities		$4,791,663	$4,076,183	$3,135,744	$2,391,827
Total Current Liabilities		$5,466,312	$4,586,657	$3,529,624	$2,663,154
Long-Term Debt		$6,499,432	$3,364,311	$2,371,362	$885,849
Other Liabilities		$3,465,042	$2,955,842	$2,078,459	$1,635,789
Deferred Liability Charges		$0	$0	$0	$0
Misc. Stocks		$0	$0	$0	$0
Minority Interest		$0	$0	$0	$0
Total Liabilities		$15,430,786	$10,906,810	$7,979,445	$5,184,792
Stock Holders Equity
Common Stocks		$1,871,396	$1,599,762	$1,324,809	$1,042,870
Capital Surplus		$0	$0	$0	$0
Retained Earnings		$1,731,117	$1,128,603	$941,925	$819,284
Treasury Stock		$0	$0	$0	$0
Other Equity		($20,557)	($48,565)	($43,308)	($4,446)
Total Equity		$3,581,956	$2,679,800	$2,223,426	$1,857,708
Total Liabilities & Equity		$19,012,742	$13,586,610	$10,202,871	$7,042,500

Source 3 : Nasqad.com 

Table 4 : Amazon Balance Sheet 

Period Ending:	Trend	12/31/2017	12/31/2016	12/31/2015	12/31/2014
Current Assets
Cash and Cash Equivalents		$20,522,000	$19,334,000	$15,890,000	$14,557,000
Short-Term Investments		$10,464,000	$6,647,000	$3,918,000	$2,859,000
Net Receivables		$13,164,000	$8,339,000	$5,654,000	$5,612,000
Inventory		$16,047,000	$11,461,000	$10,243,000	$8,299,000
Other Current Assets		$0	$0	$0	$0
Total Current Assets		$60,197,000	$45,781,000	$35,705,000	$31,327,000
Long-Term Assets
Long-Term Investments		$0	$0	$0	$0
Fixed Assets		$48,866,000	$29,114,000	$21,838,000	$16,967,000
Goodwill		$13,350,000	$3,784,000	$3,759,000	$3,319,000
Intangible Assets		$0	$0	$0	$0
Other Assets		$8,897,000	$4,723,000	$3,445,000	$2,892,000
Deferred Asset Charges		$0	$0	$0	$0
Total Assets		$131,310,000	$83,402,000	$64,747,000	$54,505,000
Current Liabilities
Accounts Payable		$52,786,000	$39,048,000	$30,769,000	$26,266,000
Short-Term Debt / Current Portion of Long-Term Debt		$0	$0	$0	$0
Other Current Liabilities		$5,097,000	$4,768,000	$3,118,000	$1,823,000
Total Current Liabilities		$57,883,000	$43,816,000	$33,887,000	$28,089,000
Long-Term Debt		$24,743,000	$7,694,000	$8,227,000	$8,265,000
Other Liabilities		$20,975,000	$12,607,000	$9,249,000	$7,410,000
Deferred Liability Charges		$0	$0	$0	$0
Misc. Stocks		$0	$0	$0	$0
Minority Interest		$0	$0	$0	$0
Total Liabilities		$103,601,000	$64,117,000	$51,363,000	$43,764,000
Stock Holders Equity
Common Stocks		$5,000	$5,000	$5,000	$5,000
Capital Surplus		$21,389,000	$17,186,000	$13,394,000	$11,135,000
Retained Earnings		$8,636,000	$4,916,000	$2,545,000	$1,949,000
Treasury Stock		($1,837,000)	($1,837,000)	($1,837,000)	($1,837,000)
Other Equity		($484,000)	($985,000)	($723,000)	($511,000)
Total Equity		$27,709,000	$19,285,000	$13,384,000	$10,741,000
Total Liabilities & Equity		$131,310,000	$83,402,000	$64,747,000	$54,505,000

Source 4 : Nasqad.com