Netflix: Analysis of Financial Statements

Based on the information that you have gathered, explain the changes in financial ratios. Has anything changed in the few years of financial statements that you have obtained? What are the reasons for those changes? 

The financial ratios at Netflix have not been stagnant in the last few years. Some of the coefficients are liquidity ratios. The current ratio at Netflix in 2015 was 1.54. In 2016, it dropped to 1.25 and rose to 1.4. The increase in the current ratio indicates that the current assets of the company are growing over time in the current economy (NASDAQ, 2018). The following is the graphical representation of the growth of current ratio at Netflix. 

The other category of ratios at Netflix is the profitability ratio. Under the profitability ratio, the emphasis is laid on the gross margin. The gross margin was 32% in both 2015 and 2016 and rose to 34% in 2017(NASDAQ, 2018). The reason for the growth of the gross margin is attributed to the increase in the market for the products of Netflix and especially in the international segment. The following is the graphical representation of the gross margin at Netflix. 

Based on the information that you have gathered, analyze the changes in the financial reports regarding cash. Be sure to examine of cash flows. What are the reasons for the changes? 

The net income at Netflix has also been affected by changes in the financial years' progress. The annual income for Netflix in 2015 was $ 122,641,000 (Statista, 2018). The net income rose to $ 186,678,000 despite the claims that a significant number of the Netflix subscribers were shifting to other channels owing to its high costs of services (Lovinger and Popper, 2016). That explains why the margin of the increase was considerably lower than that of the transition from the year 2016 to 2017. The net income of Netflix in 2017 was $ 558,929,000 (Statista, 2018). That was attributed to the loyal customer base that was left on Netflix as some of them stopped using their services due to high costs. Also, the company had laid solid plans for financial improvement in 2017 (Popper, 2017). The following is the graphical representation of the growth in net income at Netflix. 

Based on the information that you have gathered, analyze the changes in the financial reports regarding the account balance. What are the reasons for these changes? 

The net worth of Netflix in 2015 was $ 2,223,426,000. The following year, 2016, the net worth of Netflix rose to $ 2,679,800,000. The company was reported to increase 7.05 million new subscribers in 2016 (Wang, 2017). The new subscribers to the company led to the upward trend of the net worth of the company due to the increased sales of the company's products and services. The net worth at Netflix further rose to $ 3,581,956,000. That was related to the rise in the net income at the company from the previous year, as the company continued to reach the global market in the different countries of the world. The following is the graphical representation of the trend in the net worth of Netflix from the year 2015 to 2017. 

Describe the type of valuation method that your company uses and explain why it uses this method. What are the benefits of this method? 

Netflix makes use of the dividend-discounting model (DDM) in valuing its stock (Stock Analysis on Net, 2018). The DDM valuation stock for the inventory of a company works based on the discounts made on the predicted dividends to the current value in the organization. If the value of the DDM at Netflix is higher than the present value of stocks at the company, then the inventory is undervalued and vice versa. The DDM approach of valuing stock has some advantages for Netflix as follows. One of the merits is that the logic of the method is justifiable. The investors pay a particular price to buy the stocks of a company today, and they will sell the shares back to the company at a price set at that time. That makes the method clear in valuing inventory. Secondly, the DDM approach does not require elaborate control as the dividends of a company are determined by the actual growth of the company over time (Stock Analysis on Net, 2018). 

Based on industry trends, future plans of your company, and the information you have gathered, predict how your company will perform in the following year compared to competitors. 

Netflix is under the entertainment industry in the United States of America. The entertainment industry in the country has been faced with constant adjustments as the level of technology keeps rising each day. However, Netflix is prepared to cope with the rapidly dynamic technology in the world as far as the entertainment industry. One of the major competitors in its service provision is Amazon. Evidentially, Netflix is the best company in the entertainment industry in the United States of America, and it is expanding in its target market across the world. That is to say, that it will still perform well as far as the competitors are concerned (Bhasin, 2017). 

References  

Bhasin, H. (2017). Top 11 Netflix competitors - competitor analysis of Netflix. Marketing91 . Retrieved from www.marketing91.com/netflix-competitor-analysis/. 

Lovinger, J., & Popper, B. (2016). Netflix stock price tanks as customers quit over higher prices. The Verge . Retrieved from www.theverge.com/2016/7/18/12213244/netflix-q2-2016-earnings. 

NASDAQ. (2018). NFLX key financial ratios . Retrieved from www.nasdaq.com/symbol/nflx/financials?query=ratios. 

Popper, B. (2017). Netflix books a healthy profit thanks to higher prices. The Verge . Retrieved from www.theverge.com/2017/4/17/15327840/netflix-earnings-report-q1-2017-subscribers-quarterly-release. 

Statista. (2018). Netflix: net income 2017 | Statistic . Retrieved from www.statista.com/statistics/272561/netflix-net-income/. 

Stock Analysis on Net. (2018). Netflix Inc. (NFLX) | DDM valuation . Retrieved from www.stock-analysis-on.net/NASDAQ/Company/Netflix-Inc/DCF/DDM. 

Wang, C. (2017). Netflix posts its biggest-ever quarterly subscriber growth, stock surges 8%. Retrieved from www.cnbc.com/2017/01/18/netflix-fourth-quarter-2016-earnings.html. 

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