Netflix Analysis Report

Netflix Analysis Report

INTRODUCTION

Netflix is an American global provider of streaming films and TV series. Netflix started as a DVD-by-mail service in 1998 and later began streaming in 2007.  Netflix expanded with streaming to Canada in 2010 and now serves over 190 other countries. The company was established in 1997 and has its headquarters in Los Gatos, California.

The Current Financial Status of Netflix continues to work against the odds: the analysis that the position of the firm has always been stabilizing financially over the past three years. It is way above its main competitors such as the Walmart,Block Buster,Redbox ,Hulu Plus among others and thus stands slightly above the broader industry average. We have broken the analysis into the following subsections supported by the information derived from the spreadsheets (attached).

RATIO ANALYSIS

Liquidity Position  

The liquidity ratios are key indicators of firm’s ability to service its debts, thus very important to an organization. The current ratio for Netflix  has been quite stable and on upward trend from 2012 up to 2015.The amount drops slightly in 2014 and this can be attributed to the drop in current assets and subsequent increase in liabilities as the firm executed its turnaround efforts during the fiscal year (Roper, 2015).

The quick ratio of Netflix  exhibits similar trend as current ratio, continuous gain from 2012 to 2015 and an insignificant drop in 2014.This can be still linked to turn around related developments. However, Netflix’s quick ratio is way above her competitors for instance Wal-Mart in the same period which is strong evidence that the firm has a limited liability base compared to cash and the receivables from short term investments.

The cash ratio computes the relationship between the amount of cash and its equivalents available and current liabilities of the firm. Netflix’s quick ratio exhibited continuous slight improvement from 2012 all the way to 2015, just limping slightly in 2014.An evidence that the firm has exhibited good cash maintenance generally in the same period. The liquidity ratio thus confirms the good and stable performance of Netflix over long period of time.

 Efficiency

Efficiency simply implies reducing the amount of wasted inputs and maximizing on customer service. This is behind the foundation that time, money and raw materials are limited, so it makes sense to put considerable effort to conserve them while maintaining an acceptable level of output or a general production level. Netflix s story on efficiency is a unique one. Not many people associate fast food with clean energy. But that is exactly what Netflix is exploring. Actually RMI recently completed a net-zero-energy study for Netflix , which explores how to offset the energy consumption of an entire film industry  with renewable energy system.

Building upon the net-zero-energy (NZE) study, Netflix ’s plans to systematically prioritize the findings over time to integrate them alongside its core business objectives and will give it an additional upper hand. In addition, RMI believes Netflix ’s can leverage this study to change the way that we think about energy (Norburn, Manning, & Birley, 1986).

Developing the first net-zero-energy quick-service restaurant and driving deeper savings within existing restaurants can spur radical changes and transform the quick-service restaurant industry’s approach to energy. As the largest U.S. and global presence in this industry by revenue, Netflix’s has the power to drive equipment improvements, influence other key players in the industry, and deliver hundreds of millions of dollars in energy savings across the industry each year.

 Profitability

The profitability ratios in larger domain try to analyze the firm’s shareholder or investor returns. It shows how the firm is leveraging its profitability to maximize shareholder returns. The profit margin of Netflix  stood at $9.789 billion-in 2015,though falling slightly from that of 2014 ($10.45 billion) although has been in constant upward trend from 2012.This indicates that net income has not been performing well in the period may be occasioned by slight declines in sales also in the same period. However Netflix has a better profit margin of 17.3 % in 2014 in comparison and has maintained significant sales and income relative to its emerging competitors.

The good performance for Netflix is so farther shown by the earning basic power which has been stable over the period with a rising trend. The earning basic power of Netflix  stood at 24% way above the 17% as industry average, clearly indicating that Netflix’s earnings before tax are good and stable in comparison to its competitors in the restaurant industry.

Netflix  must also be very cautious in handling their return on assets because it has been declining significantly from 17% in 2011 to 14% in 2015.The management should review with an aim at an upward trend (Murphey & Gause, 1974). Therefore they must be keen here to avoid detrimental performance.

Return on equity of the firm has remained very stable throughout the period. The largest deviation recorded in the entire period is about is about 3%.What can be worrying Netflix at the moment is the Walmart and Blockbuster  higher return on equity in 2014 of 66% almost doubling the Netflix 37% in the same year. Furthermore, the EPS of Netflix has been dropping significantly from 2012 and this was noted and has been a major concern for shareholders. However it still performs better relative to its competitors such as Block Buster which recorded an EPS of 2.32 in financial year 2014.

Leverage  

The leverage (ratio) refers to a financial strength ratio that measures proportion of company's total liabilities to stockholder's Equity. Leverage Ratio displays company's indebtedness and the leverage of stockholder's Equity. The figure indicates how much company owes of Total liabilities for one dollar of stockholder's equity. The lower the number, the stronger the balance sheet of the company.

Despite repayments of liabilities of -2.75%, in Quarter I 2016, leverage ratio deteriorated to 7.42, a new company high. Within film industry in the first quarter 2016, 51 other companies have achieved lower Leverage Ratio than Netflix despite the fact that its leverage ratio total ranking has deteriorated compare to previous quarter from 3617 to 3879.The latest leverage summary is shown in the table below.