The world-renowned Internet television network, Netflix, is rapidly gaining popularity. The incorporation boasts “over 69 million members in over 60 countries enjoying more than 100 million hours of TV shows and movies per day” with commercial free broadcasting (Netflix IR Overview). Because of its increased popularity in the past couple years–especially the 2015 summer– with shows like One Tree Hill and Grey’s Anatomy or slogans such as “Netflix and Chill,” the company’s revenue has exponentially grown at the same rate. For most users, it may be difficult to comprehend that Netflix was initially founded in 1997: over eighteen years ago! Therefore, the following breakdown of Netflix’s financial peaks and valleys will facilitate better understanding
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The key ratios include the return on assets, the return on equity, and the operating and gross margins. When referencing the return on assets, the higher the better. This number shows the percentage of profit compared to the company’s resources. For Netflix, this number comes to 4.28% after dividing the assets by the net income. Considering that 5% is the standard for an ROA, this number is fairly average. A return on equity, on the other hand, is directly connected to profitability because it calculates how well a company utilizes the shareholders investments to generate profit. The net income divided by the shareholder investment brings Netflix to 16.72%, right between the expected 15-20% range. Moving on to the gross margin, where Netflix is also pretty moderate. The number 31.83 gives an indication of the pricing, cost structure, and production efficiency of the business. Despite these positive statistics, Netflix’s operating margin is surprisingly low. The operating margin measures what proportion of a company's revenue is left over after paying for variable costs of production. This could be due to the fact that their sole source of business is streaming online and that their monthly fee is relatively low at only eight dollars. All of this being said, Netflix is a stock that has been on the rise for the past two years and, with a few minor adjustments, will …show more content…
It is calculated with a formula using liabilities and shareholders’ equity: debt-equity ratio=total liabilities/shareholders’ equity. Netflix’s debt to equity ratio is 3.57 after dividing the shareholders’ equity of $2,167,318.32 by the total liabilities (current and past) of $7,748,949. Unlike a debt to assets ratio, a debt to equity ratio is not determined good or bad based on a set of standards. Instead, analyzing the history of the company proves more substantial in determining the financial success of the company regarding that specific ratio since debt to equity ratios vary from corporation to corporation since some industries use more debt-financing than others. On June 30th, 2014, Netflix’s debt to equity ratio was 1.33 ($4,480,751/$3,375,129), on September 30th, 2014 it was 1.34 ($6,778,329/$5,053,455), on June 30th, 2015 it was 3.75 ($7,622,786/$2,032,075.32), and aforementioned, on September 30th, 2015 it was 3.57. The tripling of the debt to equity ratio over the past year is attributed to the twenty million new subscribers Netflix experienced in the same duration (The Statistics Portal). Therefore, the burst of new users required them to finance their assets with more of the shareholders’ equity–especially since the online company has extremely minimal liquidity. This may appear as a red flag to some investors however,
The key ratios include the return on assets, the return on equity, and the operating and gross margins. When referencing the return on assets, the higher the better. This number shows the percentage of profit compared to the company’s resources. For Netflix, this number comes to 4.28% after dividing the assets by the net income. Considering that 5% is the standard for an ROA, this number is fairly average. A return on equity, on the other hand, is directly connected to profitability because it calculates how well a company utilizes the shareholders investments to generate profit. The net income divided by the shareholder investment brings Netflix to 16.72%, right between the expected 15-20% range. Moving on to the gross margin, where Netflix is also pretty moderate. The number 31.83 gives an indication of the pricing, cost structure, and production efficiency of the business. Despite these positive statistics, Netflix’s operating margin is surprisingly low. The operating margin measures what proportion of a company's revenue is left over after paying for variable costs of production. This could be due to the fact that their sole source of business is streaming online and that their monthly fee is relatively low at only eight dollars. All of this being said, Netflix is a stock that has been on the rise for the past two years and, with a few minor adjustments, will …show more content…
It is calculated with a formula using liabilities and shareholders’ equity: debt-equity ratio=total liabilities/shareholders’ equity. Netflix’s debt to equity ratio is 3.57 after dividing the shareholders’ equity of $2,167,318.32 by the total liabilities (current and past) of $7,748,949. Unlike a debt to assets ratio, a debt to equity ratio is not determined good or bad based on a set of standards. Instead, analyzing the history of the company proves more substantial in determining the financial success of the company regarding that specific ratio since debt to equity ratios vary from corporation to corporation since some industries use more debt-financing than others. On June 30th, 2014, Netflix’s debt to equity ratio was 1.33 ($4,480,751/$3,375,129), on September 30th, 2014 it was 1.34 ($6,778,329/$5,053,455), on June 30th, 2015 it was 3.75 ($7,622,786/$2,032,075.32), and aforementioned, on September 30th, 2015 it was 3.57. The tripling of the debt to equity ratio over the past year is attributed to the twenty million new subscribers Netflix experienced in the same duration (The Statistics Portal). Therefore, the burst of new users required them to finance their assets with more of the shareholders’ equity–especially since the online company has extremely minimal liquidity. This may appear as a red flag to some investors however,