Netflix is a main player in the internet television network. Presently, the conglomerate has extra than 190 million streaming users, and it is running in over 190 international locations across the globe. In a day, Netflix contributors can access over a hundred twenty five million hours of TV programs and films. Further, its customers are as much as they are fascinated at any particular time and location using any internet-linked device. Since its launch of the streaming carrier in 2007, Netflix is the original developer in the net delivery of TV programs. Over the previous few years, it has created a system of internet-linked screens. Equally, Netflix has multiplied extra contents that allow them to meet diverse customer needs and expectations. Currently, the company’s primary strategy is to expand their streaming membership ventures internationally within its parameters of profit margin targets. To attain this, the multinational firm is consistently improving their consumer experience by increasing the streaming content with a concentration on a programming mix of content, which attracts most of its users. Additionally, Netflix is continually improving its use interface and spilling out its streaming services to highly internet-based screens. As a result, consumers are currently able to download various contents for offline watching. With regard to the above achievements, this paper analyses the financial statements for Netflix.
When discussing the negative and positive impacts of multinational firms, such as Netflix, there are several things to put into consideration. At Netflix, one of the most critical elements is assessing its financial position. There, in this case, analyzing the financial condition via an evaluation of the balance sheet is among the effective approaches. Through understanding the company’s balance sheet, stakeholders can be aware of how well-placed the organization is to sustain and augment success. The first element of Netflix’s balance sheet to assess is the cash and cash equivalents. According to Collier (2015), with high cash levels, a company can participate in mergers and acquisitions, settle debts, rebuy stock, and pay dividends. As at 2016, Netflix had an aggregate of $3.4 billion cash and cash equivalents. Thus, this insinuates that the firm has a better liquidity that can be utilized to expand or promote the business. While the firm made huge investments in licensed streaming content that affected the cash and cash equivalents in 2015, it has increased its cash on hand from $1billion to $3.4 billion, which reveals why the company is competitive and the leading player in the Internet Television Network industry.
Moreover, as at the end of 2016, Netflix had about $6.5billion of total content liabilities, which is presented on the consolidated balance sheet. Notably, this amount does not incorporate streaming content efforts that are unable to suit the criteria for liability acknowledgment and the amounts which are relevant.
Return on assets is another essential aspect of Netflix’s financial statements. Often, it is referred to as mixed ration as it utilizes net assets in the numerator and total assets in the denominators. At Netflix, it is widely used to quantify the ability of the management team to create revenue for each dollar of assets at their disposal. As at the end of 2016, Netflix had a return of asset at approximately 2.43 percent. According to Guo and Wang (2016), this is appropriate considering the amount of assets to be invested for business expansion in the future. When evaluating Netflix’s balance sheet, it is essential to quantify this value in comparison to the previous years and quarters to realize the growth of return over a long period.
Moreover, Debt-to-Equity ratio is another key element when assessing the financial statement of Netflix. According to the 10, it is easy to note that after evaluating the amount of money Netflix has at its disposal and potential to convert its assets into profitable practices, it is vital to understand its combination of debt and equity. Through analyzing this value, it can have an insight of how leveraged Netflix is and the amount of debt responsibilities it is supposed to settle. While a conglomerate with success and cash at hand as Netflix may not stock excessively in its metric, debt and equity ratio is used to show investors or creditor what requires to be reimbursed in the long-run. Companies that are increasingly leveraged are exposed to a high risk of default, but currently, Netflix is fine and active.
Off-balance sheet activity is another aspect to be reviewed in Netflix financial statements. For Netflix, this exercise entails the future cost of revenue. Markedly, according to the 10K report, this has been increasing through the whole of 2016. Before a TV show or movie foes live on Netflix, there are contend costs related to licensing and getting it prepared for streaming supply. According to the United States Generally Accepted Accounting Principles (GAAP), Netflix is supposed to classify these liabilities and assets as an off-balance sheet practice. Therefore, they are not incorporated in the balance sheet until the TV show or movie goes live. It is important to check Netflix’s off-balance activity, but it should not be highly considered id the activity is high. Mainly, this is due to the fact that Netflix might invest in future expansion via an increased amount of content.
At Netflix, the income statement shows the information on the financial outcomes of the company’s business practices over a certain period. The statement communicates the amount of revenue the company made during the period. Further, it portrays the cost it incurred in relation to generating the revenue. The aggregate revenue is during a certain period. It is often derived from products sold, services delivered, insurance payments, or other practices that involve a business’s earning process. At Netflix, revenue incorporates investment and interest income, and sales and trading acquisitions. For instance, Netflix revenues have augmented from 2014 to 2015 and from 2015 to 2016. What is more, the operating income is the net outcome for the period of subtracting operating expenses from operating revenues. In this case, the operating income at Netflix declined from 2014 to 2015 but then augmented from to 2016, not attaining the level in 2014.
All in all, Netflix is an exceptional company in the Internet Television Network sector. However, it encounters some potential competition from streaming delivery services such as Hulu, Amazon Instant Video, and HBO. Markedly, these services are very similar to Netflix’s business framework and have the same financial statements with regard to content licensing and streaming abilities. When the focus is shifted to Netflix’s ratios and cash and cash equivalents, potential competition emerges from Apple and Google due to their high cash assets strength.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.
Guo, C., & Wang, Y. (2016). Market orientation, distributor relationship, and return on assets: Optimizing distribution performance for industrial firms. Asia Pacific Journal of Marketing and Logistics, 28(1), 107-123.