Netflix Financial Statements and Financial Ratios Analyzed from 2015 to 2019

 “Netflix 2019 Company Analysis: Financial Statements and Financial Ratios: Defined, Discussed, and Analyzed for 5 Years” was written by, Paul Borosky, MBA. and owner of Quality Business Plan.  In this book, the author selected Netflix's 2018 10k, 2017 10k annual report, 2016 10k annual report, 2015 10k annual report, and Netflix's 2019 10k annual report as the basis for information gathering. 

Netflix: Brief Summary

Netflix stock price started 2019 at $302.01.  It ended the year with a stock price of $326.78.  This is a growth rate annually of 8.17%.  From an investor’s perspective, this growth rate is about average as compared to overall market returns.

Netflix has not paid out dividends in the last five years.  The zero dividend payment policy may be due to the company’s need for internal growth.  However, over the next several years, investors should expect some type of dividends to be paid once the organization reaches the mature phase of their business cycle.

Section 1: Netflix Income Statement Analyzed 2015 to 2019

Revenue Growth:  Netflix ended 2015 with revenues of approximately $6.8 billion.  In 2019, the company ended the year with revenues of approximately $20.1 billion.  This indicates an average annual growth rate of approximately 31.3%.  Unfortunately, with new competitors entering the marketplace like Amazon and Disney, this growth rate is unsustainable.  From this, an expectation of approximately 10 to 15% annual growth should be expected over the next several years.

SG&A:  The SG&A has been about 4.2% of revenues, on average, over the last five years.  This shows that the firm is doing an excellent job maintaining low overhead and advertising costs as compared to revenue growth.

Netflix Summary Income Statement 2019
Column1 2019 2018 2017 2016 2015
Revenues             20,156,447             15,794,341             11,692,713               8,830,669                 6,779,511
COGS               2,652,462               2,369,469               1,436,281               1,097,519                 4,591,476
Gross Profit             17,503,985             13,424,872             10,256,432               7,733,150                 2,188,035
SG&A                  914,369                  630,294                  431,043                  315,663                    407,329
Depreciation                            -                            -                            -                            -                             -
R & D               1,545,149               1,221,814                  953,710                  780,232                    650,788
Other                            -                            -                            -                            -
Operating Expenses               2,459,518               1,852,108               1,384,753               1,095,895                 1,058,117
EBIT               2,604,254               1,605,226                  838,679                  379,793                    305,826
Other Income                            -                            -                            -                            -
Interest Expense                  626,023                  420,493                  238,204                  150,114                    132,716
EBT               2,062,231               1,226,458                  485,321                  260,507                    141,885
Taxes                  195,315                    15,216                   (73,608)                    73,829                    141,885
Net Income             1,866,916             1,211,242                558,929                186,678                  122,641

Section 2: Netflix Balance Sheet Analyzed from 2015 to 2019

Cash:  Netflix ended 2015 with approximately $1.8 billion in cash.  Over the next five years, the company ballooned its cash position to approximately $5 billion.  This shows that the firm is holding excess cash as compared to investing the funds in short-term investments.  Unfortunately, this is not the best strategy for cash management.

 Accounts Receivable and Inventory:  Because Netflix does not sell products or services through other entities, the organization has no, or very little, Accounts Receivable or inventory items.

Property plant and equipment:  Netflix has steadily increased its property plant and equipment over the last five years.  The average growth rate is about 30% annually.  This indicates that the firm needs substantial property and equipment to support its growth needs.  From this assessment, investors should expect this line item to maintain its growth rate until revenue levels off.

Netflix Summary Balance Sheet 2019
Column1 2019 2018 2017 2016 2015
Cash                 5,018,437             3,794,483             2,822,795             1,467,576             1,809,330
Short Term Investment                              -                         -                         -                266,206                501,385
Account Receivable                              -                         -                         -                         -                         -
Inventory                              -                         -                         -                         -                         -
Other                              -                         -                         -                         -                         -
Current Assets               6,178,504          9,694,135          7,669,974          5,720,291          5,431,840
Net PPE                    565,221                418,291                319,404                250,395                173,412
Goodwill                              -                         -                         -                         -                         -
Other                              -                         -                         -                         -                         -
Total Assets            33,975,712        25,974,400        19,012,742        13,586,610        10,202,871
Accounts Payable                    674,347                562,985                359,555                312,842                253,491
Accrued Expense                    843,043                477,417                315,094                197,632                140,389
Accrued Taxes                              -                         -                         -                         -                         -
Notes Payable                              -                         -                         -                         -                         -
LT Debt - Current                              -                         -                         -                         -                         -
Other                              -                         -                         -                         -                         -
Total Current Liabilities                 6,855,696             6,487,320             7,669,974             5,720,291             3,529,624
LT Debt               14,759,260           10,360,058             6,499,432             3,364,311             2,371,362
Other                              -                         -                         -                         -                         -
Total Liabilities            26,393,555        20,735,635        15,430,786        10,906,810          7,979,445
Common Stock                 2,793,929             2,315,988             1,871,396             1,599,762             1,324,809
Treasury                              -                         -                         -                         -                         -
Retained Earnings                 4,811,749             2,942,359             1,731,117             1,128,603                941,925
Other                              -                         -                         -                         -                         -
Total Equity               7,582,157          5,238,765          3,581,956          2,679,800          2,223,426
Total Equity & Liability            33,975,712        25,974,400        19,012,742        13,586,610        10,202,871

Section 3: Netflix Financial Ratios Analyzed from 2015 to 2019

Current Ratio:  Netflix's current ratio had fallen from 1.54 in 2015 to .9 in 2019.  This indicates that the firm may not have enough funds over the short term to cover short-term liabilities.  However, because the organization does receive monthly installment payments from its customers, a lower current ratio should be acceptable to ensure financial liquidity over the short term.

Fixed Asset Turnover:  The firm’s fixed asset turnover has fallen from 39 to 35.6.  Again, Netflix is underutilizing its property and equipment.  To improve upon the situation, the firm may seek to liquidate some fix assets.  This action would improve the fixed asset turnover ratio.  However, it would not change the total asset turnover underutilization.

Gross Profit Margin:  The company’s gross profit margins have increased from 32% in 2015 to 86% in 2019.  Further, in the last four years, the gross profit margin has ranged from 86% to 87.5%.  This indicates that the company has found workable strategic actions to ensure the cost of goods stay within a certain, narrow range.

Debt to Equity Ratio:  Netflix debt to equity ratio ended 2015 at 106%.  In 2019, this ratio ballooned up to 194%.  In other words, the company has doubled the usage of debt as compared to equity.  This strategy is unsustainable in the short or long-term.  In the near term, the organization should expect to pay higher interest rates for additional borrowed funds.

Netflix 2019 Liquidity Ratios
Ratios 2019 2018 2017 2016 2015
Current Ratio                           0.90                    1.49
Cash Ratio                           0.73                    0.58
Quick Ratio                           0.90                    1.49
Net Working Capital                  3,501,047           2,754,081
Netflix 2019 Asset Utilization Ratios
Ratios 2019 2018 2017 2016 2015
Total Asset Turnover                           0.59                    0.61
Fixed Asset Turnover                         35.66                  37.76
Days Sales Outstanding                              -                        -
Inventory Turnover #DIV/0! #DIV/0!
Accounts Receivable Turnover #DIV/0! #DIV/0!
Working Capital Turnover                           5.76                    5.73
AP Turnover                         29.89                  28.05
Average Days Inventory #DIV/0! #DIV/0!
Average Days Payable                           0.08                    0.08
Netflix 2019 Profitability Ratios
Ratios 2019 2018 2017 2016 2015
Return on Assets 5.49% 4.66%
Return on Equity 24.62% 23.12%
Net Profit Margin 9.26% 7.67%
Gross Profit Margin 86.84% 85.00%
Operating Profit Margin 12.92% 10.16%
Basic Earning Power 7.67% 6.18%
ROCE 9.60% 8.24%
Capital Employed                27,120,016         19,487,080
ROIC 57.98% 49.97%
Netflix 2019 Long-term Debt
Ratios 2019 2018 2017 2016 2015
Debt Ratio 43.44% 39.89%
Debt/Equity 194.66% 197.76%
Times Interest Earned                           4.16                    3.82

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