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Ashford University

BUS 401: Principles of Finance

Instructor Sherri Jenkins

March 5, 2020

EXECUTIVE SUMMARY

Netflix is a digital content provider that is based out of Los Gatos, CA. Netflix began as a mailed DVD operation that migrated to streaming services with the increase in technology. While Netflix was making the transition to streaming content, majority of what was available to consumers was content created by others. As of 2019, Netflix primarily focused on creating unique content to maintain its subscriber base. Although Netflix receives majority of its revenue from North America, it is working to expand globally.

Findings

The financial ratios completed for 2017-2019 signify Netflix is in decline due to large amount of long-term debt. The liquidity and financial leverage are in line with a consistent decline over the years. Netflix started with a current ratio of 1.4 in 2017 and dropped to 0.9. As stated previously, long-term debt to produce unique content is the main contributor for the declining financial status. In 2019, Netflix report $14,759,260 long-term debt that equates to a high debt ratio of 1.88. The net profit margin increase should not be misconstrued. While there is a positive trend of growth over the three years, net revenues are not increasing at the same rate as assets.

Recommendations and Rationale

Netflix laid the foundation for this market but maintains a higher monthly service charge that is challenging for subscribers to justify. There are too many competitors now to consider Netflix as the top firm to pursue the purchase of stock shares. There is a lack of significant return on Netflix shares. In 2019, earnings per share is $0.0042 and that figure is not worth the risk of investment. The funds available for investment should be directed at organizations that offer a higher rate of return.

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