Financial Statement Analyses of Netflix

Hazim Mohamed Ahmed

Abu Dhabi University, Email: 1072795@students.adu.ac.ae

Supervised by

Professor Haitham Nobanee

Abstract

This paper discusses and analyses Netflix’s financial performance over the past 4 years

between 2016 and 2019, with the use of financial ratios. Netflix is well known to many as a

major streaming platform and the company that changed traditional DVD players as the main

source for movies and TV shows into the more equipped and reliable streaming services. We

gather our information from yahoo finance about the performance of Netflix and look at how

it has fared between 2016-19 and the points in which Netflix has excelled and the point in

which they need some improvements.

Electronic copy available at: https://ssrn.com/abstract=3647452

Introduction

Netflix is a streaming service that provides movies and TV shows just with a touch of a button,

it was established in 1997 and operates today as the biggest streaming platform in the world

with over 125 million subscribers around the world (Elena, 2019).. Netflix saw an opportunity

in the 1990s of a change in the way people watch movies and TV shows, Netflix realized that

the people don’t want to go to the store, look for a DVD player, and purchase it. They knew

that the people would rather sit at home and watch their movies from the comfort of their couch,

something that Blockbuster did not agree with. Blockbuster was Netflix’s competition in the

1990s, they believed that Netflix’s theory is wrong and that people still preferred to go to the

store and purchase their movies, which later lead to the bankruptcy of Blockbuster and their

extinction. (Grace, Darothee, & Holly, 2014) Streaming Platforms is the way to go nowadays

and everybody kind of ditched traditional broadcasting. Companies such as Disney and

Amazon have immensely benefited from having a streaming platform and Netflix tops that list.

(The Netflix effect, 2018) Ratio analyses could be defined as the process of evaluating and

interpreting the operating and financial status of a company (AlKaabi and Nobanee, 2020) with

the use of annual reports and financial statements. (Pawar & Mpandya, 2013) Ratio analyses

is really important as it measures the financial positioning of a company and helps businesses

prepare for the future with the use of multiple ratios such as the current ratio and the time ratio.

(AlBreiki & Nobanee, 2020) Ratio analyses also help businesses assess their performance and

determine the pros and cons of their operations. (AlDhaheri & Nobanee, 2020) One of the

most important financial ratios is the liquidity ratio as it plays a major role in evaluating the

day to day activities of a company most importantly whether they can meet their short-term

debt obligations. (Rashid, 2018) Ratio analyses measure profitability, liquidity, and anything

Electronic copy available at: https://ssrn.com/abstract=3647452

that has to do with the growth of the business, to please shareholders and maintain a positive

market value (Pawar & Mpandya, 2013)

Methodology
In this paper, we analyze the financial performance of the streaming service company Netflix

with the use of ratio analyses and Netflix’s annual data from the past four years. I take a lock

at Netflix’s assets, liabilities, equity, and inventory with the use of the current ratio, quick ratio,

cash ratio, and other financial ratios in our analyses of their performance

Year/Item 2019 2018 2017 2016

Current Assets 6,178,504 9,694,135 7,669,974 5,720,291
Currant 6,855,696 6,487,320 5,466,312 4,586,657
Liabilities
Inventories 1,160,067 5,899,652 4,847,179 3,986,509
Cash 5,018,437 3,794,483 2,822,795 1,733,782
Receivables 979,068
Total Assets 33,975,712 25,974,400 19,012,742 13,586,610
Accounts 674,347 562,985 359,555 312,842
payable
Total Liabilities 26,393,555 20,735,635 15,430,786 10,906,810
Total Equity 7,582,157 5,238,765 3,581,956 2,679,800
Sales 21,403,146 20,156,447 15,794,341 11,692,713
COGS 13,169,300 12,440,213 9,967,538 7,659,666
EBIT 3,103,426 2,604,254 1,605,226 838,679
Interest 674,577 626,023 420,493 238,204
Net income 2,231,931 1,866,916 1,211,242 558,929

Results and discussions

Current Ratio:
Year/Item 2019 2018 2017 2016
Current assets 6,178,504 9,694,135 7,669,974 5,720,291
Current 6,855,696 6,487,320 5,466,312 4,586,657
Liabilities
Total 0.90 1.49 1.40 1.24

Electronic copy available at: https://ssrn.com/abstract=3647452

 Current ratio of Netflix
1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2019 2018 2017 2016

Comment: Netflix had a healthy current ratio in 2016 that continued growing through the next
two years until it fell drastically in 2019
Quick (Acid – Test) Ratio:
Year/Item 2019 2018 2017 2016
Current assets 6,178,504 9,694,135 7,669,974 5,720,291
Inventory 1,160,067 5,899,652 4,847,179 3,986,509
Current 6,855,696 6,487,320 5,466,312 4,586,657
Liabilities
Total 73.2% 58.4% 51.6% 37.8%
Quick ratio of Netflix
80.00%

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
2019 2018 2017 2016

Comment: Netflix managed to grow their Quick ratio year on year, jumping an impressive
35.4% between 2016 and 2019.

Electronic copy available at: https://ssrn.com/abstract=3647452

Cash Ratio:

Year/Item 2019 2018 2017 2016

Cash 5,018,437 3,794,483 2,822,795 1,733,782
Current 6,855,696 6,487,320 5,466,312 4,586,657
Liabilities
Total 73.2% 58.4% 51.6% 37.8%

Cash ratio of Netflix

80.00%

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
2019 2018 2017 2016

Comment: The cash ratio of Netflix keeps on growing through the duration of the 4 years,
reaching its highest numbers in 2019

Inventory Turnover Ratio:

Year/Item 2019 2018 2017 2016
COGS 13,169,300 12,440,213 9,967,538 7,659,666
inventory 1,160,067 5,899,652 4,847,179 3,986,509
11.35 2.10 2.05 1.92

Electronic copy available at: https://ssrn.com/abstract=3647452

 Inventory turnover ratio of Netflix
12

10

0
2019 2018 2017 2016

Comment: the inventory turnover ratio of Netflix grew tremendously in 2019, getting a much
a bigger value compared to previous years.

Receivables Turnover:

Year/Item 2019 2018 2017 2016

Sales 21,403,146 20,156,447 15,794,341 11,692,713
Receivables 979,068 0 0 0
21.8

Note: Netflix did not record any receivables for the years 2018, 2017, and 2016 and so the ratio
could not be complete
Debt Ratio:
Year/Item 2019 2018 2017 2016
Total Liabilities 26,393,555 20,735,635 15,430,786 10,906,810
Total assets 33,975,712 25,974,400 19,012,742 13,586,610
77.6% 79.8% 81.1% 80.25

Electronic copy available at: https://ssrn.com/abstract=3647452

 Debit ratio of Netflix
9000.00%
8000.00%
7000.00%
6000.00%
5000.00%
4000.00%
3000.00%
2000.00%
1000.00%
0.00%
2019 2018 2017 2016

Comment: Netflix had big debt ratio numbers between 2016 and 2017 but it has slowly started
to fall since
Time Interest earned ratio:
Year/Item 2019 2018 2017 2016
EBIT 3,103,426 2,604,254 1,605,226 838,679
Interest 674,577 626,023 420,493 238,204
4.6 4.1 3.8 3.5

Time interest earned ratio of Netflix

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2019 2018 2017 2016

Comment: Netflix always managed to obtain good interest earned numbers as you can see the
interest earned ration keeps growing between 2016 and 2019
Return on equity:
Year/Item 2019 2018 2017 2016
Net income 2,231,931 1,866,916 1,211,242 558,929
Equity 7,582,157 5,238,765 3,581,956 2,679,800
29.4% 35.6% 33.8% 20.8%

Electronic copy available at: https://ssrn.com/abstract=3647452

 Return on equity Ratio of Netflix
4000.00%

3500.00%

3000.00%

2500.00%

2000.00%

1500.00%

1000.00%

500.00%

0.00%
2019 2018 2017 2016

Comment; Healthy return on equity numbers from Netflix throughout the 4 years
Return on Total assets:
Year/Item 2019 2018 2017 2016
Net income 2,231,931 1,866,916 1,211,242 558,929
Total assets 33,975,712 25,974,400 19,012,742 13,586,610
Total 6.5% 7.1% 6.3% 4.1%

Return on total assets of Netflix

8.00%

7.00%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
2019 2018 2017 2016

Comment: Netflix managed to grow their return on total asset numbers reaching its highest
value in 2018, but could not maintain the same number for 2019.

Electronic copy available at: https://ssrn.com/abstract=3647452

Profit Margin:

Year/Item 2019 2018 2017 2016

Net Income 2,231,931 1,866,916 1,211,242 558,929
Sales 21,403,146 20,156,447 15,794,341 11,692,713
10.4% 9.2% 7.6% 4.7%

Profit margin of Netflix

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2019 2018 2017 2016

Comment: the profit margin of Netflix continues to grow year on year reaching 10.4% in 2019

Conclusion
To conclude Netflix is the biggest and most popular streaming platform in the world with a

whole host of assets and inventories in its disposal making it the absolute king of streaming

services above the likes Disney+ and Amazon prime. (Bennet & Lanning, n.d.) Netflix was

established in 1997 and one of their most revolutionary ideas was realizing that people would

much rather stay at home and watch whatever movie or tv show they’d like over physically

going to the store and Purchasing the movie, this then turned reality where people can watch

whatever they want with a touch of a button using a subscription fee. (Karen & Bell, n.d.) All

of this generated a lot of money for Netflix and their financial performance over the past 4

years proves it. Netflix pretty much had growth in all the financial ratios with significant

Electronic copy available at: https://ssrn.com/abstract=3647452

growth in their return on assets and return on equity ratios, meanwhile they managed to reduce

their debt ratio to reach its lowest amount in 2019. In addition, the cash and inventory ratios

maintained a healthy growth rate between 2016 and 2019. However, The biggest downfall was

in the return on equity ratio as Netflix had an unsteady return on equity ratio between 2016 and

2019 reaching a high 35.6% in 2018, but falling back down to 29.4% in 2019 their second

worse number over the past 4 years. All and all Netflix had a financially successful period

between 2016 and 2019 as they almost had a positive return in every ratio, and more

impressively had constant growth in almost all ratios.

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Electronic copy available at: https://ssrn.com/abstract=3647452

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Electronic copy available at: https://ssrn.com/abstract=3647452