MGMT90226

Business Acumen for Entrepreneurs

Class 1
Use in conjunction with text book slides

albeb@unimelb.edu.au
 What’s our starting position?

• What’s your view [prior beliefs] about accounting?

• What ‘descriptors’ come to mind?
Brugghen, Hendrickter -The Calling of St. Matthew 1621
Outline the role of accounting in decision making by various users
A start-up: Time and Motion

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Arizona Microbrewery Case

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Arizona Microbrewery (AMB) Background and Issues

 David Tucker founded AMB in 2010. AMB produces four

labels of specialty beers (in a rented facility) which is sold to
distributors.

Issues include:
How to grow the business? Where should the emphasis be placed?

Relationships between cost-volume-profit? (focus of this class)

Product emphasis (to be considered later).

Product development and distribution channels.

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 Arizona Microbrewery
 Case background

 What information do we have?

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 Arizona Microbrewery

What are the main issues in the case?

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1. Cost structure of Arizona Microbrewery

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Simplified accounting process regarding financial
reporting
Simplified accounting process: key
components
Transactions and documentation

Recording

Reporting: key financial statements:

Profit and loss statement
Balance Sheet
Cash Flow Statement

Analysis and interpretation of results

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 Introducing key summary financial statements

What information is conveyed in each of these statements?

Statement of profit and loss (income statement)

Statement of financial position (balance sheet)

Statement of cash flows

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 Spreadsheets…working in excel

• Aaaaah!
Netflix, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, December 31, December 31,
2016 2017 2018

Revenues 8830669 11692713 15794341

Cost of revenues 6257462 8033000 9967538
Marketing 1097519 1436281 2369469
Technology and development 780232 953710 1221814
General and administrative 315663 431043 630294
Operating income 379793 838679 1605226
Other income (expense):
Interest expense -150114 -238204 -420493
Interest and other income (expense) 30828 -115154 41725
Income before income taxes 260507 485321 1226458
Provision for (benefit from) income taxes 73829 -73608 15216
Net income 186678 558929 1211242
Earnings per share:
Basic 0.435327479 1.29416164 2.782072425
Diluted 0.42557198 1.250920965 2.684228488
Weighted-average common shares outstanding:
Basic 428822 431885 435374
Diluted 438652 446814 24
451244
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Netflix, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands)

December 31,
December 31,
December 31,
2016 2017 2018
Assets
Current assets:
Cash and cash equivalents 1467576 2822795 3794483
Short-term investments 266206 0 0
Current content assets, net 3726307 4310934 5151186
Other current assets 260202 536245 748466
Total current assets 5720291 7669974 9694135
Non-current content assets, net 7274501 10371055 14960954
Property and equipment, net 250395 319404 418281
Other non-current assets 341423 652309 901030
Total assets 13586610 19012742 25974400
Liabilities and Stockholders' Equity
Current liabilities:
Current content liabilities 3632711 4173041 4686019
Accounts payable 312842 359555 562985
Accrued expenses 197632 315094 477417
Deferred revenue 443472 618622 760899
Total current liabilities 4586657 5466312 6487320
Non-current content liabilities 2894654 3329796 3759026
Long-term debt 3364311 6499432 10360058
Other non-current liabilities 61188 135246 129231
Total liabilities 10906810 15430786 20735635
Stockholders' equity:
Common stock 1599762 1871396 2315988
Accumulated other comprehensive income (loss) -48565 -20557 -19582
Retained earnings 1128603 1731117 2942359
Total stockholders' equity 2679800 3581956 5238765
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Total liabilities and stockholders'
13586610equity
19012742 25974400
Netflix
Cash Flow
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, December 31, December 31,
2016 2017 2018

Net income 186678 558929 1211242

Adjustments to reconcile net income to net cash
used in operating activities:
Additions to streaming content assets -8653286 -9805763 -13043437
Change in streaming content liabilities 1772650 900006 999880
Amortization of streaming content assets 4788498 6197817 7532088
Amortization of DVD content assets 78952 60657 41212
Depreciation and amortization of property, equipment and intangibles 57528 71911 83157
Stock-based compensation expense 173675 182209 320657
Excess tax benefits from stock-based compensation -65121 0 0
Other non-cash items 40909 57207 40428
Foreign currency remeasurement loss (gain) on long-term debt 0 140790 -73953
Deferred taxes -46847 -208688 -85520
Changes in operating assets and liabilities:
Other current assets 46970 -234090 -200192
Accounts payable 32247 74559 199198
Accrued expenses 68706 114337 150422
Deferred revenue 96751 177974 142277
Other non-current assets and liabilities -52294 -73803 2062
Net cash used in operating activities -1473984 -1785948 -2680479

Acquisition of DVD content assets -77177 -53720 -38586

Purchases of property and equipment -107653 -173302 -173946
Change in other assets -941 -6689 -126588
Purchases of short-term investments -187193 -74819 0
Proceeds from sale of short-term investments 282484 320154 0
Proceeds from maturities of short-term investments 140245 22705 0
Net cash provided by (used in) investing activities 49765 34329 -339120

Proceeds from issuance of debt 1000000 3020510 3961852

Issuance costs -10700 -32153 -35871
Proceeds from issuance of common stock 36979 88378 124502
Excess tax benefits from stock-based compensation 65121 0 0
Other financing activities 230 255 -1956
Net cash provided by financing activities 1091630 3076990 4048527

-9165 29848 -39682

-341754 1355219 989246
1809330 1467576 2822795
1467576 2822795 3812041

Net cash used in operating activities -1473984 -1785948 -2680479

Acquisition of DVD content assets -77177 -53720 -38586
Purchases of property and equipment -107653 -173302 -173946
Change in other assets -941 -6689 -126588
Non-GAAP free cash flow -1659755 -2019659
26 -3019599
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 Brief recap from week 1
 Accounting has a long history of contributing to organisational
life…..reporting, monitoring, supporting….organisational activity and
decision making by a variety of users….
 Bookkeeping, while serving an important role is merely a sub-set of
accounting..
 A variety of sub-disciplines exist: financial accounting, management
accounting, auditing, tax, forensics…..though much inter-relatedness
exists
 Users of accounting information include both external and internal
users…
 A range of influences exist over accounting practice…particulalry with
respect to financial reporting….

 who audits the auditors?

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 Your task

 Pick your favourite company (not Twitter)

 Using the library access the annual report…using the library data
base link or the investor section of the website of your company.
 Bring along to class and be sure to have the three key financial
statements on hand.

 We will use them in class…..

 Read Chapter 10: pp421-434

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