Netflix Analysis Report

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Netflix Leverage Ratio

Mar 31,2016

QI

Dec31, 2015 QIV.

Sep30,2015 QIII

Jun30, 2015

QII.

March31, 2015

QI.

Y / Y Equity Change

-66.12 %

-44.86 %

-39.01 %

-34.63 %

-29.38 %

Y / Y Total Liabilities Change

38.11 %

37.54 %

3.6 %

12.77 %

2.63 %

Leverage Ratio MRQ

7.42

4.16

2.79

2.31

1.82

Overall Ranking

# 3879

# 3617

# 3430

# 3213

# 2775

Seq. Equity Change

-45.5 %

-14.7 %

-21.32 %

-7.39 %

-11.28 %

Seq. Total Liabilities Change

-2.75 %

27.03 %

-4.86 %

17.51 %

-3.15 %

RISK ANALYSIS

Netflix like any other multinational corporation is exposed to a variety of risk ranging from foreign exchange and currency related risk, marketing risks, stiff competition and technological risks among others (Murphey & Gause, 1974).Netflix therefore has employed risk management techniques to ensure smooth operations.

Hedging is more applied by Netflix in instances of commodity price volatility; has always been there and is the single largest variable in forecasting earnings for companies. Changes in marketing or operational environment forced Netflix to incorporate hedging strategy (Roper, 2015).For instance, the recent volatility in oil prices and the uncertainty in European market due to membership wrangles has necessitated this action. There are so much uncertainty in Europe as the major player-UK seek to exit from the European Union and termed the overwhelming power by Brussels as the reason for their exit. The issue is still pending waiting a referendum but its effects is already being felt in the derivative market as firms re-strategize on how to position themselves.

On the other hand, Netflix has also leveraged on insurance. With the growing trade volumes, vessel sizes, operational risks, liabilities and other government legislation variation among the respective European economies, Netflix’s leverages on insurance to ensure success in shipping and other supply chain incentives. Insurance is an effective risk management tool and has ensured undisrupted operations in all the European Markets.

Supply chain management and marketing in global perspective of business, is exposed to constantly changing and most cases increasing risks and liabilities. Depending upon geographical spread of the business like the Netflix, those risks are likely to range from political risks to business interruption and more specific threats from piracy and theft (Gillespie, 2007).

COST OF CAPITAL AND WACC

Weight of equity

An approach to calculating the cost of a firms Equity gives different weight to different aspects of the equities. Instead of lumping retained earnings, common stock and the preferred stock together, it is better and more accurate idea for companies to compute each component independently (Anderson & Mirosa, 2014) .Determining an accurate cost of equity for Netflix is integral for the firm to be able to calculate its cost of capital. Because the formula for the cost of capital is given as;

WACC

=

E

/

(E + D)

*

Cost of Equity

+

D

/

(E + D)

*

Cost of Debt

*

(1 - Tax Rate)

In general, a company's assets are actually financed by the equity (E) and Debt(D) .In our case, as of today, Netflix Corporations Market Capitalization by Equity (E) stands at $105694.047 Million while the total Book Value of Debt (D) is $19528.9 Million.

With these values we can easily calculate the weight of equity [E / (E + D)].

Weight of equity = E / (E + D) = 105694.047 / (105694.047 + 19528.9) = 0.844 or simply 84.4%

Weight of Debt

The market value of debt is somehow challenging to compute, it is for that reason that the book value of debt (D) is used to do the calculation. It is made easier by adding the latest 2-year average of the Short and Long-Term Debts. As at March 2016, Netflix ’s latest 2-year average short-term debt was $0 Million and its latest two-year average long-term debt stood at $19528.9 million, thus the total Book Value of Debt (D) is $19528.9 Million whereas that of Equity is $105694.047 million. The weight of debt therefore is;

Weight