- Published: October 31, 2021
- Updated: October 31, 2021
- University / College: Carnegie Mellon University
- Level: Undergraduate
- Language: English
- Downloads: 13
Financial ment on Netflix From the start of to the end, Netflix experienced tremendous growth across different aspects of the company. The company saw its growth in aspects such as profits, stock price and subscribers. During this financial year, the value of each share increased from about $54 to $176, which is an increase of more than 200%. The increase in value of shares can be attributed to an increase in popularity since the company attracted approximately 8 million new subscribers. This attraction of new subscribers made it achieve total revenue of $2.1 billion. Still on the same report, Netflix made $805 million in terms of gross profits, which finally amounted to about $160 million net income. Looking at the cash flow statement of the year, certain major components stand out. During this year, they bought back $90 million worth of their own stock. The buying of this stock was made possible due to the large increase in price (Houston and Brigham, p. 248).
In the year 2013 and 2014, the company spent over half of the total revenues on subscription. Expenses on subscription were 57.2% of the total revenue in 2013 and 55.1% of the total revenue in 2014. It therefore means that subscription expenses increased by 14.1%. These subscription expenses are as a result of shipping off DVDs to customers. They also result from buying of content from distributors. Shipping costs include package, postage and labels. In 2013, more DVDs were shipped since there were more subscribers.
The operating expenses for Netflix include expenses incurred on technology and development, marketing and administration. There was an increase of 26.3% for expenses on technology and development between 2013 and 2014. The increase in these expenses was because of need for more personnel to stream content on the internet. In terms of total revenue, these expenses were 6.2% in 2013 compared to 5.7% in 2014. Expenses incurred on marketing reduced by 8.5% from 2013 to 2014 and comprised 15.6% of total revenues in 2014 compared to 16.8% in 2013. The reduction in marketing expenses is a reflection of Netflix’s resolution to decrease its advertisements to potential customers.
For 2013 and 2014, Netflix increased its profit margin because of its decrease in marketing expenses. The operating profit margin for Netflix increased from 7.3% in 2013 to 8.5% in 2014.
In terms of assets, cash and cash equivalents accounted for 94% of current assets owned by Netflix in the year 2013. In 2014, cash represented 47% of Netflix’s current assets. This reduction in cash is attributed to the company’s use of cash for short term-term investments. The company invested in corporate debt securities, asset and mortgage backed securities and agency securities (Houston and Brigham, p. 253).
In addition to its current assets, Netflix’s balance sheet has four more asset sections. These asset sections include deferred tax assets, content library, property and equipment, and other assets. The content library contains the DVDs as well as the streaming content sold to customers. From to 2013 to 2014, there was a decrease of 12.4% in movies found in the content library. This decrease is attributed to depreciation in the value of DVDs and sale of some of the content. Deferred tax assets increased from 2013 to 2014. However, this increase represents a minor part of the total assets.
Property and equipment assets represented 16.7% in 2013 and 20.2% in 2014. The increase in these assets was so significant to the company. It purchased and leased many buildings in the United States. Generally, there was a decrease in total assets from 2013 to 2014. As noted earlier, this reduction resulted from the purchase of short-term investments and content for the library (Houston and Brigham, p. 272-73).
Houston, Joel and Eugene Brigham. Fundamentals of Financial Management. Stamford: Cengage Learning, 2014. Print