The Corporate Finance Project
Name of the company: Netflix
1. Leverage and Coverage Ratios
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Most Recent Fiscal Year
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Fiscal Year
(-1)
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Fiscal Year
(-2)
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Fiscal Year
(-3)
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Debt/Equity
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Debt/Assets
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Interest Expense/Long term Debt
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Times Interest Earned (TIE)
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Interest Coverage
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a. What trends, if any, are apparent in these ratios?
b. Are these favorable or unfavorable to the shareholders?
c. Are these favorable or unfavorable to the debt holders?
d. The debt or equity ratio from I-Metrix is based on book values. If you were to evaluate the ratio on the basis of market values, could this ratio tend to be higher or lower than on the basis of book values? Why?
2. Growth Rates
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Most Recent Fiscal Year
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Fiscal Year
(-1)
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Fiscal Year
(-2)
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Fiscal Year
(-3)
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Annual Revenue Growth
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Annual Net Income Growth
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Annual Free Cash Flow Growth
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What trends, if any, are apparent in these ratios?- Theoretically, is it possible for sales to increase while net income declines? Why or why not?
- Theoretically, is it possible for net income to decline while free cash flow increases? Why or why not?
3 Distribution Policies
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Most Recent Fiscal Year
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Fiscal Year
(-1)
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Fiscal Year
(-2)
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Fiscal Year
(-3)
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Dividend/Share
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Dividend Yield
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Payout Ratio
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- Based on this data, Explain the firm's dividend policy in the past four years. Is this policy best for the firm? Why or why not?
- Would you recommend any change of policy for this firm? Why or why not?
- The firm's distributions add share repurchases as well as cash dividends. Refer to the firm's statement of cash flows to search data on the aggregate dollar amount of dividends paid and shares repurchased, and report the results below. You will also need to evaluate distributions as percent of net income.
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Most Recent Fiscal Year
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Fiscal Year
(-1)
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Fiscal Year
(-2)
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Fiscal Year
(-3)
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Dividends paid
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Share repurchases
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Net income
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Distribution Ratio
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d. Does this change your view of the firm's dividend policy? Would you recommend any change of policy for this firm? Why or why not?
Comparison to a Competing Firm
Competing firm: Dish network
4-1. What is the name of the competitor?
a. Which exchange is its stock traded on?
b. What is the ticker symbol of this firm's stock?
c. In which ways is this competitor firm a good match or basis of comparison for your firm?
d. In which ways is it not a good match?
4-2. Report this summary data on leverage for your firm and its competitor.
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Your Firm
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The Competitor Firm
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Debt/Equity
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Debt/Assets
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Interest Expense/Long term Debt
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Times Interest Earned (TIE)
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Interest coverage
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- Does it seems to you that your firm has an appropriate degree of leverage, or is over- or under-leveraged? Why?
- What changes in leverage, if any, do you think could be appropriate for your firm to reduce its WACC?
4. Comparison of the firms' liquidity and operations: First, report this summary data on liquidity and activity for the two firms:
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Your Firm
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The Competitor Firm
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Liquidity
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Current Ratio
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Quick Ratio
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Activity
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Average collection period (ACP)
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Inventory Days
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Operating Cycle
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Cash Conversion Cycle
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Total Asset Turnover
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Capital Expenditure/Sales
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SG&A/Sales
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- Does your firm's liquidity compare favorably or unfavorably to those of the competitor? What areas of improvement, if any, are needed by your firm?
- How does your firm's operations, as caluclated by the activity ratios, compare? What areas of improvement, if any, are needed by your firm?
4-Analysts' earnings estimates. On Mergent Horizon, find and report the following these data for your firm. If there are any missing estimates, indicate "na."
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Comparison of Earnings Forecasts
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Your Firm
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The Competitor
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Earnings per share for the firm's current fiscal year
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Ending date of the current fiscal year
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Mean estimate of earnings per share for this year
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Low estimate
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High estimate
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Number of analysts
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EPS for the firm's next fiscal year
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Ending date of the next fiscal year
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Mean estimate of earnings per share for this year
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Low estimate
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High estimate
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Number of analysts
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Long term growth rates
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Mean estimate for the next 5 years
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Low estimate
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High estimate
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Number of analysts
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- Suppose the ranges of earnings estimates in these three cases relative to the mean estimates. What does this suggest about the reliability and certainty of these estimates?
- Which of these two firms has the better outlook based on these projections? Why?
- Do these forecasts look reasonable to you? Too optimistic or pessimistic? Why?