(TIỂU LUẬN) ASSIGNMENT REPORT of corporate finance 1 FINANCIAL STATEMENTS ANALYSIS OF NETFIX, INC

Balance sheet

Assets

There was overall an increase in total assets from $25,974,400 in 2018 to

$33,975,712 This significant increase shows the growth of assets within the company which will aid in future economic increases.

Netflix, Inc AMC Lions Gate

The total current assets decreased significantly from 2018 to 2019 This is due to the reclassification of DVD content assets from current assets to non-current assets This explains the decrease in current assets in 2019

Look at these figure, we can say that Long-term asset has the biggest portion in total assets (about 81.8% in 2019) While, Cash on Hand was kept fluctuating at 14% range The above figures show that the company always ensures a certain amount of reserve money, including the amount of cash in the fund as well as bank deposits to meet the payment needs of customers and pay salaries for employees of the company.

0.00% Total current assets Long-tem assets

Cash: Netflix ended 2017 with approximately 2.8 million in cash Over the next 2 years, the company ballooned its cash position to approximately $5 billion This shows that the firm is holding excess cash as compared to investing the funds in short-term investments Unfortunately, this is not the best strategy for cash management Resources such as cash can lead to future economic benefit

Accounts Receivable and Inventory: Because Netflix does not sell products or services through other entities, the organization has no, or very little, Accounts Receivable or inventory items.

Property plant and equipment: Netflix has steadily increased its property plant and equipment over the last five years The average growth rate is about30% annually This indicates that the firm needs substantial property and equipment to support its growth needs From this assessment, investors should expect this line item to maintain its growth rate until revenue levels off.

Netflix,Inc AMC Lions Gate

Liabilities & Shareholders' Equity

Netflix continues to have high long-term debt that is relatively consistent.

The retained earnings increased in 2019 which is a positive as this can be reinvested into the business Finally, stockholder equity also increased in 2019.

Total stockholder equity increased from $5,238,765 in 2018 to $7,582,157 in 2019.

An increase in stockholder equity signifies an increase in assets.

Income Statement

Sales COGS Gross profit Sales COGS Gross profit Sales COGS Gross profit

Revenue increased from 2018 to 2019 which positively impacted the gross profit Gross profit is a measure of how efficient the company is in using resources to deliver their service The gross profit of 2018 was $5,826,803 and increased to $7,716,234 in 2019 This increase in gross profit demonstrates that Netflix was able to produce their service more efficiently in 2019 which is good for the company financially.

Fiscal year Jan-Dec Change

COGS (as apercentage of Sales)

Netflix, Inc COGS AMC COGS Lions Gate COGS

The increase in COGS for the year ended December 31, 2019 as compared to the year ended December 31, 2018 was primarily due to a $1,684 million increase in content amortization relating to our existing and new streaming content, including more exclusive and original programming

An increase in net income demonstrates an increase in profitability as the sales were greater than all expenses for that year.

Cash Flow

Cash From Operating Activities Cash From Investing Activities Cash From Financing Activities

Cash Flow from Financing activities – Netflix generates in Cash Flow from financing by issueing its stock and debt.

Cash Flow from Investing Activities – Netflix Cash Flow from Investing activities was at -$387,06 million in 2019 as compared to $34,33 million in 2017. This was primarily due to increasing capital expenditure in the core business. Cash flow from Operating activities – Netflix Cash Flow from Operations is weak due to continued losses over the year Netfix CFO was -$2887.32 million in 2019 as compared to -$1785.95 million in 2015.

=> From 2017 to 2018 there has been a drop in net change in cash but it has increased again in the period of 2018 - 2019 The ending cash balance has made big progress as it continued to increase every year by around 32%.

Financial Ratios

Liquidity ratios

With its cash ratio lower than 1, we can imply that the company in 2017 didn’t have enough cash to cover its current liabilities But Netflix did have a quite good current ratio and quick ratio; both of 1.4 which means overall they were able to satisfy the company’s current bills In comparison with the average industry’s financial ratio in U.S, Netflix was quite better off in 2017 because all of its ratio is higher than average (the average ratio is 0.83; 1.06; 0.42 respectively).

In 2018, Netflix faced the same problems as 2017 as they did not have enough cash to cover current liabilities of the company but overall they can still pull it off as the current ratio and quick ratio were proven to be still good enough All the ratio were making a raise Cash ratio rise from 0.52 to 0.58 while current ratio and quick ratio both rise from 1.4 to 1.49

Motion pictures seems to be a rising star in 2018 because all of its ratio are good Netflix slacked behind as its current ratio and quick ratio though seem good but both of them is less than the average mark (1.53 and 1.91 respectively) Cash ratio is nowhere near the average mark (0 58 to 1.03)

2019 was not a good year for Netflix as we can see here that 2 of its ratio had dropped drastically Current ratio and quick ratio drop from 1.49 to 0.9; which is quite a large amount Cash ratio did make a raise; from 0.58 to 0.73 but didn’t make much of a change because it still below 1 and implied that the company didn’t have enough cash to cover its current liabilities

In 2019 the average industry financial ratio is not in good shape either AlthoughNetflix’s ratios are much worse than the recent years but compare to the average mark, it’s still a quite decent amount (The average mark is 0.56; 0.5 and 0.34 respectively)

Solvency ratios

1 The debt to assets ratios from 2017 - 2019 of Netflix are quite constant, being 0.3418; 0.3989; 0.4344 respectively These figures are actually quite a good sign because they’ve shown that company by then didn’t have much to worry about debt ; it had the capability to pay off its debt with its available assets and did not have much struggle meeting its obligations

2 The debt to capital ratios from 2017 - 2019 do not vary much Being

0.6447; 0.6642; 0.6606 respectively and with an average of 0.6565; Netflix was quite a safe bet during that time as having lower debt to capital ratio also means having lower risk of insolvency

3 In the three years from 2017 to 2019, Netflix’s debt to equity ratios are all quite high and also do not vary much In 2017, it’s 1.8145 In 2018 it’s 1.9776 and in 2019 it’s 1.9466 It’s all quite close to 2 and this indicates that the company it’s quite risky In 2018 we saw an increase in the debt to equity ratio but in dropped a little in 2019; which may indicate a good sign in the futur.In fact in the year of 2018, Netflix has the highest debt to ratio figure in

3 years In 2017 and 2019 the average ratios are 1.13 and 1.64 - which in my opinion still indicates quite a safe bet while Netflix struggle to maintain its figure below 2.0.

Profitability ratios

Netflix had lower profit margin than median industry ratios in 2017 Its profit margin increased yearly and surpassed average industry ratios in 2019 which is a good signal for them Lions Gate and AMC had higher ratios than either Netflix and Industry ratios

Netflix Lions Gate AMC Industry ratios 0.00%

Netflix had the highest operating margin compare with Lions Gate, AMC, and Industry ratio in 3 years It means that the company is efficient in its operations and is good at turning sales into profits.

Netflix Lions Gate AMC Industry ratios

Netflix’s BEP increased steadily and was the highest one in those three companies Netflix is more efficient at generating income from its assets On the other hand, Lions Gate and AMC’s BEP have not been stable over time.

Netflix had the highest ROE in three years and grew annually It may provide that the company management is good at generating shareholder value because it knows how to reinvest its earnings wisely, so as to increase productivity and profits.

In du st ry ra tio s

On general, although ROA of Entertainment Industry was quite low, Netflix still had a positive ROA and increased in the next year It may seem that the business was more profitable and efficient.

In du st ry ra tio s

Acivity ratios

Even though Netflix’s FAT decreased overtime, it was still higher than Lions Gate and AMC A declining ratio may also suggest that the company is over- investing in its fixed assets

The ratio measures the efficiency of how well a company uses assets to produce sales These numbers showed that Netflix operates more efficiently than both Lions Gate and AMC This reduction may be caused by the over-investing in Fixed Assets as we can see in the previous part However, it was having a greater TAT than its competitors.

Valuation ratios

It can be seen as the P/E ratios of both 3 companies are decreasing over time In detail, among 3 companies, Netflix has the highest P/E ratios percentage, while Lions Gate decreases the PE ratios fastest after 3 years (-220.8%) Decreasing in Netflix was caused by the dropping of the price per share and a slight increasing in EPS Lower or decreasing EPS gives poor indication about the health of the company and gives lower return to the shareholders It will make the investors no longer interest in investing the company in the long-run.

Difference from P/E ratios, P/CF ratios table show an increasing in financial data of both 3 companies although there’s a drop in 2019 of Lions Gate and AMC Netflix P/CF ratios keep growing during 2017- 2019 (186.24% -> 323.57%), which reveal its advance ability to generate additional revenues The same happens to Lions Gate and AMC, but in 2019, these ratios declined (Lions Gate: 12.28% -> 6.701%) A high P/CF ratio indicated that the firm is trading at a high price but is not generating enough cash flows to support the multiple This will somehow explain the decreasing in P/E When a firm is overvalued, analysts and other economic experts expect the price to drop eventually.

The DuPont system

Lions Gate Entertainment Corp

Founded in 1920 and headquartered in Leawood, Kansas, for market-share context - AMC is not only America’s largest theater chain by locations in the US but the largest in the world The company owns, operates, or has interests in theatres As of March 12, 2021, it operated approximately 1000 theatres and 10,700 screens in the United States and internationally

In 2019 it became the first theater to take a stab at home entertainment by launching on-demand movies and TV shows

Much has already been written about the battle between Netflix and Movie Theaters In short, Netflix would like to premiere a movie in theaters and on its streaming platform simultaneously, known as a “day-and-date” release That would increase Netflix revenues while providing flexibility for consumers to see what they want, where they want, at a price they want

Theaters have resisted because they feel, rightly so, that a concurrent theater and streaming launch will cut into their business As a safeguard, large theater chains (including AMC) demand a 90-day window for a film to be shown in theaters before it is available in the home They enforce this with boycotts Research studies suggest that between 13% to 28% of people prefer seeing a film the first time in theaters instead of streaming If we use 15% on the conservative end of this range, and apply it to 576 million people who streamed these 5 films, it leaves us with an estimated 86.4 million people who might have preferred to watch these movies in theaters At an average ticket price of about

$9.16 in 2019, that’s a box office of $791.4 millions.

The company was founded in 1986 and is headquartered in Santa Monica,California Lions Gate Entertainment Corp engages in motion picture production and distribution, television programming and syndication, home entertainment,interactive ventures and games, and location-based entertainment operations inCanada, the United States, and internationally Lionsgate has large output and many subsidiaries It’s been known to have distributed some big titles like The Hunger Games, Saw, Kick-Ass, The Expendables, Ender’s Game, and John Wick. With none of the Lionsgate catalog streaming on Netflix right now (at least in the US), It was a big deal at the time leading to Netflix putting out a blog post explaining why it was happening, said that the movies were widely available elsewhere beyond Netflix (when they were streaming on Netflix) and that’s a problem because Netflix tends to like exclusivity whether that’s with its Originals or third-party contracts

Combining Starz, one of the leading premium global streaming platforms, with its motion picture and television studio operation, launched its independent direct to consumer over-the-top (OTT) app Lionsgate Play in India which takes on Netflix.