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Netflix Accounting Isu

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Sabrina Fernandes

on 21 May 2015

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Transcript of Netflix Accounting Isu

Netflix Background Information
A mulitmedia internet streaming network with over 23 million subscribers
First month free promotion to ensure customer satisfaction
Fee of $8.99 per month for unlimited streaming of a selection of movies & TV shows
Founded in 1997 by Marc Randolph and Reed Hastings
Idea came to Hastings when he was forced to pay $40 for an overdue movie
CEO & Co- Founder

Reed Hastings
Invested $2.5 million in startup cash from his personal accounts for Netflix
Marc Randolph
Services Provided By Netflix
Netflix is a subscription-based film and television program rental service that offers media to subscribers via Internet streaming and via US mail
Offers an Internet video-streaming service which gives Internet-connected devices access to Netflix's variety of content
In the United States, the company provides a monthly flat-fee service for the rental of DVD and Blu-ray Discs. The films are delivered individually via the United States Postal Service from an array of regional warehouses.
Horizontal Analysis Balance Sheet Commentary
Horizontal Analysis Balance Sheet Commentary
The Content Library account involves purchases of content from distributors through direct transactions, revenue sharing agreements or license agreements. The sole purpose is to acquire content for rent to its subscribers and those who have invested into the company. The horizontal percentage change from one year to the other is an increase of 24.5% which is a total of $419,281. The company estimates the useful life of its DVDs which allows them to prepare for lost or damaged DVD’s. To increase profit, they include a salvage price of $3.00 per disc on those that are most expected to sell at the end of their useful life. Also, Netflix obtains a low initial cost from its distributors in exchange for a share of revenue.
Horizontal Analysis Income Statement Commentary
The revenue account has increased from 2013 to 2014 by 25.8% or $1,130,094. This is in fact because the monthly fee for Netflix subscribers increased in 2014, from $7.99/month to $8.99/month. This dollar increase has proved to be beneficial and profitable for Netflix
Horizontal Analysis Income Statement Commentary
The Technology & Development account has increased by 24.6% because of several instances where the system has been jeopardized by hackers. Netflix wanted to ensure their private information and data was secure, therefore they made it a priority to invest in more efficient security methods through the advancement of technology.
From the year 2013 to 2014, the Cash & Cash Equivalents account increased significantly by 84%. In the year 2014, Netflix expanded into six new countries, including Austria, Belgium, France, Germany, Luxembourg and Switzerland. This expansion brought them to over 50 million members globally
Vertical Analysis Balance Sheet Commentary
Vertical Analysis Balance Sheet Commentary
Vertical Analysis Income Statement Commentary
Vertical Analysis Income Statement Commentary
Ratio Analysis
Current Ratio
is used to calculate a company`s liquidity and short-term debt-paying ability.

Current Ratio=Current Assets/Current Liabilities

2013 2014
3,058,763/2,154,203=1.4:1 3,940,469/2,663,154=1.5:1

There was a slight increase from 2013 to 2014, starting with $1.40 of current assets for every dollar of current liabilities, only changing to about $1.50.

Ratio Analysis
Debt to Total Assets
is a Solvency Ratio and measures the percentage of the total assets that is provided by the creditors.

Debt to Total Assets=Total Liabilities/Total Assets

2013 2014
4,079,002/5,412,563=75.3% 5,198,943/7,056,651=73.6%

The ratio of 75.3% means that creditors have provided that specific amount of Netflix`s total assets, however the ratio declined in 2014 which accounts for an improvement.

Ratio Analysis
Future of Netflix
Gross Profit Margin
refers to the money or profit left over after the cost of goods sold has been accounted for

Gross Profit/Net Sales=Gross Profit Margin

2013 2014
1,257,359/4,374,562=28.7% 1,751,896/5,504,656=31.8%
Netflix's Gross Profit Margin for 2014 means that for 31.8 cents of each dollar of its sales that year went to cover operating and other expenses to generate a profit.

Although, Netflix is competing against companies such as Shomi & CraveTV, they have developed innovative ideas to attract subscribers and ensure they do not lose any
Netflix has added a variety of genres to their selection, including a kids section
They have allowed Netflix to be accessed through several devices at a time
Created different profile accounts for different family members who have other preferences
"Netflix can add roughly $500 million in annual incremental revenues in the U.S. alone by 2017 with this move" and "roughly $200–$250 million in incremental revenues from price changes in international markets".

A Great Investment
In 2015, Netflix will spend over $600M in marketing to attract people around the world to try Netflix.
By the end of 2016 we intend to be available pretty much everywhere in world.
From the
Current Ratio Analysis
there was a slight increase from 2013 to 2014, starting with $1.40 of current assets for every dollar of current liabilities, only changing to about $1.50.
As a recap, several accounts have increased as shown in the horizontal analysis such as the Cash & Cash Equivalent account that went up an incredible 84% and the Total Assets that has gone up by 30%
Currently, Netflix stands at $5.5 billion on Fixed assets
After analyzing the information above, I would definitely recommend Netflix to future investors and shareholders
From the years 2013 to 2014 their was an increase of 0.7%.
Although their was a decrease in percentage their was an increase in the amount of $881,706
Current Assets increased due to "Cash and Cash Equivalents" nearly doubling.
Total Assets had an increase of $1,644,088 resulting in the percentage being lower.
This account had a value of 2.0% in 2013 and increased to 2.8% in 2014
This is a increase of 0.8% in relation to Total Assets.
This is not a positive change for Netflix considering Interest will accumulate.
Although it is negative this does not raise concern. Netflix`s Accounts payable is not ridiculously high staying under 3%.
This account went from 71.2% in 2013 to 68.1% in 2014 in relation to Total revenues.
This is a positive change because Neflix`s Gross Profit Margin experienced a increase.
Although the account had a increase in 2014 the percentage went down because revenue had a more positive increase.
Net Income had a increase of 2.3% in relation to Total Revenue.
This is a very positive change because their Profit nearly doubled
This is due to Netflix changing the price of their membership from $7.99 to $8.99 and their growing popularity.
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