Financial Analysis of Netflix

The provided document is a comprehensive report on the financial analysis of Netflix. It includes calculations for Capital Asset Pricing Model (CAPM), Weighted Average Cost of Capital (WACC), and bond value determination. The report also discusses the company's performance in the market, its position as a leader in the video streaming industry, and provides references to relevant research studies and articles.

CORPORATE FINANCE
PROJECT

TABLE OF CONTENTS
TABLE OF CONTENTS..............................................................................................................2
INTRODUCTION...........................................................................................................................1
Overview of Netflix.........................................................................................................................1
SECTION 1: CORPORATE BOND ANALYSIS..........................................................................1
A. Company's Credit rating.........................................................................................................1
B Outstanding debts of company.................................................................................................3
C. Company’s carrying cost of outstanding debt.........................................................................3
D. Bond which is issued on recent aspect....................................................................................4
E. Yield to maturity and current price of outstanding bond........................................................5
SECTION 2: Risk and Return.........................................................................................................6
A. Calculation of return...............................................................................................................6
B. Calculating risk.......................................................................................................................8
SECTION 3...................................................................................................................................16
A. Cost of debt...........................................................................................................................16
B. Cost of Equity.......................................................................................................................17
C. Calculating WACC...............................................................................................................18
SECTION 4...................................................................................................................................18
Examining the cash flow statement of Netflix..........................................................................18
SECTION 5...................................................................................................................................18
A. Analysing payout Policy...........................................................................................................18
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

INTRODUCTION
The necessity of financial requirements in every organisation is quite mandatory for making operational planning and proceeding
the activities which will be adequate in making appropriate ascertainment of the data base. In the present report, there will be
discussion base on market value and returns paid by Netflix to their potential stakeholders. It will be compared with the S&P 500
index on the basis of analysing the cost of debt and cost of equity.
Overview of Netflix
Netflix Inc. is considered as leading internet entertainment service throughout world as it is headquartered in Los Gatos,
California as it serves in more than 190 countries. The primary business of this organization is based on subscription by streaming
media service which is offering online streaming of particular library of films along with television programs as it considers those
which are especially produced in house. It is public limited company as it is traded on NASDAQ and services like film production,
television, film distribution and in year 2017 its revenue was US$11.692 billion with operating income of US$559 million. In the
similar aspect, its total assets and equity in 2017 US$19.013 and US$3.582 billion respectively as it is serving employees with 5400.
The subsidiaries comprise Netflix K.K, Netflix Streaming Services Inc., Netflix Entretnimento Brasil LTDA and Netflix Studios,
LLC. Hence, the members of organization could observe original series, feature films, documentaries along with television shows and
moves as well with connection of Internet screen, mobile devices and computers. In the latest scenario, it has traded bond named
Netflix 2050 which is also rated through Moody as well (All About The Netflix Streaming Service, 2018).
SECTION 1: CORPORATE BOND ANALYSIS
A. Company's Credit rating
YEAR 2017 2016 2015
Operating income 839 380 306
Interest expenses 238 150 133
EBIT Interest Coverage Ratio 3.525 2.533 2.301
1

Most recent issued bond NETFLIX 2025
Bond type Coupon Bonds
Symbol US64110LAL09
Last Trade Date (on 05/12/2018) 12-05-2018
Last Trade Price $102.50
Last Trade Yield 5.080%
Coupon Rate 5.875%
Maturity Date 2/15/2025
Par (Face) Value $1,000
Moody's Rating Ba3
S&P's Rating BB-
Fitch Rating B+
3 & 4. 10-year bonds yield and interest rate premium
Bond's Symbol Yield
US64110LAQ95 5.626%
US64110LAS51 5.954%
US64110LAN64 5.694%
US64110LAG14 5.398%
US64110LAE65 4.270%
US64110LAL09 5.875%
Average 5.469%
U.S. Treasury Yield for 10-year
bonds (02.12.2016) 2.400%
Premium 3.069%
2

B Outstanding debts of company
Outstanding Debt Securities
Issue Name Issue Date Maturity Date Years Remaining Currency Amount Outstanding ($M)
NFLX 5.375 02/01/ 2021 02-04-14 02-01-21 2.16 USD 500
NFLX 5.5 02/15/202 02-08-16 02/15/2022 3.2 USD 700
NFLX 5.75 03/01/2024 02-19-15 03-01-24 5.23 USD 400
NFLX 5.875 02/15/ 2025 02-08-16 02/15/2025 6.2 USD 800
NFLX 4.375 11/15/ 2026 11-03-17 11/15/2026 7.94 USD 1000
NFLX 3.625 05/15/ 2027 05/17/ 2017 05/15/2027 8.44 EUR 1300
NFLX 4.875 04/15/ 2028 10/26/ 2017 04/15/2028 9.36 USD 1600
NFLX 4.875 04/15/ 2028 10/26/ 2017 04/15/2028 9.36 USD 1600
NFLX 5.875 11/15/ 2028 04/26/ 2018 11/15/2028 9.94 USD 1900
NFLX 5.875 11/15/ 2028 04/26/ 2018 11/15/2028 9.94 USD 1900
NFLX 4.625 05/15/ 2029 10/26/ 2018 05/15/2029 10.44 EUR 1253
NFLX 6.375 05/15/ 2029 10/26/ 2018 05/15/2029 10.44 USD 800
NFLX 6.375 05/15/ 2029 10/26/ 2018 05/15/2029 10.44 USD 800
NFLX 4.625 05/15/ 2029 10/26/ 2018 05/15/2029 10.44 EUR 1253
C. Company’s carrying cost of outstanding debt
1. Calculation of EBIT Interest coverage ratio
YEAR Formula 2017 2016 2015
Operating income 839 380 306
Interest expenses 238 150 133
3

EBIT Interest
Coverage Ratio
EBIT/ Interest
expense 3.525 2.533 2.301
Interpretation: The above table is measuring interest coverage ratio over past 3 consecutive years from 2015 to 2017. It helps
in providing duration or time over business entity is capable for paying its current interest payment with reference to earnings
availability. Ideally, ratio of 2.5 is considered as warning ratio as it shows indicating sign that it should be careful in coming years.
From the above table, it could be clearly viewed that Neflix had attained this signal in 2015 and in coming year its main aim was to
improve its coverage ratio so in this context, it raised from 2.3 to 3.52 on 2015 to 2017 respectively. Hence, it could be evaluated that
Netflix has high interest coverage ratio then it could be elaborated about solid capability for meeting its interest obligations.
2. Repayment of debts in next 5 years
Total mature amount 15806
Total Coupon
amount 1085.43
Total cost 16891.43
3 EBIT Interest coverage ratio helps for credit rating or not
In this context, this ratio is replicated as one major reason for credit rating as in 2017, its interest coverage ratio increased with
certain proportion and Netflix has accumulated its position of debt (Bazdresch, Kahn and Whited, 2017).
D. Bond which is issued on recent aspect
Most recent issued bond NETFLIX 2025
Bond type Coupon Bonds
Symbol US64110LAL09
4

Last Trade Date (on 05/12/2018) 12/05/2018
Last Trade Price $102.50
Last Trade Yield 5.080%
Coupon Rate 5.875%
Maturity Date 2/15/2025
Par (Face) Value $1,000
Moody's Rating Ba3
Interpretation: The above table has shown bond which is issued on recent aspect as NETFLIX 2025 as it is type of coupon
bonds whose last traded price is 102.50 with last trade yield of 5.080% with 5.875% coupon rate. It maturity date is also extracted
which is related to name of bond as 2025 along with par face value of 1000 as per Moody's rating is Ba3.
E. Yield to maturity and current price of outstanding bond
1. Selection of company’s bond
Symbol US64110LAL09
Face Value
$
1,000.00
Maturity Date 2/15/2025
Coupon Rate 5.875%
Last Trade 102.500
Yield 5.08
Moody's Rating Ba3
S&P's Rating BB-
Fitch Rating B+
2. Creation of cash flow projection
5

3 &4 calculation for YTM (IRR) and Bond price (PV)
Particulars Information
Face Value $1,000.00
Date of maturity 2/15/2025
Rate of coupon 5.88%
Last Trade 102.500
Yield 5.080
Internal rate of return 5.29%
Present value $1,211.73
SECTION 2: Risk and Return
A. Calculation of return
1. Extracting annualised return for stock of Netflix over past 10, 5 tears and 1 year
Return Analysis
One Year 5 Years 10 Years 2008
NetFlix 64.07% 89.87% 45.51% 147.88%
S&P 500 21.59% 14.15% 6.18% 36.54%
* Annualized
2. Comparing return of S & P 500 for similar duration
6

This is the techniques which will help in analyzing the capabilities and efficiency of a business with respect to make payments
of debts in a period (Lerner and Seru, 2017). There have been various issues and obstacles which in turn will be adequate and helpful
for generating the fruitful revenue and making qualitative efforts for retaining better gains at the market (Borde, 2017). However,
these are the information which are being used by investors with respect to make investment in business. the historical values and
details of Netflix have been anlsyed by considering the S&P 500 Index for the same period. The risk analysis will help in determining
the capabilities of the firm in meeting the risks at the right time.
Risk Analysis
Standard Deviation Beta
5 Years 10 Years 2 Years 5 Years
NetFlix 86.98% 77.57% 0.40 0.51
S&P 500 9.73% 18.17%
Interpretation: On the basis of above report, it can be said that the risk analysis over Netflix and S&P 500. The standard
deviation of organization and index on the basis of 5 years and 10 years of period have been determined. Thus, in 5 year of duration
the standard deviation of Netflix had been determined as 86.98% while for S&P 500 it is 9.73%. In relation with analyzing the
standard deviation of 10 years of period on which Netflix has 77.57% while S&P 500 has 18.17% of the outcomes.
On the other side, as per considering the bond value of Netflix which have been ascertained as 0.40 for 2 years while 0.51 for 5
years. Moreover, in respect with the scale of judging the beneficiary outcomes of the data base on which it has have reflected that the
bond values are below than 1 determines that it is non-volatile, while more than 1 demonstrate the volatility of the bond value. In
respect with such analysis on which it can be said that, the bond value of firm will be lower than 1 which determined that there will be
less fluctuations in the prices. Thus, it will be less risky for the investors in terms of planning investment in Netflix.
7

B. Calculating risk
1. Regression of bet for Netflix for similar duration
a) 2 years of regression analysis
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.645669927
R Square 0.416889655
Adjusted R Square 0.390384639
Standard Error 0.056697495
Observations 24
ANOVA
df SS MS F
Significance
F
Regression 1 0.050561599 0.050561599 15.72870809 0.000655332
Residual 22 0.070721331 0.003214606
Total 23 0.12128293
Coefficients
Standard
Error t Stat P-value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
8

Intercept 0.014 0.011 1.231 0.231 -0.009 0.038 -0.0098 0.0386
X
Variable
1 1.46 0.368 3.96 0.0006 0.697 2.22 0.697 2.227
b) 5 years of regression analysis
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.507618604
R Square 0.257676647
Adjusted R Square 0.244877969
Standard Error 0.054765642
Observations 60
ANOVA
df SS MS F
Significance
F
Regression 1 0.060384615 0.060384615 20.13306665 3.47665E-05
Residual 58 0.173957983 0.002999276
Total 59 0.234342597
9

Coefficients
Standard
Error t Stat P-value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept 0.0075 0.007 1.027 0.308 -0.0071 0.022 -0.007 0.022
X
Variable
1 0.947 0.211 4.486 3.476 0.524 1.369 0.524 1.369
2. Creating XY scatter plot for determining relationship among S&P 500 with reference to trend line and scatter plot
10

3. Calculating the annualized standard deviation
Date Open High Low Close* Volume
Adj
Close** Monthly Ret annualised standard deviation
Dec 01, 2017 2645.1 2694.97 2605.52 2673.61 65251190000 2673.61 3.43% 0.012264671
Oct 31, 2017 2583.21 2657.74 2557.45 2584.84 95142800000 2584.84 0.37%
Sep 30, 2017 2521.2 2582.98 2520.4 2575.26 70871570000 2575.26 2.22%
Aug 31,
2017 2474.42 2519.44 2446.55 2519.36 66337980000 2519.36 1.93%
Jul 31, 2017 2477.1 2490.87 2417.35 2471.65 70616030000 2471.65 0.05%
Jun 30, 2017 2431.39 2484.04 2407.7 2470.3 63169400000 2470.3 1.93%
May 31,
2017 2415.65 2453.82 2405.7 2423.41 81002490000 2423.41 0.48%
Apr 30, 2017 2388.5 2418.71 2352.72 2411.8 79607170000 2411.8 2.08%
Mar 01,
2017 2380.13 2400.98 2322.25 2362.72 81547770000 2362.72 -0.04%
Feb 01, 2017 2285.59 2371.54 2271.65 2363.64 69162420000 2363.64 3.72%
Jan 01, 2017 2251.57 2300.99 2245.13 2278.87 70483180000 2278.87 1.79%
Dec 01, 2016 2200.17 2277.53 2187.44 2238.83 75251240000 2238.83 1.82% 0.029509998
Oct 31, 2016 2128.68 2214.1 2083.79 2198.81 88299760000 2198.81 3.42%
Sep 30, 2016 2164.33 2169.6 2114.72 2126.15 73196630000 2126.15 -1.94%
Aug 31,
2016 2171.33 2187.87 2119.12 2168.27 77270240000 2168.27 -0.12%
Jul 31, 2016 2173.15 2193.81 2147.58 2170.95 75610310000 2170.95 -0.12%
Jun 30, 2016 2099.34 2177.09 2074.02 2173.6 69530250000 2173.6 3.56%
May 31,
2016 2093.94 2120.55 1991.68 2098.86 86852700000 2098.86 0.09%
11

Apr 30, 2016 2067.17 2103.48 2025.91 2096.95 78883600000 2096.95 1.81%
Mar 01,
2016 1937.09 2072.21 1937.09 2059.74 92639420000 2059.74 6.60%
Feb 01, 2016 1936.94 1962.96 1810.1 1932.23 93049560000 1932.23 -0.41%
Jan 01, 2016 2038.2 2038.2 1812.29 1940.24 92409770000 1940.24 -5.07%
Dec 01, 2015 2082.93 2104.27 1993.26 2043.94 83649260000 2043.94 -1.75% 0.039640035
Oct 31, 2015 2080.76 2116.48 2019.39 2080.41 75943590000 2080.41 0.05%
Sep 30, 2015 1919.65 2094.32 1893.7 2079.36 85844900000 2079.36 8.30%
Aug 31,
2015 1970.09 2020.86 1871.91 1920.03 79989370000 1920.03 -2.64%
Jul 31, 2015 2104.49 2112.66 1867.01 1972.18 84626790000 1972.18 -6.26%
Jun 30, 2015 2067 2132.82 2044.02 2103.84 77920590000 2103.84 1.97%
May 31,
2015 2108.64 2129.87 2056.32 2063.11 73213980000 2063.11 -2.10%
Apr 30, 2015 2087.38 2134.72 2067.93 2107.39 65187730000 2107.39 1.91%
Mar 01,
2015 2105.23 2117.52 2039.69 2067.89 76675850000 2067.89 -1.74%
Feb 01, 2015 1996.67 2119.59 1980.9 2104.5 68775560000 2104.5 5.49%
Jan 01, 2015 2058.9 2072.36 1988.12 1994.99 77330040000 1994.99 -3.10%
Dec 01, 2014 2065.78 2093.55 1972.56 2058.9 80743820000 2058.9 -0.42% 0.023738753
Oct 31, 2014 2018.21 2075.76 2001.01 2067.56 63600190000 2067.56 2.45%
Sep 30, 2014 1971.44 2018.19 1820.66 2018.05 93714040000 2018.05 2.32%
Aug 31,
2014 2004.07 2019.26 1964.04 1972.29 66706000000 1972.29 -1.55%
Jul 31, 2014 1929.8 2005.04 1904.78 2003.37 58131140000 2003.37 3.77%
Jun 30, 2014 1962.29 1991.39 1930.67 1930.67 66524690000 1930.67 -1.51%
May 31,
2014 1923.87 1968.17 1915.98 1960.23 63283380000 1960.23 1.91%
Apr 30, 2014 1884.39 1924.03 1859.79 1923.57 63623630000 1923.57 2.74%
Mar 01,
2014 1857.68 1883.97 1834.44 1872.34 71885030000 1872.34 0.69%
12

Feb 01, 2014 1782.68 1867.92 1737.92 1859.45 69725590000 1859.45 4.31%
Jan 01, 2014 1845.86 1850.84 1770.45 1782.59 75871910000 1782.59 -3.56%
Dec 01, 2013 1806.55 1849.44 1767.99 1848.36 64958820000 1848.36 2.36% 0.025121551
Oct 31, 2013 1758.7 1813.55 1746.2 1805.81 63628190000 1805.81 2.80%
Sep 30, 2013 1682.41 1775.22 1646.47 1756.54 76647400000 1756.54 4.46%
Aug 31,
2013 1635.95 1729.86 1633.41 1681.55 66174410000 1681.55 2.97%
Jul 31, 2013 1689.42 1709.67 1627.47 1632.97 64802810000 1632.97 -3.13%
Jun 30, 2013 1609.78 1698.78 1604.57 1685.73 68106820000 1685.73 4.95%
May 31,
2013 1631.71 1654.19 1560.33 1606.28 74946790000 1606.28 -1.50%
Apr 30, 2013 1597.55 1687.18 1581.28 1630.74 76447250000 1630.74 3.92%
Mar 01,
2013 1514.68 1570.28 1501.48 1569.19 68527110000 1569.19 3.60%
Feb 01, 2013 1498.11 1530.94 1485.01 1514.68 69273480000 1514.68 1.11%
Jan 01, 2013 1426.19 1509.94 1426.19 1498.11 75848510000 1498.11 5.04%
Dec 01, 2012 1416.34 1448 1398.11 1426.19 66388180000 1426.19 0.71% 0.031548296
Oct 31, 2012 1412.2 1434.27 1343.35 1416.18 71489310000 1416.18 0.28%
Sep 30, 2012 1440.9 1470.96 1403.28 1412.16 71752320000 1412.16 -1.98%
Aug 31,
2012 1406.54 1474.51 1396.56 1440.67 69784280000 1440.67 2.42%
Jul 31, 2012 1379.32 1426.68 1354.65 1406.58 70283810000 1406.58 1.98%
Jun 30, 2012 1362.33 1391.74 1325.41 1379.32 73103810000 1379.32 1.26%
May 31,
2012 1309.87 1363.46 1266.74 1362.16 81582440000 1362.16 3.96%
Apr 30, 2012 1397.86 1415.32 1291.98 1310.33 86920490000 1310.33 -6.97%
Mar 01,
2012 1365.9 1419.15 1340.03 1408.47 83899660000 1408.47 3.13%
Feb 01, 2012 1312.45 1378.04 1312.45 1365.68 78385710000 1365.68 4.06%
Jan 01, 2012 1258.86 1333.47 1258.86 1312.41 79567560000 1312.41 4.36%
13

Dec 01, 2011 1246.91 1269.37 1202.37 1257.6 74742430000 1257.6 0.85% 0.045336707
Oct 31, 2011 1251 1277.55 1158.66 1246.96 84275050000 1246.96 -0.51%
Sep 30, 2011 1131.21 1292.66 1074.77 1253.3 98063670000 1253.3 10.77%
Aug 31,
2011 1219.12 1229.29 1114.22 1131.42 1.02787E+11 1131.42 -7.18%
Jul 31, 2011 1292.59 1307.38 1101.54 1218.89 1.08419E+11 1218.89 -5.68%
Jun 30, 2011 1320.64 1356.48 1282.86 1292.28 81102170000 1292.28 -2.15%
May 31,
2011 1345.2 1345.2 1258.07 1320.64 86122730000 1320.64 -1.83%
Apr 30, 2011 1365.21 1370.58 1311.8 1345.2 81708980000 1345.2 1.46%
Mar 01,
2011 1328.64 1332.28 1249.05 1325.83 89507640000 1325.83 -0.10%
Feb 01, 2011 1289.14 1344.07 1289.14 1327.22 59223660000 1327.22 3.20%
Jan 01, 2011 1257.62 1302.67 1257.62 1286.12 92164940000 1286.12 2.26%
Dec 01, 2010 1186.6 1262.6 1186.6 1257.64 80984530000 1257.64 6.53% 0.05376442
Oct 31, 2010 1185.71 1227.08 1173 1180.55 87151070000 1180.55 -0.23%
Sep 30, 2010 1143.49 1196.14 1131.87 1183.26 89536270000 1183.26 3.69%
Aug 31,
2010 1049.72 1157.16 1049.72 1141.2 79589450000 1141.2 8.76%
Jul 31, 2010 1107.53 1129.24 1039.7 1049.33 85738250000 1049.33 -4.74%
Jun 30, 2010 1031.1 1120.95 1010.91 1101.6 94778110000 1101.6 6.88%
May 31,
2010 1087.3 1131.23 1028.33 1030.71 1.10107E+11 1030.71 -5.39%
Apr 30, 2010 1188.58 1205.13 1040.78 1089.41 1.27663E+11 1089.41 -6.84%
Mar 01,
2010 1105.36 1180.69 1105.36 1169.43 1.03684E+11 1169.43 5.88%
Feb 01, 2010 1073.89 1112.42 1044.5 1104.49 84561340000 1104.49 2.85%
Jan 01, 2010 1116.56 1150.45 1071.59 1073.87 90947580000 1073.87 -3.70%
Dec 01, 2009 1098.89 1130.38 1085.89 1115.1 89515330000 1115.1 1.78% 0.071632038
Oct 31, 2009 1036.18 1113.69 1029.38 1095.63 84981530000 1095.63 5.74%
14

Sep 30, 2009 1054.91 1101.36 1019.95 1036.19 1.13411E+11 1036.19 -1.98%
Aug 31,
2009 1019.52 1080.15 991.97 1057.08 1.12295E+11 1057.08 3.57%
Jul 31, 2009 990.22 1039.47 978.51 1020.62 1.16059E+11 1020.62 3.36%
Jun 30, 2009 920.82 996.68 869.32 987.48 1.06636E+11 987.48 7.41%
May 31,
2009 923.26 956.23 888.86 919.32 1.12653E+11 919.32 0.02%
Apr 30, 2009 872.74 930.17 866.1 919.14 1.31615E+11 919.14 15.20%
Mar 01,
2009 729.57 832.98 666.79 797.87 1.61844E+11 797.87 8.54%
Feb 01, 2009 823.09 875.01 734.52 735.09 1.24492E+11 735.09 -10.99%
Jan 01, 2009 902.99 943.85 804.3 825.88 1.12091E+11 825.88 -8.57%
Dec 01, 2008 888.61 918.85 815.69 903.25 1.12884E+11 903.25 0.78% 0.060257151
Oct 31, 2008 968.67 1007.51 741.02 896.24 1.1566E+11 896.24 -7.48%
Sep 30, 2008 1164.17 1167.03 839.8 968.75 1.59823E+11 968.75 -16.94%
Aug 31,
2008 1287.83 1303.04 1106.42 1166.36 1.40007E+11 1166.36 -9.08%
Jul 31, 2008 1269.42 1313.15 1247.45 1282.83 86266010000 1282.83 1.22%
Jun 30, 2008 1276.69 1292.17 1200.44 1267.38 1.24981E+11 1267.38 -0.99%
May 31,
2008 1399.62 1404.05 1272 1280 96614040000 1280 -8.60%
Apr 30, 2008 1385.97 1440.24 1373.07 1400.38 80990480000 1400.38 5.87%
Mar 01,
2008 1330.45 1359.68 1256.98 1322.7 93189170000 1322.7 -0.60%
Feb 01, 2008 1378.6 1396.02 1316.75 1330.63 78536130000 1330.63 -3.48%
Jan 01, 2008 1467.97 1471.77 1270.05 1378.55 98475340000 1378.55 -6.12%
A). 5 years of annualised standard deviation
Years
Annualised standard
deviation
15

2013 0.025
2014 0.024
2015 0.040
2016 0.030
2017 0.012
B). 10 years of annualised standard deviation
16

Years
Annualised standard
deviation
2008 0.060
2009 0.072
2010 0.054
2011 0.045
2012 0.032
2013 0.025
2014 0.024
2015 0.040
2016 0.030
2017 0.012
SECTION 3
A. Cost of debt
10 years analysis:
10 year
Risk-Free Rate 2.39%
Netflix Credit Rating BB-
Current AA Spread 3.06%
Pre-Tax Cost of Debt 5.45%
Tax Rate 35%
17

After Tax Cost of Debt 3.54%
5 Years analysis:
5 year
Risk-Free Rate 1.84%
Netflix Credit Rating BB-
Current AA Spread 3.06%
Pre-Tax Cost of Debt 4.90%
Tax Rate 35%
After Tax Cost of Debt 3.19%
B. Cost of Equity
1. Measuring the CAPM Cost of Equity
A). 2 years of market return for beta analysis
2 year Cost
Risk - Free Rate 2.80%
Market Return 14.15%
2 year Beta 0.40
Cost of Equity 7.34%
B). 5 years of market return for beta analysis
5 year Cost
18

Risk - Free Rate 2.39%
Market Return 14.15%
5 year Beta 0.510
Cost of Equity 8.39%
2. Evaluating the reasons behind differences in outcomes
In consideration with the CAPM analysis over the market returns payable by Netflix on 2-year cost and 5-year cost had been
analysed to have the adequate ascertainment of the outputs (Dang, Li and Yang, 2018). Thus, there have neem variation in the end
results due to changes in risk free rate, market return and beta value in the respective years.
C. Calculating WACC
1. Weighting of debt to equity in the capital structure
2. Analysing the WACC of the organisation based on Cost of debt and Equity
Relative weighting of debt to
equity 37.97%
WACC 10.79%
SECTION 4
Capital budgeting
Examining the cash flow statement of Netflix
SECTION 5
A. Analysing payout Policy
The dividend policy has been extracted in this analysis. According to annual report of Netflix has dividend payout ratio as
from year 2015 to 2017. In the coming years also, they do not have any intention for paying cash dividends in future as well. As in
year 2015, the board of directors has declared stock split in 2015 to each of its shareholders (Rocheteau, Wright and Zhang, 2018).
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This organization has faced stock split twice in its business as first was in 2003 as it had crossed $1 billion of market capitalization.
Second split was in 2015, when business observed uniquely as compared to early days. It had aggregated 13 million new members via
calendar year 2014 as compared to 11 million in past year which was undertaken in total of 60 million subscribers. In the similar
aspect, international business had directly spiked through 22 million users (Mulherin, Netter and Poulsen, 2018). So, they had closed
$374 a share with announcement of seven to one stock split in year 2015 as it was intended for making Netflix shares in very
affordable aspect to its everyday investors. Henceforth, this stock split took form of stock dividend of its six additional shares for
ownership of each share (Annual report of Netflix, 2017).
This split has signed confidence in management with its durability of surge of recent stock as NFLX was hovering $60 three
years ago (Rocheteau, Wright and Zhang, 2018). It could be clearly viewed that management is not capable for observing stock round
tripping as it has outperformed its rating on Netflix. In this context, Netflix has implemented various innovative strategies for getting
the position in present scenario (O'Sullivan, 2018). It had single headedly created through streaming market with numerous big
players such as Amazon, Apple and Sony Corp. Further, it could be articulated that Netflix is clear leader in its industry of video
streaming along with more than 118 million subscribers in more than 50 countries (Suto and Takehara, 2018).
CONCLUSION
On the basis of above report, it can be said that, analysis over Netflix and the current performance made by organisation in
market. Therefore, there have been analysis made on various elements such as CAPM, WACC as well as determination over the bond
value of the organisation. Thus, in compression with such outcomes it can be said that the firm will be fruitful and adequate for the
investors in terms of making investment ion the business which denotes less risks associated with making investments in the firm.
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REFERENCES
Books and Journals
Bazdresch, S., Kahn, R. J. and Whited, T. M., 2017. Estimating and testing dynamic corporate finance models. The Review of
Financial Studies.31(1). pp.322-361.
Borde, S. F., 2017. Student Characteristics and Performance in Intermediate Corporate Finance. Journal of Financial
Education. 43(1). pp.1-13.
Dang, C., Li, Z. F. and Yang, C., 2018. Measuring firm size in empirical corporate finance. Journal of Banking & Finance. 86.
pp.159-176.
Lerner, J. and Seru, A., 2017. The use and misuse of patent data: Issues for corporate finance and beyond (No. w24053). National
Bureau of Economic Research.
Mulherin, J. H., Netter, J. M. and Poulsen, A. B., 2018. Observations on research and publishing from nineteen years as editors of the
Journal of Corporate Finance. Journal of Corporate Finance. 49. pp.120-124.
O'Sullivan, C., 2018. The Gendered Corporation: The Role of Masculinities in Shaping Corporate Culture.
Rocheteau, G., Wright, R. and Zhang, C., 2018. Corporate finance and monetary policy. American Economic Review.108(4-5).
pp.1147-86.
Rocheteau, G., Wright, R. and Zhang, C., 2018. Corporate finance and monetary policy. American Economic Review.108(4-5).
pp.1147-86.
Suto, M. and Takehara, H., 2018. Corporate Social Responsibility and Corporate Finance in Japan. Springer.
Online
Annual report of Netflix. 2017. [Online]. Available through
<http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_NFLX_2017.pdf>.
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