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Corporate Finance Project Assignment

   

Added on  2020-10-22

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CORPORATE FINANCEPROJECT
Corporate Finance Project Assignment_1

TABLE OF CONTENTSTABLE OF CONTENTS..............................................................................................................2INTRODUCTION...........................................................................................................................1Overview of Netflix.........................................................................................................................1SECTION 1: CORPORATE BOND ANALYSIS..........................................................................1A. Company's Credit rating.........................................................................................................1B Outstanding debts of company.................................................................................................3C. Company’s carrying cost of outstanding debt.........................................................................3D. Bond which is issued on recent aspect....................................................................................4E. Yield to maturity and current price of outstanding bond........................................................5SECTION 2: Risk and Return.........................................................................................................6A. Calculation of return...............................................................................................................6B. Calculating risk.......................................................................................................................8SECTION 3...................................................................................................................................16A. Cost of debt...........................................................................................................................16B. Cost of Equity.......................................................................................................................17C. Calculating WACC...............................................................................................................18SECTION 4...................................................................................................................................18Examining the cash flow statement of Netflix..........................................................................18SECTION 5...................................................................................................................................18A. Analysing payout Policy...........................................................................................................18CONCLUSION..............................................................................................................................19REFERENCES..............................................................................................................................20
Corporate Finance Project Assignment_2

INTRODUCTIONThe necessity of financial requirements in every organisation is quite mandatory for making operational planning and proceedingthe activities which will be adequate in making appropriate ascertainment of the data base. In the present report, there will bediscussion base on market value and returns paid by Netflix to their potential stakeholders. It will be compared with the S&P 500index on the basis of analysing the cost of debt and cost of equity.Overview of NetflixNetflix 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 streamingmedia service which is offering online streaming of particular library of films along with television programs as it considers thosewhich 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 thesimilar 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 andmoves as well with connection of Internet screen, mobile devices and computers. In the latest scenario, it has traded bond namedNetflix 2050 which is also rated through Moody as well (All About The Netflix Streaming Service, 2018).SECTION 1: CORPORATE BOND ANALYSISA. Company's Credit ratingYEAR201720162015Operating income839380306Interest expenses238150133EBIT Interest Coverage Ratio3.5252.5332.3011
Corporate Finance Project Assignment_3

Most recent issued bondNETFLIX 2025Bond typeCoupon BondsSymbolUS64110LAL09Last Trade Date (on 05/12/2018)12-05-2018Last Trade Price$102.50Last Trade Yield5.080%Coupon Rate5.875%Maturity Date2/15/2025Par (Face) Value$1,000Moody's RatingBa3S&P's RatingBB-Fitch RatingB+3 & 4. 10-year bonds yield and interest rate premiumBond's SymbolYieldUS64110LAQ955.626%US64110LAS515.954%US64110LAN645.694%US64110LAG145.398%US64110LAE654.270%US64110LAL095.875%Average5.469%U.S. Treasury Yield for 10-year bonds (02.12.2016)2.400%Premium3.069%2
Corporate Finance Project Assignment_4

B Outstanding debts of companyOutstanding Debt SecuritiesIssue NameIssue DateMaturity DateYears RemainingCurrencyAmount Outstanding ($M)NFLX 5.375 02/01/ 202102-04-1402-01-212.16USD500NFLX 5.5 02/15/20202-08-1602/15/20223.2USD700NFLX 5.75 03/01/202402-19-1503-01-245.23USD400NFLX 5.875 02/15/ 202502-08-1602/15/20256.2USD800NFLX 4.375 11/15/ 202611-03-1711/15/20267.94USD1000NFLX 3.625 05/15/ 202705/17/ 201705/15/20278.44EUR1300NFLX 4.875 04/15/ 202810/26/ 201704/15/20289.36USD1600NFLX 4.875 04/15/ 202810/26/ 201704/15/20289.36USD1600NFLX 5.875 11/15/ 202804/26/ 201811/15/20289.94USD1900NFLX 5.875 11/15/ 202804/26/ 201811/15/20289.94USD1900NFLX 4.625 05/15/ 202910/26/ 201805/15/202910.44EUR1253NFLX 6.375 05/15/ 202910/26/ 201805/15/202910.44USD800NFLX 6.375 05/15/ 202910/26/ 201805/15/202910.44USD800NFLX 4.625 05/15/ 202910/26/ 201805/15/202910.44EUR1253C. Company’s carrying cost of outstanding debt1. Calculation of EBIT Interest coverage ratioYEARFormula201720162015Operating income839380306Interest expenses238150133EBIT InterestCoverage RatioEBIT/ Interestexpense3.5252.5332.301Interpretation: The above table is measuring interest coverage ratio over past 3 consecutive years from 2015 to 2017. It helpsin providing duration or time over business entity is capable for paying its current interest payment with reference to earnings3
Corporate Finance Project Assignment_5

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 toimprove 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 thatNetflix 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 yearsTotal mature amount15806Total Coupon amount1085.43Total cost16891.433 EBIT Interest coverage ratio helps for credit rating or notIn this context, this ratio is replicated as one major reason for credit rating as in 2017, its interest coverage ratio increased withcertain proportion and Netflix has accumulated its position of debt (Bazdresch, Kahn and Whited, 2017).D. Bond which is issued on recent aspectMost recent issued bondNETFLIX 2025Bond typeCoupon BondsSymbolUS64110LAL09Last Trade Date (on 05/12/2018)12/05/2018Last Trade Price$102.50Last Trade Yield5.080%Coupon Rate5.875%Maturity Date2/15/2025Par (Face) Value$1,000Moody's RatingBa34
Corporate Finance Project Assignment_6

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