University Analysis: Strategic Financial Management Report on Netflix

This report provides a comprehensive strategic financial management analysis of Netflix, covering various aspects of its business operations. The report begins with an introduction to Netflix, its business model, and its industry context. A detailed financial analysis follows, examining profitability ratios (gross margin, operating margin, and return on equity), liquidity ratios (current ratio, acid-test ratio, and shareholders’ equity), efficiency ratios (accounts payable days and asset turnover ratio), cash flow analysis, and gearing ratios. The report also assesses Netflix's investors, segmentation, and competitor analysis. Furthermore, the report includes an overview of Netflix's marketing analysis, focusing on product, price, place, and promotion strategies. It also delves into human resource management analysis, covering core values, skills, pay, culture, recruitment, and the organizational structure of Netflix. Finally, the report examines Netflix's operations analysis, including its value chain, primary activities, and supporting activities, and concludes with a summary of the company's strengths and weaknesses. The report uses data from the provided case study.

Running Head: Strategic Finance Management
Netflix
Strategic Finance Management
This report deals with the complete analysis of Netflix which includes financial analysis,
marketing, HRM and operations analysis. All work in this report is obtained from the case
study unless referenced otherwise.
Contents

Strategic Finance Management
1. Introduction...................................................................................................................................2
2. Financial Analysis.........................................................................................................................3
2.1 Profitability Ratios...................................................................................................................3
2.2 Gross Margin vs. Operating Expenses.....................................................................................5
2.3 Liquidity Ratios.......................................................................................................................6
2.4 Efficiency Ratios.....................................................................................................................7
2.5 Cash Flow Analysis.................................................................................................................9
2.6 Gearing Ratios.........................................................................................................................9
2.7 Investors................................................................................................................................10
2.8 Segmentation Analysis..........................................................................................................11
2.9 Competitor Analysis..............................................................................................................11
3. Marketing Analysis......................................................................................................................12
4. Human Resource Management Analysis.....................................................................................13
4.1 Core Values of Netflix...............................................................................................................13
4.2 Skills..........................................................................................................................................13
4.3 Pay.............................................................................................................................................13
4.4 Additional Compensation..........................................................................................................14
4.5 Culture.......................................................................................................................................14
4.6 Number of Employees...............................................................................................................14
4.7 Recruitment...............................................................................................................................14
4.8 Structure of Netflix....................................................................................................................15
4.9 Corporate Governance at Netflix...............................................................................................15
5. Operations Analysis.....................................................................................................................16
5.1 Value Chain of Netflix...............................................................................................................16
5.2 Primary Activities................................................................................................................16
5.3 Supporting Activities...........................................................................................................17
6. Strengths and Weakness for Netflix.............................................................................................18
References...........................................................................................................................................20
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Appendices..........................................................................................................................................24
Appendix 1......................................................................................................................................24
Appendix 2......................................................................................................................................27
Appendix 3......................................................................................................................................27
Appendix 4......................................................................................................................................30
Appendix 5......................................................................................................................................31
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1. Introduction
Netflix was started by Marc Randolph and Reed Hastings in 1997. At present, Reed Hastings
is its Chief Operating Officer. Subscription service was started by the company in 1999. The
company is leading in the area of internet entertainment service with more than 151 million
paid memberships in about one hundred ninety countries. It deals in streaming TV series,
feature films, documentaries etc.1
Netflix Business Operations
Earlier Netflix was into web based- catalogue service wherein it used to rent the DVD’s of
old movies through mail. They allowed the subscribed users to keep the DVD’s for as long as
they want without any late fee charges.
At present, the company is streaming a library of movies, TV shows, documentaries, in-house
contents etc. It generates revenue through streaming varieties of videos and audios for which
it charges a good amount of subscription fee.
Operational Market of Netflix
Netflix deals in a video streaming market which deals in video streaming services, generally
referred to as “Video on Demand” (VOD). VOD service refers to the system through which
users can watch the TV series, videos, movies, audios at any place at any point of time
without the constraint of watching the show at a fixed time. These shows are streamed
through internet and over the market (OTT) and are accessed through all kinds of internet
connected devices and set-top boxes.
Industry of Netflix
Netflix operates in the media industry where it has the competitors like Amazon, Disney and
HBO etc. All these companies are indulged into video streaming. The nature of the industry
is such that it allows the Netflix to carry out its business operation as vertically-integrated
company.
Strategic Business Unit (SBU) of Netflix
1 https://media.netflix.com/en/about-netflix
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Strategic Finance Management
If we talk about the Strategic Business Unit (SBU) of Netflix then it includes domestic
streaming, and international streaming and domestic DVD. Netflix stream the videos only to
subscribed members of United States under domestic streaming. To the subscribed members
who reside outside the United States, the videos are streamed under International streaming.
Lastly, under Domestic DVD the company generates sales from the membership fees charged
for mailing the DVD’s.
2. Financial Analysis
2.1 Profitability Ratios
Gross Margin
28.74% in 2013 has grown by 20% to 34.49% in 2017
Series such as House of Cards, Orange is the new black, BoJack Horseman, Stranger things
etc. launched during the period of 2013-2017 are the main contributor to increase gross
margin
Not impressive when compared to the industry average of last five years where company had
maintained an average of 31.8% gross margin and industry maintained 86.31%.
Netflix is not carrying out its operations much efficiently like other companies in the
industry.
2017 2016 2015 2014 2013
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Gross Profit Margin
Gross Profit Margin
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Operating Margin
 5.22% in 2013, has grown to 19.17% in 2017
Constant rising because:
• Revenue growing as a result of growing subscribers 2
 Company had maintained an average of 9.5% of operating margin and industry
maintained only 7.66 %.
2017 2016 2015 2014 2013
0
0.05
0.1
0.15
0.2
0.25
Operating Margin
Operating Margin
Return on Equity
The return on equity which displays the revenue generated through shareholders' money has
gone down by 47.09% over five year period because Netflix has taken good amount of long
term debt over 2013 to 2017.
2 https://www.nytimes.com/2014/07/22/business/media/netflix-says-it-topped-50-million-subscribers.html
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2017 2016 2015 2014 2013
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Return on Equity
Return on Equity
2.2 Gross Margin vs. Operating Expenses
2013 2014 2015 2016 2017
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
4500000
Gross Profit
Full Gross Profit/
Operating profit
1. Netflix’s marketing, general and administrative and technology and development cost
form the major part of operating expense
2. Gross margin of Netflix looks much better than operating profit
3. Excluding operating expenses, gross profit becomes 381% times more than operating
profit.
4. Incur heavy cost on marketing as a result of which the operating profit has always
been lower than gross profit.
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2.3 Liquidity Ratios
The liquidity ratios which mainly include current and quick ratios help to check the
company's efficiency in meeting its short term liabilities with the short term assets3.
Current Ratio
2013 started with 1.42 to 1.40 in 2017
It is almost constant over five year period.
Current liabilities increased by 154% but current Assets also increased by 150%
2017 2016 2015 2014 2013
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
Current Ratio
Current Ratio
Acid- Test Ratio
0.56 In 2013 to 0.52 in 2017
Less than 1, means cannot meet short-term obligations easily
Cash and cash equivalents have gone up however; short term investments came down over
the period because proceeds from the sale of short term investments has been used for buying
DVD content assets and property plant and equipment as presented in cash flow statement of
Netflix.
Company had maintained an average of 0.54% of operating margin and industry maintained
only 0.45 %.
3 https://pdfs.semanticscholar.org/ab67/5a136c22d9898749752dd201c39cf33857fa.pdf
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2017 2016 2015 2014 2013
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Acid Test Ratio
Acid Test Ratio
Shareholders’ Equity
0.25 In 2013 to 0.19 in 2017
Company is using more of long term debts to finance its assets over shareholder funds.
2017 2016 2015 2014 2013
0
0.05
0.1
0.15
0.2
0.25
0.3
Shareholder Equity Ratio
Shareholder Equity Ratio
2.4 Efficiency Ratios
Accounts Payable Days
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Average of 12 days payable shows:
1. creditors have extended the period of credit for Netflix because of its reputation and
growing business
2. These amounts used by the company for meeting its day to day operations and
resulted in an ideal current and quick ratio of Netflix
2017 2016 2015 2014 2013
0
2
4
6
8
10
12
14
Accounts Payable days
Accounts Payable days
Asset Turnover Ratio
Asset turnover ratio of 1 shows Netflix’s inefficiency in utilising its fixed assets to generate
sales
Worse than Industry average of 13 days
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2017 2016 2015 2014 2013
0
1
1
Asset Turnover Ratio
Asset Turnover Ratio
2.5 Cash Flow Analysis
2017 2016 2015 2014 2013
-3000000
-2000000
-1000000
0
1000000
2000000
3000000
4000000
5000000
Cash and cash equivalents,
end of year
Net cash provided by
financing activites
Net cash provided by
investing activities
Net cash used in operating
activities
Interpretation- Over five years, the company has always witnessed a cash outflow from
operating activities which shows it is heavily indulged in boosting its operating activities and
therefore has spent around $12 billion on content and $5billion on other types of operating
cost4. Company is spending a good amount on purchase of property, plant and equipment
over five year period. In 2015, it purchased first production studio at New Mexico Facility5.
4 https://www.forbes.com/sites/greatspeculations/2018/11/07/netflixs-momentum-has-run-out/
#5346c4c32886
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Since, it has borrowed a good sum in form of long term debt, net cash from financing
activities has gone up.
2.6 Gearing Ratios
Debt-to-Equity Ratio
Netflix finances its business more through the long term debts and less by shareholders'
money as a result of which debt to equity ratio has kept on growing over last five years. Like
in 2018 it spent $12 billion on contents alone6 .
The industry average of Debt to equity ratio is just 0.03 whereas the company's average debt
to equity ratio is 1. Netflix is required to check its solvency position before it gets into the
danger of financial distress in future (Appendix 1).
2.7 Investors
Earnings per Share
1. Always Positive over five years period
2. Increased by 931% from 2013 to 2018
Share Price
1. $52.6 to 267.66 between 2013- 2018; 409% growth
2. Share price rises whenever it raises the price of streaming plans like happened in the
year 2017 when it raised the streaming plan price from$1 to $27.
Market Capitalisation
1. $80.65 Billion in 2017,261% increase
5 https://www.bloomberg.com/news/articles/2018-10-08/netflix-already-a-studio-in-all-but-name-is-buying-a-
studio
6 https://www.forbes.com/sites/greatspeculations/2018/11/07/netflixs-momentum-has-run-out/
#5346c4c32886.
7 https://www.fool.com/investing/2018/10/26/why-netflixs-prices-will-be-raised-again-and-again.aspx.
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2. Overtook time warner with the launch of “house of cards” and “orange is the new
black” 8
2013 2014 2015 2016 2017
0
100
200
300
400
500
600
PE Ratio
Market Capitalisation
Share price
Earnings-per-share
2.8 Segmentation Analysis
A. Segmentation
1. USA
2. Australia
3. Singapore
4. Other except, China, Syria, Crimea, North Korea, or due to U.S. government
restrictions on American companies
B. Targeting
After segmentation when the company recognises the segments it identifies which section of
the segment it would serve9. Netflix target their audience based on the type of show it is
launching. Like when it came up with "House of Cards" it targeted the educated adults who
were the subscribed user of HBO as well. In case of “Hemlock Grove", Netflix targeted
young men who prefer to play video games over watching linear Television10.
8 https://fortune.com/2017/07/18/netflix-stock-time-warner-hbo/
9 http://www.ajssh.leena-luna.co.jp/AJSSHPDFs/Vol.7(3)/AJSSH2018(7.3-07).pdf
10 https://www.cnbc.com/id/100662939
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C. Positioning
Netflix has positioned itself in the mind of its consumers as a high quality entertainment
platform, comfortable because of simple interface, user- friendly with no-ads11.
2.9 Competitor Analysis
Netflix is a streaming video company whose demand has gone up significantly over the years
and as a result at present it is operating in 190 countries with 130 million subscribers12.There
are two ways in which the contents are received by the companies, one by licensing the
already produced series, movies etc. and second by producing their own contents. Licensing
the already produced content can be dangerous like in case of Netflix and Disney. Netflix has
got the license of showing up the contents produced by Disney but now Disney is planning to
open its own streaming video segment wherein it would come up with their originally
produced contents. This is dangerous for Netflix because the brand name of Disney just
attract the traffic towards itself and if Disney would open a separate streaming segment then
chances are there that the traffic of Netflix would switch to Disney (case study).French
broadcasters France Televisions, TF1 and M6 have joined together to stream the varieties of
contents from drama, movies, TV series, music, news etc. It has been seen that half of the
Netflix users have also got the Amazon Prime subscription. Therefore, the Netflix does not
have much threat with Amazon13. No doubt, there are many companies who are entering into
video streaming industry but it seems that it has not affected Netflix. Almost 52% of
American Households prefers Netflix out of which one-fifth prefers for Netflix alone14. All
these show the possibility of Netflix to continue as the market leader in the upcoming years.
Conclusion- Therefore, the company is strong in terms of liquidity and profitability.
However, it requires checking its solvency to avoid the future problem of financial distress.
In terms of competition, it may face danger from Disney if it would open its own steaming
section.
11 https://www.fool.com/investing/2018/07/21/what-is-netflix-incs-competitive-advantage.aspx
12 https://hbr.org/2018/10/how-netflix-expanded-to-190-countries-in-7-years
13 https://www.forbes.com/sites/greatspeculations/2017/06/01/netflix-and-amazon-competitors-or-
complementary/#2426ea3556cc
14 https://finance.yahoo.com/news/almost-nobody-chooses-streaming-competitors-111600534.html
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3. Marketing Analysis
Product Price
Netflix offers:
1. Tangible product- mail-in DVD's
2. Intangible products- online streaming of
movies, TV series etc.15
3. Video on demand- Customers can watch
movies or TV shows as per their wish and
wants.
Netflix offers:
1. Basic plan- subscribed users can access
standard definition quality videos and audios
only on a single device at a time which could
be laptop, phone, desktop, tablets etc.
2. Standard plan- subscribed users can access
high definition quality videos and audios on
two devices simultaneously.
3. Premium plan- subscribed users can access
high definition quality and ultra-high
definition quality videos and audios on four
devices simultaneously.
Netflix is following the value based pricing
strategy because there are three different values
attached with the different prices.
Place Promotion
DVD’s- direct distribution channel.
Online streaming services- Delivered to the
customers through Multichannel distribution
system like PlayStation, Xbox and Nintendo
Wii.
Netflix uses the social media platforms, public
relations programs, banners, hoardings, pop-up
ads etc. to promote their offerings. However, it
does not advertise anything to their existing
subscribers.
Conclusion- Netflix is generating revenue through the sale of DVD’s and online streaming
services by following value based pricing strategy. It is enhancing its sales by spending on
promotional activities like banners, hoardings etc. and making the products easily available
through direct and multi-channel distribution system.
15 http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.996.9837&rep=rep1&type=pdf
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4. Human Resource Management Analysis
4.1 Core Values of Netflix
Netflix says that their values lie in valuing their established values. Along with it, the real
values of the company may attract the persons who are looking for the employer like them.
The core values are:
1. Judgement
2. Communication
3. Impact
4. Curiosity
5. Innovation
6. Courage
7. Passion
8. Honesty
9. Selflessness
10. Integrity
4.2 Skills
The company believes to hire only those people whose skill set matches with the skills
required for the specific job role. Netflix is of the opinion that hiring people with the
appropriate skill set actually reduces the attrition rate and motivates the employees to work
more.
4.3 Pay
The employees of Netflix are being well paid by the company. As per the Glassdoor's report
on America's highest paying organisations, Netflix is the second highest paying company.
4.4 Additional Compensation
There are certain other benefits that are provided to the employees at Netflix:
1. Free lunch
2. Employees get 12 months of maternity leave and paternity leave.
3. Long vacations without limit are allowed
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4. At California office, there is an open working hour system
5. Insurance of health, vision and dental
6. Stock purchase plan for the employees
7. Discounts on Mobile phone
4.5 Culture
Netflix consider itself as a company which provides the entertainment services at a lower
cost. The company has the aim of entertaining every person and make them smile. The
culture of Netflix are defined as follows:
1. Dream Team
2. Freedom and Responsibility
3. Informed Captains
4. Highly Aligned, Loosely Coupled
4.6 Number of Employees
In 2018, Netflix has 7100 full time employees out of which 6900 were supporting the
streaming segments16.Table B (Appendix 4) shows the number of employees of Netflix in the
last 4 years that is, from 2014 to 2017.
4.7 Recruitment
Hiring manager has the full privilege of making the final decisions and this ultimately helps
in hiring the best fit for the role17.
4.8 Structure of Netflix
The Netflix is following a Flat Structure which is good because very few levels of
management exist between the management and staff level employees18 (Refer Fig A under
Appendix 5).
16 https://s22.q4cdn.com/959853165/files/doc_financials/annual_reports/2018/Form-10K_Q418_Filed.pdf
17 https://business.linkedin.com/talent-solutions/case-studies/tech/netflix
18 https://theorg.com/org/netflix
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4.9 Corporate Governance at Netflix
Board Monitoring is most significant part of corporate governance because they monitor the
entire management on behalf of the company’s shareholders19. Netflix follows two
approaches for increasing the level of transparency among the chief executive officer, Board
of directors and executive team. The first approach is that the board of directors attend the
meetings periodically which may be monthly or quarterly. Under second approach, the
presentations of board meetings are prepared and structured in a narrative form that offers
links to supporting analysis and also allows access to all data and information on the
company's internal system20.
Conclusion- Netflix manages its human employees well after hiring the best people from the
market with the help of hiring manager. Also, the structure of organisation helps in
maintaining transparency and trust.
19https://www.researchgate.net/profile/Yiming_Qian/publication/
277883467_Information_Asymmetry_and_Corporate_Governance/links/55c8b50f08aea2d9bdc91935.pdf
20 https://s22.q4cdn.com/959853165/files/doc_downloads/governance_docs/cl71_netflix.pdf
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5. Operations Analysis
5.1 Value Chain of Netflix
5.2 Primary Activities
Inbound Logistics
1. Large storage servers acts as the back end storage device for online streaming
contents
2. DVD's and multiple warehouses form the inventories of Netflix and acts on the
operations' back end side21.
21https://www.researchgate.net/publication/
272246602_From_Streaming_Vendor_to_Production_House_Netflix_SWOT_Analysis
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Operations
1. Amazon Web Services for cloud computing
2. Netflix uses its own system to store personal information of consumers
3. Encryption and authentication technology are being used for securing highly sensitive
data lie credit card numbers
Outbound Logistics
1. US Postal Service First Class Mail for DVD's delivery22.
2. Netflix App, internet-connected devices like set-top boxes, smart TVs, Laptops,
Desktops etc. for streaming videos online 23.
Sales and Marketing
1. Uses Social Platforms like Facebook
2. Heavy expenses on marketing which includes advertising expenses and the payments
to consumer electronics manufacturers, mobile operators etc.
Service
1. Netflix Post Partner Program (NP3) to ensure smooth consumer experience24.
2. Netflix is supported by CNRS France for video compression and formatting
5.3 Supporting Activities
Firm's Infrastructure
1. Ownership lies with the engineering teams which are responsible for their own work,
coding texting, issues etc.
2. Complicated Infrastructure as a result the structure of information technology of
Netflix is located on Amazon's cloud data centres.
3. Issues and problems are detected by the tool developed by Netflix
All these ultimately results in a better and seamless user experience25.
22 https://help.netflix.com/en/node/396/us
23 https://help.netflix.com/en/node/412
24 https://np3.netflixstudios.com/
25 https://digital.hbs.edu/platform-rctom/submission/netflix-behind-the-scenes/
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Human Resources Management
1. Sunshine- To promote transparency in organisation
2. Keeper Test- A part of review process wherein, managers are made to ask themselves
whether they would struggle and fight to retain an employee within the organisation26.
3. Netflix believes to hire people based on their skillsets and not simply relying over
their resumes and experience27.
Netflix has scored really high in "The Balance Careers Organisation" in terms of
organisational culture.
Technology Development
1. Content Delivery Network
2. Third party technology
Procurement
1. Partnership with various content providers
2. Netflix In-house Production team 28
Conclusion- Netflix is carrying out operations efficiently with the help of good
infrastructure, technological support from Amazon Web services, HRM policies like
Sunshine, CNRS, US Postal Service First Class Mail etc.
6. Strengths and Weakness for Netflix
Strengths Weaknesses
1. Netflix is using Amazon Web Services for cloud
26 https://www.forbes.com/sites/brettonputter/2018/12/04/netflixs-company-culture-is-not-for-everybody-
and-thats-exactly-how-it-should-be/#1e5a8ff91880
27 https://www.forbes.com/sites/stephaniedenning/2018/04/30/incubating-culture-how-netflix-is-winning-
the-war-for-talent/#63da7fff3a78
28 https://www.tandfonline.com/doi/full/10.1080/14241277.2015.1055533
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1. Flat organisational structure
helps the Netflix in taking quick
and sound decisions 29
computing services which must be costing a very high
cost to the company30
2. Netflix hires and keeps only the
best people and fires those who no
longer provide value to the
company31
2. Netflix has entered into licensing rights agreement
with many content providers which is adding to the
cost of production32. Therefore, operational cost of the
company has gone up and operating profit has come
down over the five year period (2013-2017)33
3. Netflix uses its own tool for
detecting, diagnosing and
resolving issues. This helps the
company in saving cost that it
might have incurred on using the
third-party's tool.34
3. The long term debt of the Netflix has gone up by
1200% over the past 5 years (2013-2017) and
therefore Netflix is facing the threat of financial
distress35.
4. Value based pricing strategy is
helping the company in providing
extraordinary services and reap
higher profit over the years36
4. The company is not utilising the shareholders’
equity for asset financing and is favouring long term
debts for the same which has increased the debt to
equity ratio more than the industry average 37
5. The company is also having an
in-house production team which
reduces the operational cost of
telecasting the contents of the
other content providers38.
5. The company has incurred a lot of cost on
marketing39 as a result of which the cost of production
has gone up40.
29 See HRM
30 See Operations
31 See HRM
32 See Operations
33 See Finance
34 See Operations
35 See Finance
36 See Marketing
37 See finance
38 See Operations
39 See Marketing
40 See Finance
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7. References
 Boorstin, J. (2013). Netflix Focuses on Targeted, Premium Content, and It Works.
[online] CNBC. Available at: https://www.cnbc.com/id/100662939 [Accessed 22 July
2019].
 Bylund, A. (2018). What Is Netflix, Inc.'s Competitive Advantage?. [online] The Motley
Fool. Available at: https://www.fool.com/investing/2018/07/21/what-is-netflix-incs-
competitive-advantage.aspx [Accessed 22 July 2019].
 Brennan, L. (2018). How Netflix Expanded to 190 Countries in 7 Years. [online] Harvard
Business Review. Available at: https://hbr.org/2018/10/how-netflix-expanded-to-190-
countries-in-7-years [Accessed 22 July 2019].
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 Cai, J., Liu, Y., Qian, Y. and Yu M. (2015). Information Asymmetry and Corporate
Governance. Quarterly Journal of Finance.5 (3). pp. 56-65. Available at:
https://www.researchgate.net/profile/Yiming_Qian/publication/
277883467_Information_Asymmetry_and_Corporate_Governance/links/
55c8b50f08aea2d9bdc91935.pdf [Accessed 22 July 2019].
 Donning, S. (2018). Incubating Culture: How Netflix Is Winning The War For Talent.
[online] Forbes. Available at:
https://www.forbes.com/sites/stephaniedenning/2018/04/30/incubating-culture-how-
netflix-is-winning-the-war-for-talent/#22cf11c13a78 [Accessed 22 July 2019].
 Forbes. (2017). Netflix And Amazon: Competitors Or Complementary?. [online].
Available at: https://www.forbes.com/sites/greatspeculations/2017/06/01/netflix-and-
amazon-competitors-or-complementary/#584a853256cc [Accessed 22 July 2019].
 Form 10K.Netflix Inc. (2018). Transition Report Pursuant To Section 13 Or 15(D) Of
The Securities Exchange Act Of 1934. [online] Available at:
https://s22.q4cdn.com/959853165/files/doc_financials/annual_reports/2018/Form-
10K_Q418_Filed.pdf [Accessed 22 July 2019].
 Harvard Business School (2018). Netflix – Behind the Scenes. [online]. Available at:
https://digital.hbs.edu/platform-rctom/submission/netflix-behind-the-scenes/ [Accessed
22 July 2019].
 Jenner, M. (2014). Is this TVIV? On Netflix,TVIII and binge-watching. [online] Available
at:http://citeseerx.ist.psu.edu/viewdoc/download?
doi=10.1.1.996.9837&rep=rep1&type=pdf [Accessed 22 July 2019].
 Kajananthan, R. and Velnampy, P. (2014). Liquidity, Solvency and Profitability Analysis
Using Cash Flow Ratios and Traditional Ratios: The Telecommunication Sector in
Sri Lanka. Research Journal of Finance and Accounting. 5 (23). pp. 163-170 Available
at:
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https://pdfs.semanticscholar.org/ab67/5a136c22d9898749752dd201c39cf33857fa.pdf
[Accessed 22 July 2019].
 Kehoe, K. and Mateer, J. (2015). The Impact of Digital Technology on the Distribution
Value Chain Model of Independent Feature Films in the UK. International Journal of
Media Management.24 (2). pp. 93-108. Available at:
https://www.tandfonline.com/doi/full/10.1080/14241277.2015.1055533 [Accessed 22
July 2019].
 Larcker, D.F. and Tayan B. (2018). Netflix Approach to Governance. [online]. Available
at: https://s22.q4cdn.com/959853165/files/doc_downloads/governance_docs/
cl71_netflix.pdf [Accessed 22 July 2019].
 Linkedin. (n.d.). Netflix’s Culture of Recruitment. [online]. Available at:
https://business.linkedin.com/talent-solutions/case-studies/tech/netflix [Accessed 22 July
2019].
 Lucas, S. (2018). Netflix, Already a Studio in All But Name, Is Buying a Studio. [online]
Bloomberg. Available at: https://www.bloomberg.com/news/articles/2018-10-08/netflix-
already-a-studio-in-all-but-name-is-buying-a-studio [Accessed 22 July 2019].
 Muzumdar, P. (2014). From Streaming Vendor to Production House: Netflix SWOT
Analysis. SSRN Electronic Journal. Available at:
https://www.researchgate.net/publication/
272246602_From_Streaming_Vendor_to_Production_House_Netflix_SWOT_Analysis
[Accessed 22 July 2019].
 Netflix. (n.d.). How does Netflix license TV shows and movies?. [online] Available at:
https://help.netflix.com/en/node/4976 [Accessed 22 July 2019].
 Netflix. (n.d.). How does Netflix shipping work?. [online] Available at:
https://help.netflix.com/en/node/396/us [Accessed 22 July 2019].
24

Strategic Finance Management
 Netflix. (n.d.). What is Netflix?. [online] Available at:
https://help.netflix.com/en/node/412/us [Accessed 22 July 2019].
 Netflix. (n.d.). Netflix Post Partner Program?. [online] Available at:
https://np3.netflixstudios.com/ [Accessed 22 July 2019].
 Netflix. (n.d.). About Netflix. [online] Available at: https://media.netflix.com/en/about-
netflix [Accessed 22 July 2019].
 Netflix. (n.d.). Org chart. [online] Available at: https://theorg.com/org/netflix [Accessed
22 July 2019].
 Priyanto, I.W. and Ariyanti, M. (2018). Analysis of Video Market Place (Vmp)
Marketing Strategy to Achieve Customer-Based Target of XYZ. Asian Journal of Social
Sciences & Humanities.7 (3). pp. 56-65. Available at:
http://www.ajssh.leena-luna.co.jp/AJSSHPDFs/Vol.7(3)/AJSSH2018(7.3-07).pdf
[Accessed 22 July 2019].
 Putter, B. (2018). Netflix's Company Culture Is Not For Everybody And That's Exactly
How It Should Be. [online] Forbes. Available at:
https://www.forbes.com/sites/brettonputter/2018/12/04/netflixs-company-culture-is-not-
for-everybody-and-thats-exactly-how-it-should-be/#570cf94f1880 [Accessed 22 July
2019].
 Shen, L. (2017). How Netflix Is Winning the Game of Thrones Against HBO. [online]
Fortune. Available at: https://fortune.com/2017/07/18/netflix-stock-time-warner-hbo/
[Accessed 22 July 2019].
 Steel, E. (2014). Netflix, Growing, Envisions Expansion Abroad. [online] The New York
Times. Available at: https://www.nytimes.com/2014/07/22/business/media/netflix-says-it-
topped-50-million-subscribers.html [Accessed 22 July 2019].
25

Strategic Finance Management
 Trainor, B. (2018). Netflix's Momentum Has Run Out. [online] Forbes. Available at:
https://www.forbes.com/sites/greatspeculations/2018/11/07/netflixs-momentum-has-run-
out/#7722244b2886 [Accessed 22 July 2019].
 Walters, N. (2018). Why Netflix's Prices Will Be Raised Again -- and Again. [online] The
Motley Fool. Available at: https://www.fool.com/investing/2018/10/26/why-netflixs-
prices-will-be-raised-again-and-again.aspx [Accessed 22 July 2019].
 Yahoo Finance. (2017). Almost Nobody Chooses Streaming Competitors Over Netflix.
[online]. Available at: https://finance.yahoo.com/news/almost-nobody-chooses-
streaming-competitors-111600534.html [Accessed 22 July 2019].
8. Appendices
Appendix 1
Table A: Financial Statements of Netflix
Income Statement
2017 2016 2015 2014 2013
Total Revenue
$
1,16,92,713
$
88,30,669
$
67,79,511
$
55,04,656
$
43,74,562
Cost of revenues
$
76,59,666
$
60,29,901
$
45,91,476
$
37,52,760
$
31,17,203
Gross Profit $ $ $ $ $
26

Strategic Finance Management
40,33,047 28,00,768 21,88,035 17,51,896 12,57,359
Marketing
$
12,78,022
$
9,91,078
$
8,24,092
$
6,07,186
$
4,69,942
Technology and development
$
10,52,778
$
8,52,098
$
6,50,788
$
4,72,321
$
3,78,769
General and administrative
$
8,63,568
$
5,77,799
$
4,07,329
$
2,69,741
$
1,80,301
Operating Income
$
8,38,679
$
3,79,793
$
3,05,826
$
4,02,648
$
2,28,347
Other income (expenses):
Interest expense
-$
2,38,204
-$
1,50,114
-$
1,32,716
-$
50,219
-$
29,142
Interest and other income
(expenses)
-$
1,15,154
$
30,828
-$
31,225
-$
3,060
-$
3,002
Loss on extinguishment of
debt
$
-
$
-
$
-
$
-
-$
25,129
Income before income taxes
$
4,85,321
$
2,60,507
$
1,41,885
$
3,49,369
$
1,71,074
Provision for (benefit from)
income taxes
-$
73,608
$
73,829
$
19,244
$
82,570
$
58,671
Net Income
$
5,58,929
$
1,86,678
$
1,22,641
$
2,66,799
$
1,12,403
Source: Case Study
Balance Sheet
2017 2016 2015 2014 2013
Assets
Current Assets:
Cash and cash
equivalents
$
28,22,795
$
14,67,576
$
18,09,330
$
11,13,608
$
6,04,965
Short-term investments
$
-
$
2,66,206
$
5,01,385
$
4,94,888
$
5,95,440
Current content assets, $ $ $ $ $
27

Strategic Finance Management
net 43,10,934 37,26,307 29,05,998 21,66,134 17,06,421
Other current assets
$
5,36,245
$
2,60,202
$
2,15,127
$
1,52,423
$
1,51,937
Total current assets
$
76,69,974
$
57,20,291
$
54,31,840
$
39,27,053
$
30,58,763
Non-current content
assets, net
$
1,03,71,055
$
72,74,501
$
43,12,817
$
27,73,326
$
20,91,071
Property and
equipment, net
$
3,19,404
$
2,50,395
$
1,73,412
$
1,49,875
$
1,33,605
Other non-current
assets
$
6,52,309
$
3,41,423
$
2,84,802
$
1,92,246
$
1,29,124
Total assets
$
1,90,12,742
$
1,35,86,610
$
1,02,02,871
$
70,42,500
$
54,12,563
Liabilities and
Stockholder's Equity
Current Liabilities:
Current content
liabilities
$
41,73,041
$
36,32,711
$
27,89,023
$
21,17,241
$
17,75,983
Accounts payable
$
3,59,555
$
3,12,842
$
2,53,491
$
2,01,581
$
1,08,435
Accrued expenses
$
3,15,094
$
1,97,632
$
1,40,389
$
69,746
$
54,018
Deferred revenue
$
6,18,622
$
4,43,472
$
3,46,721
$
2,74,586
$
2,15,767
Total current liabilities
$
54,66,312
$
45,86,657
$
35,29,624
$
26,63,154
$
21,54,203
Non-current content
liabilities
$
33,29,796
$
28,94,654
$
20,26,360
$
15,75,832
$
13,45,590
Long term debt
$
64,99,432
$
33,64,311
$
23,71,362
$
8,85,849
$
5,00,000
Other non-current
liabilities
$
1,35,246
$
61,188
$
52,099
$
59,957
$
79,209
Total liabilities $ $ $ $ $
28

Strategic Finance Management
1,54,30,786 1,09,06,810 79,79,445 51,84,792 40,79,002
Stockholder's equity
Common Stock
$
18,71,396
$
15,99,762
$
13,24,809
$
10,42,870
$
60
Additional paid-in
capital
$
-
$
-
$
-
$
-
$
7,77,441
Accumulated other
comprehensive loss
-$
20,557
-$
48,565
-$
43,308
-$
4,446
$
3,575
Retained earnings
$
17,31,117
$
11,28,603
$
9,41,925
$
8,19,284
$
5,52,485
Total stockholder's
equity
$
35,81,956
$
26,79,800
$
22,23,426
$
18,57,708
$
13,33,561
Total liabilities and
stockholder's equity
$
1,90,12,742
$
1,35,86,610
$
1,02,02,871
$
70,42,500
$
54,12,563
Source: Case Study
Cash Flow
2017 2016 2015 2014 2013
Cash flows from
operating activities
Net Income
$
5,58,929
$
1,86,678
$
1,22,641
$
2,66,799
$
1,12,403
Additional to streaming
content assets
-$
98,05,763
-$
86,53,286
-$
57,71,652
-$
37,73,459
-$
30,49,758
Change in streaming
content liabilities
$
9,00,006
$
17,72,650
$
11,62,413
$
5,93,125
$
6,73,785
Amortization of streaming
content assets
$
61,97,817
$
47,88,498
$
34,05,382
$
26,56,279
$
21,21,981
Amortization of DVD
content assets
$
60,657
$
78,952
$
79,380
$
71,491
$
71,325
29

Strategic Finance Management
Depreciation and
amortization of property,
equipment and intangibles
$
71,911
$
57,528
$
62,283
$
54,028
$
48,374
Stock-based compensation
expenses
$
1,82,209
$
1,73,675
$
1,24,725
$
1,15,239
$
73,100
Excess tax benefits from
stock-based compensation
$
-
-$
65,121
-$
80,471
-$
89,341
-$
81,663
Other non-cash items
$
57,207
$
40,909
$
31,628
$
15,282
$
5,332
Loss on extinguishment
debt
$
-
$
-
$
-
$
-
$
25,129
Foreign currency
measurement loss on long-
term debt
$
1,40,790
$
-
$
-
$
-
$
-
Deferred taxes
-$
2,08,688
-$
46,847
-$
58,655
-$
30,063
-$
22,044
Changes in operating
assets and liabilities:
Other current assets
-$
2,34,090
$
46,970
$
18,693
-$
8,758
$
62,234
Accounts payable
$
74,559
$
32,247
$
51,615
$
83,812
$
18,374
Accrued expenses
$
1,14,337
$
68,706
$
48,810
$
55,636
$
1,941
Deferred revenue
$
1,77,974
$
96,751
$
72,135
$
58,819
$
46,295
Other non-current assets
and liabilities
-$
73,803
-$
52,294
-$
18,366
-$
52,406
-$
8,977
Net cash used in
operating activities
-$
17,85,948
-$
14,73,984
-$
7,49,439
$
16,483
$
97,831
Source: Case Study
30

Strategic Finance Management
Appendix 2
Netflix 2017 2016 2015 2014 2013
5 Year
Company
Average
5 Year
Industr
y
Averag
e
Profitability Ratios
Gross Profit Margin 34.5% 31.7% 32.3% 31.8% 28.7% 31.8% 86.31%
Operating Margin 19.17% 8.68% 6.99% 7.31% 5.22% 9.5% 7.66%
Net Profit Margin 12.78% 2.11% 1.81% 4.85% 2.57% 4.8% 2.96%
Return on Equity 4.46% 1.90% 1.50% 4.18% 8.43% 4.1% 8.91%
Liquidity Ratios
Current Ratio 1.40 1.25 1.54 1.48 1.42 1.42 1.20
Acid Test Ratio 0.52 0.38 0.65 0.60 0.56 0.54 0.45
Shareholder Equity
Ratio 0.19 0.20 0.22 0.26 0.25 0.22 NA
Efficiency Ratios
Accounts Payable days 11 days 13 days 14 days 13 days 9 days 12 days NA
Asset Turnover Ratio 1 day 1 day 1 day 1 day 1 day 1 days 13.13
Gearing Ratio
Debt-to-equity Ratio 1.81 1.26 1.07 0.48 0.37 1.00 0.03
Investors
Earnings Per Share 0.26 0.62 0.28 0.43 1.25 0.57 NA
Share Price 52.6 48.8 114.38 123.8 191.96 106.31 NA
Market Capitalisation $ 22.35
billion
$ 21.62
billion
$ 50.02
billion
$ 40.00
billion
$ 80.65
billion
$ 42.93
billion NA
PE Ratio 201.21 79.07 402.32 294.76 153.57 226.19 NA
Appendix 3
Profitability Ratios
31

Strategic Finance Management
Ratio Formula 2013 2014 2015
Gross
Profit
Margin
Gross profit
/ Sales or
revenue
Gross Profit=
4,374,562-
3,117,203;
Sales=4,374,
562
28.74
%
Gross Profit=
5,504,656-
3,752,760;
Sales=5,504,656
31.83
%
Gross Profit=
6,779,511-
4,591,476;
Sales=6,779,511
32.27
%
Operati
ng
Margin
Operating
profit /
Sales or
revenue
Operating
Profit=228,34
7;
Sales=4,374,
562
5.22
%
Operating
Profit=402,648;
Sales=5,504,656
7.31
%
Operating
Profit=228,347;
Sales=4,374,562
5.22
%
Return
on
Equity
Profit /
Average
equity(Pres
ent yr. Eq.*
Last yr.
Eq./2)
Net Profit=
112,403;
Average
Equity=
1333561( Sin
ce data for
2012 was not
available so
present year
equity is
considered)
8.43
%
Net Profit=
266,799; Average
Equity=
(1333561+1,857,70
8)/2
4.18
%
Net Profit= 122,641;
Average Equity=
(1,857,708+2,223,42
6)/2
1.50
%
Net
Profit
Margin
Net Profit /
Sales or
Revenue
Net
Profit=11240
3;
Sales=4,374,
562
2.57
%
Net Profit=266,799;
Sales=5,504,656
4.85
%
Net Profit=122,641;
Sales=6,779,511
1.81
%
Ratio Formula 2016 2017
Gross
Profit
Margin
Gross profit /
Sales or
revenue
Gross Profit=
8,830,669-6,029,901;
Sales=8,830,669
31.72
%
Gross
Profit=11,692,713-
7,659,666;
Sales=11,692,713
34.49
%
32

Strategic Finance Management
Operatin
g Margin
Operating
profit / Sales
or revenue
Operating
Profit=228,347;
Sales=4,374,562
5.22%
Operating
Profit=228,347;
Sales=4,374,562
5.22%
Return
on
Equity
Profit /
Average
equity(Prese
nt yr. Eq.*
Last yr.
Eq./2)
Net Profit= 186,678;
Average Equity=
(2,223,426+2,679,800)
/2
1.90%
Net Profit= 558,929;
Average Equity=
(2,679,800+3,581,956)
/2
4.5%
Net
Profit
Margin
Net Profit /
Sales or
Revenue
Net Profit=186,678;
Sales=8,830,669 2.11% Net Profit=558,929;
Sales=4,374,562
12.78
%
Liquidity Ratios
Ratio Formula 2013 2014
Current
Ratio
Total current
assets / Total
current
liabilities
3058763/2154203 1.4
2 3940469/2663154 1.4
8
Quick
Ratio
Cash and cash
equivalents+sho
rt term
investments or
marketable
securities+curre
nt accounts
receivables/
Total current
liabilities
604,965+595440/21542
03
0.5
6
1,113,608+494888/26631
54
0.6
0
Shareholde
r Equity
Ratio
Total equity /
Total assets 1,333,561/5,412,563 0.2
5 1,857,708/7,056,651 0.2
6
33

Strategic Finance Management
Ratio 2015 2016 2017
Current
Ratio 5431840/3529624 1.5
4 5720291/4586657
1.2
5
7669974/54663
12
1.4
0
Quick
Ratio
1809330+501385/3
529624
0.6
5
1,467,576+266206/4
586657
0.3
8
2,822,795+0/54
66312
0.5
2
Sharehol
der
Equity
Ratio
2223426/10,202,87
1
0.2
2 2679800/13,586,610 0.2
0
3,581,956/19,01
2,742
0.1
9
Efficiency Ratios
Ratio
Formul
a 2013 2014
Accou
nts
Payabl
e days
(Accou
nts
payable
÷
Annual
revenue
) x
Number
of days
in the
year
(108,435/4,374,562)
*365
9
da
ys
(201581/5,504,656)
*365
13
da
ys
Asset
Turnov
er
Ratio
(Net
Sales/
Averag
e Total
Assets)
4374562/5,412,563
1
da
y
5,504,656/7,056,65
1
1
da
y
34

Strategic Finance Management
Ratio 2015 2016 2017
Accou
nts
Payabl
e days
(253491/6,779,511
)*365
14
da
ys
(312842/8,830,669
)*365
13
da
ys
(359555/11,692,713
)*365
11
da
ys
Asset
Turnov
er
Ratio
6,779,511/10,202,8
71
1
da
y
8,830,669/13,586,6
10
1
da
y
11,692,713/19,012,
742
1
da
y
Gearing Ratios
Ratio Formula 2013 2014
Debt-to-
equity
Ratio
Total
debt/
Total
Equity
500000/1,333,5
61
0.3
7
900,000/1,857,7
08
0.4
8
Ratio 2015 2016 2017
Debt-
to-
equit
y
Ratio
2,371,362/2,223
,426
1.0
7
3,364,311/2,679
,800
1.2
6
6,499,432/3,581
,956
1.8
1
Appendix 4
Table B: Netflix Employees
Total Employees at Netflix from
2014-2017 2014 2015 2016 2017
35

Strategic Finance Management
Total 2450 3700 4700 5500
Full-Time 2190 3500 4500 5400
Temporary 260 400 1300 600
Source: Case Study
Appendix 5
Fig A: Netflix Organisational Structure
Source: https://theorg.com/org/netflix
36