On August 29, 1997, Reed Hastings and Marc Randolph established an entertainment company in Scotts Valley, California. The name of the company is Netflix. This company provides streaming media and video on demand online and DVD by mail. In 2007, this company enlarged its business with the introduction of streaming media. Then, in 2013, it expanded into film and television production and also online distribution. Now, people can use streaming service of Netflix easily by offering 3 membership plans based on their needs. Now, the service of Netflix has operated in more than 190 countries and has more than 109.25 million subscribers worldwide that includes 52.77 million in the United States.
Well, if we see the amount of availability and also the amounts of subscribers, Netflix can be said as one of the largest companies in the world. So, it is interesting to discuss about Netflix balance sheet. Before we go further about that, let’s find out the definition of balance sheet. Balance sheet is a financial statement which summarizes assets of a company, liabilities and equity of shareholders at a specific point at time. The investors get an idea regarding to what the company owns and owes, and also the amount invested by shareholders from these three balance sheet segments. The balance sheet follows this formula: Assets = Liabilities + Shareholders’ Equity.
The first part of balance sheet of Netflix is cash and cash equivalents. With more cash, a company can get companies, repurchase stock, pay debt and pay dividends. In 2014 for instance, this company had more than $1 billion in cash and cash equivalent that is the norm over the long-term. It means that the company has high liquidity that can be used to strengthen or even expand the business. Then, Return on assets (ROA) is called a mixed ratio since it uses net income in the numerator and total assets in the denominator. It is used to quantify the ability of management team to produce revenue for every dollar of assets as its disposal. At the end of 2014, Netflix had a ROA of 2.43% in which this number is good to consider tyhe amount of assets invested for growth in the future.
It is important to understand the mix of debt and equity. By analyzing it, it is possible to see how leveraged Netflix is and how many debt obligations it needs to repay. A company with success and cash on hand like this company may not place too much stock into this metric. It helps show an investor or creditor what must be repaid in the long term. Next is off balance sheet activity. For Netflix, this is the future cost of revenue and has been escalating through the first two quarters of 2015. So, always look at the off balance sheet activity of Netflix. But, you do not need to be concerned in case the activity is high. It means Netflix is investing in future growth via an increased amount of content.