Financial Statement Analysis Case 2: Netflix’s 10-K   Using only the provided financial statement excerpts from Netflix’s FY19 10-K, answer the   questions below

Financial Statement Analysis

Case 2: Netflix’s 10-K

Using only the provided financial statement excerpts from Netflix’s FY19 10-K, answer the

questions below.

1. Use Porter’s Five Forces to analyze Netflix and its position in the industry. Be sure to use

information from the Item 1 disclosures from the 10-K in your assessment. (Your answer

should be succinct and can be presented in an exhibit style format.)

2. What is the book value of equity of Netflix as of the end of fiscal years 2018 and 2019?

3. What is the market value of equity of Netflix as of the end of fiscal year 2019? (Use the

average 2019 Netflix daily closing stock price of $328.89 in your calculation.)

4. Calculate the ratio of the market value of equity to the book value of equity for 2019.

Identify 2 primary reasons why you think the market value is different from the book value

in the case of Netflix.

5. If Netflix recognized all payments from customers as revenue upon receipt, what would

Revenues have been in fiscal years 2018 and 2019?

6. Why does Stock-based compensation expense show up aS a positive adjustment in the

operating section of the Statement of Cash Flows for fiscal year 2019?

7. Free cash flow (FCF) is a non-GAAP metric usually meant to measure how much cash a firm

generates from its operations after accounting for cash spent on investing in its operations.

A generic definition of FCF that you will commonly see is the amount of cash flow from

operation activities (CFO) that is left after deducting all cash flow from investing activities

(CFI). However, Netflix calculates their own version of free cash flow on pages 25-26 of their

10-K. Compute the generic version of FCF for both fiscal years 2017 and 2019, and then

compare it to Netflix’s version of FCF. Discuss whether you judge Netflix’s version of FCF

better captures its operating performance than the generic version of free cash flows.

8. Why did Interest and other income (expense) increase from $41,725 in 2018 to $84,000 in

fiscal year 2019?

9. What was the average price paid for stock issued in fiscal year 2018 and 2019? How does

this compare to the average market price of the stock during these two years? (Use the

average 2019 Netflix daily closing stock price of $328.89 and average 2018 daily closing

stock price of $319.50 in your calculations.)