The corporate finance project

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Reference no: EM131647

The Corporate Finance Project

Name of the company: Netflix

1. Leverage and Coverage Ratios

 

Most Recent Fiscal Year

Fiscal Year

(-1)

Fiscal Year

(-2)

Fiscal Year

(-3)

Debt/Equity

 

 

 

 

Debt/Assets

 

 

 

 

Interest Expense/Long term Debt

 

 

 

 

Times Interest Earned (TIE)

 

 

 

 

Interest Coverage

 

 

 

 

    a. What trends, if any, are apparent in these ratios?
    b. Are these favorable or unfavorable to the shareholders?
    c. Are these favorable or unfavorable to the debt holders?
    d. The debt or equity ratio from I-Metrix is based on book values. If you were to evaluate the ratio on the basis of market values, could this ratio tend to be higher or lower than on the basis of book values? Why?

2. Growth Rates

 

Most Recent Fiscal Year

Fiscal Year

(-1)

Fiscal Year

(-2)

Fiscal Year

(-3)

Annual Revenue Growth

 

 

 

 

Annual Net Income Growth

 

 

 

 

Annual Free Cash Flow Growth

 

 

 

 

    What trends, if any, are apparent in these ratios?
  1. Theoretically, is it possible for sales to increase while net income declines?  Why or why not?
  2. Theoretically, is it possible for net income to decline while free cash flow increases? Why or why not?

3 Distribution Policies

 

Most Recent Fiscal Year

Fiscal Year

(-1)

Fiscal Year

(-2)

Fiscal Year

(-3)

Dividend/Share

 

 

 

 

Dividend Yield

 

 

 

 

Payout Ratio

 

 

 

 

  1. Based on this data, Explain the firm's dividend policy in the past four years.  Is this policy best for the firm?  Why or why not?
  2. Would you recommend any change of policy for this firm?  Why or why not?
  3. The firm's distributions add share repurchases as well as cash dividends.  Refer to the firm's statement of cash flows to search data on the aggregate dollar amount of dividends paid and shares repurchased, and report the results below.  You will also need to evaluate distributions as percent of net income.

 

Most Recent Fiscal Year

Fiscal Year

(-1)

Fiscal Year

(-2)

Fiscal Year

(-3)

Dividends paid

 

 

 

 

Share repurchases

 

 

 

 

Net income

 

 

 

 

Distribution Ratio

 

 

 

 

        d.    Does this change your view of the firm's dividend policy?  Would you recommend any change of policy for this firm?  Why or why not?

Comparison to a Competing Firm

Competing firm: Dish network

4-1.  What is the name of the competitor?

a. Which exchange is its stock traded on? 

b. What is the ticker symbol of this firm's stock?

c. In which ways is this competitor firm a good match or basis of comparison for your firm? 

d. In which ways is it not a good match?

4-2.  Report this summary data on leverage for your firm and its competitor.

 

Your Firm

The Competitor Firm

Debt/Equity

 

 

Debt/Assets

 

 

Interest Expense/Long term Debt

 

 

Times Interest Earned (TIE)

 

 

Interest coverage

 

 

  1. Does it seems to you that your firm has an appropriate degree of leverage, or is over- or under-leveraged?  Why? 
  2. What changes in leverage, if any, do you think could be appropriate for your firm to reduce its WACC?

4. Comparison of the firms' liquidity and operations:  First, report this summary data on liquidity and activity for the two firms:

 

Your Firm

The Competitor Firm

Liquidity

Current Ratio

 

 

Quick Ratio

 

 

 

 

 

Activity

Average collection period (ACP)

 

 

Inventory Days

 

 

Operating Cycle

 

 

Cash Conversion Cycle

 

 

 

 

 

Total Asset Turnover

 

 

Capital Expenditure/Sales

 

 

SG&A/Sales

 

 

  1. Does your firm's liquidity compare favorably or unfavorably to those of the competitor?  What areas of improvement, if any, are needed by your firm?
  2. How does your firm's operations, as caluclated by the activity ratios, compare?  What areas of improvement, if any, are needed by your firm?

4-Analysts' earnings estimates. On Mergent Horizon, find and report the following these data for your firm.  If there are any missing estimates, indicate "na."

Comparison of Earnings Forecasts

 

Your Firm

The Competitor

Earnings per share for the firm's current fiscal year

Ending date of the current fiscal year

 

 

Mean estimate of earnings per share for this year

 

 

Low estimate

 

 

High estimate

 

 

Number of analysts

 

 

EPS for the firm's next fiscal year

Ending date of the next fiscal year

 

 

Mean estimate of earnings per share for this year

 

 

Low estimate

 

 

High estimate

 

 

Number of analysts

 

 

Long term growth rates

Mean estimate for the next 5 years

 

 

Low estimate

 

 

High estimate

 

 

Number of analysts

 

 

  1. Suppose the ranges of earnings estimates in these three cases relative to the mean estimates.  What does this suggest about the reliability and certainty of these estimates?
  2. Which of these two firms has the better outlook based on these projections?  Why?
  3. Do these forecasts look reasonable to you?  Too optimistic or pessimistic?  Why?

Reference no: EM131647

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