Financial Situation of Netflix

Its my final assignment for corporate finance. It’s a financial assignment on Netflix.
There is clearly some disagreement about the financial situation of Netflix (NFLX). Consequently, a more
in-depth analysis (over the last 5 years) is called for.

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1) Executive summary:
Review and select the most important facts and figures about Netflix, which, in your opinion,
will enable a reasonably educated person to understand in which financial position Netflix is right
now. Perform the same for Netflix’s earnings situation. Provide evidence for any and all claims
you make.

Homework For You
2) Performance review:
a. How is Netflix performing right now? Would you say that Netflix is earning adequate
returns? Why or why not?
b. How has Netflix’s performance changed over the last years? Why or why not? Which
metric do think is most meaningful for this purpose? Why?
3) Capital structure review:
a. Provide an overview of Netflix’s current capital structure and additionally identify
anything out of the ordinary.
b. Analyze all material (!) changes in Netflix’s capital structure over the last 5 years. Put an
emphasis on:
i. Can you reconcile your analysis of capital structure changes with the propositions
of Modigliani and Miller? Why or why not? Provide evidence for your claims.
ii. Do you find evidence that Netflix changes its capital structure in accordance with
the pecking order theory? Why or why not? Provide evidence for your claims.
iii. If you were Netflix’s financial advisor, what would you recommend?
4) Dividend policy review:
a. Provide an overview of Netflix’s dividend policy of the last 5 years. When and why did
i. pay a cash dividend?
ii. perform a share repurchase?
iii. perform a stock split?
iv. perform a reverse stock split?
b. Can you find any evidence for the presence of a clientele effect? What would even
constitute evidence in this case?
c. Does Netflix engage in a so-called “high dividend policy”? Why or why not? Which
evidence do you find?
d. Do you see any evidence that Netflix acts upon shareholder pressure? Which evidence
can you present?
5) Risk review:
a. Calculate Netflix’s CAPM beta coefficient and provide an interpretation
b. Compare Netflix’s CAPM efficient to the beta of its main competitor and explain in
i. how you calculated Netflix’s beta,
ii. which input parameters you used,
iii. the data of which period you processed (Hint: you need not stick to 5 years here!),
iv. how you selected the main competitor (Note: you need not calculate the beta of the
main competitor as well – you may look it up)
v. Which of the 2 firms is the riskier investment in your opinion? Why?

Homework For You
6) Portfolio theory:
Imagine a portfolio consisting of any full percentage (0% – 100%) of Netflix stock
(NFLX) and any full percentage of fellow NASDAQ listed firm Wynn Resorts (WYNN).
This means you could have a “portfolio” consisting only of Netflix stocks, only of Wynn
Resort stocks or any mix in between.
a. Calculate and interpret the average returns of Netflix and Wynn Resort stocks
individually using stock price data from the last 5 years.
b. Calculate and interpret the standard deviations of Netflix and Wynn Resort stocks returns
individually using stock price data from the last 5 years.
c. Plot all possible portfolios resulting from the combinations of the stocks of Netflix and
Wynn Resorts in a risk-return diagram. Indicate the minimum variance portfolio (MV), the
opportunity set (a.k.a. the feasible set), the efficient frontier as well as the inefficient
frontier (a.k.a. the “idiot curve”).
d. Imagine you could only use stock price data from the last 4 months (starting November
2019). How and why would your risk-return diagram change?

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