Director or Operations

Group Assignment 1

Fall Semester 2016

Netflix 2015 Annual Report

Secure a PDF file containing Netflix 2015 Annual Report.  You can find it at Netflix.com by clicking on Investor Relations, and Annual Reports & Proxies.  The 2015 Annual Report is also available under Assignment 1 in Canvas.

Answer the following questions in MS Word.  I recommend you use this document to write your answers.  For requirement 5, create an Excel Spreadsheet that can be incorporated into your MS Word document.  You will submit a completed MS Word File in Canvas under Group Assignment 1.  The due date is listed in the syllabus.  Only one person from each group will submit the assignment in behalf of the entire group once the group has completed the project together.

1.  What is Netflix Business? Internet delivery of TV shows and movies

1. How do they make money? The Company has three reportable segments: Domestic streaming, International streaming and Domestic DVD. Monthly membership fees for services

1. What financial statements are commonly prepared for external reporting purposes? 

Statement of Income, Statement of Cash Flow, Statement of Stakeholder’s Equity and Statement of Balance Sheet

1. What titles does Netflix give these statements? 

1. Consolidated Statements of Operations
2. Consolidated Statements of Cash Flows
3. Consolidated Balance Sheets
4. Consolidated Statement of Comprehensive Income
5. Consolidated Statement of Stockholder’s Equity

1. What are subsidiaries? A company that is controlled by a holding company (branch company). There are 10 significant subsidiaries
2. What does consolidated mean? Combine a number of financial account into a single account or set of accounts. Consolidated means all subsidiaries are combined

1. How often do publicly traded companies typically prepare financial statements for external reporting purposes? 

1. Quarterly
2. Netflix reports Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K
3. What is Netflix’s annual reporting period (year-end)? 12/31/15 Year end December 31st

1. Who is responsible for preparing the financial statements?  Management

1. Who are the primary users of financial statements? Shareholders, stockholders and management

1. Use a spreadsheet and create a common size income statement for Netflix for the fiscal years ending December 2015 and 2014.  Common size income statements scale each income statement line item by net sales.  In other words, each income statement line item is reported as a percentage of sales.  Create common size Balance Sheets for the December 2015 and 2014 fiscal year ends.  Common size balance sheets are created by dividing each account on a given year’s balance sheet by that year’s total assets.  The result is that each account is stated as a percentage of total assets.
2. Refer to Netflix’s income statements (including the common size statements you created in step 5) and answer the following:

1. How have Net Sales changed over the last three years? Explain plausible reasons for what you see.  What are Netflix’s policies for revenue recognition (See Note 1—Summary of Significant Accounting Policies).  
2. What are Netflix’s major expenses?
3. What changes in expenses did you observe from 2014 to 2015?
4. Was the company profitable in the most recent fiscal year? Is there a trend in reported Net Income? Do you expect the trend to continue? Why or why not?
5. What’s the percentage change in Net Income? Is there a trend? Do you expect the trend to continue? Why or why not?  

1. Refer to Netflix’s Balance Sheets (included the common size statement you created in step 5) and answer the following:

1. Does the accounting equation hold for Netflix? How much are total Assets, Liabilities, and Shareholders’ Equity as of December 31, 2015?
2.  What are Netflix’s major assets? What proportion are current assets? What proportion are long-term assets? 
3. What is the Content-Library for Netflix? Why is some of it listed as current and some of it listed as long-term? 
4. How is Netflix financed?  What proportion of their assets is financed with Liabilities? What proportion of their assets is financed by Shareholder Contributions?  What proportion of their assets is financed by operating at a profit (retained earnings)?

1. Refer to Netflix’s Stated of Stockholder’s Equity and answer the following:

1. What were the reported changes in retained earnings during 2015? Were dividends paid?  If so, how much? If not, how would payment of dividends impact retained earnings? 
2. How many shares of the company’s own stock did it issue during 2015? For what purpose were the shares issued? 

1. Refer to Netflix’s Statement of Cash Flows and answer the following:

1. How much Cash flow was provided/(used) by operating activities in 2015? How does it compare to 2014? Explain key differences.  How much cash did Netflix use in investing activities?  What are the primary uses of cash for investing activities?  How much cash was provided by financing activities?  What is the sum of cash flow from operating, investing and financing activities (minus the effect of exchange rate changes on cash)?  Does this equal the net increase (decrease) in cash and cash equivalents? Where else can the amount of cash and cash equivalents at the beginning of the year and at the end of the year be found in the financial statements?

1. Who are Netflix’s auditors? What does the Report of Independent Registered Public Accounting Firm say about the auditor’s responsibilities in conducting an audit?  What opinion did the auditors provide on the financial statements?  What kind of opinion did the auditors provide with respect to Internal Controls over financial reporting?