ADM 1340 Study Guide - Final Guide: Market Liquidity, Gross Margin, Book Value
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Compare Companies --- Netflix (NFLX) vs. GEO Holdings (TOK) Compute financial ratios, time value, variables, and returns using industry standard tools for optimizing financial success. Analyze corporate financial data in evaluating past and future financial performances.
Use formulas to calculate the following financial indicators for each year of data: Three fiscal years for Netflix and GEO Holdings for:
o Price to earnings ratio
o Debt to equity ratio
o Free cash flow
o Earnings per share
o Return on equity
o Net profit margin
V. Performance Over Time
A. Analyze the performance of the Netflix over time. What financial strengths and weaknesses does this company have? Consider addressing the free cash flows and ratios you calculated earlier.
B. Analyze the performance of your GEO Holdings over time. What financial strengths and weaknesses does this company have? Consider addressing the free cash flows and ratios you calculated earlier.
C. Analyze how the data differ between these two companies. Why do you think this is? Consider addressing the free cash flows and ratios you calculated earlier.
VI. Investment
A. Are the companies considered growth or value companies? Why?
B. Which companyâs stock is the better investment?
| Netflix Inc. (NMS: NFLX) | |||||
| Exchange rate used is that of the Year End reported date | |||||
| As Reported Annual Balance Sheet | |||||
| Report Date | 12/31/2016 | 12/31/2015 | 12/31/2014 | ||
| Currency | USD | USD | USD | ||
| Audit Status | Not Qualified | Not Qualified | Not Qualified | ||
| Consolidated | Yes | Yes | Yes | ||
| Scale | Thousands | Thousands | Thousands | ||
| Cash & cash equivalents | 1467576 | 1809330 | 1113608 | ||
| Short-term investments | 266206 | 501385 | 494888 | ||
| Current content library, net | - | - | 2125702 | ||
| Current content assets, net | 3726307 | 2905998 | - | ||
| Other current assets | 260202 | 215127 | 206271 | ||
| Total current assets | 5720291 | 5431840 | 3940469 | ||
| Non-current content library, net | - | - | 2773326 | ||
| Non-current content assets, net | 7274501 | 4312817 | - | ||
| Information technology assets | 185345 | 194054 | 189274 | ||
| Furniture & fixtures | 32185 | 30914 | 25758 | ||
| Building | 40681 | 40681 | 40681 | ||
| Leasehold improvements | 107945 | 107793 | 57339 | ||
| DVD operations equipment | 70152 | 88471 | 89144 | ||
| Capital work-in-progress | 108296 | 8845 | 12495 | ||
| Property & equipment, gross | 544604 | 470758 | 414691 | ||
| Less: accumulated depreciation | 294209 | 297346 | 264816 | ||
| Property & equipment, net | 250395 | 173412 | 149875 | ||
| Other non-current assets | 341423 | 284802 | 192981 | ||
| Total assets | 13586610 | 10202871 | 7056651 | ||
| Current content liabilities | 3632711 | 2789023 | 2117241 | ||
| Accounts payable | 312842 | 253491 | 201581 | ||
| Accrued expenses | 197632 | 140389 | 69746 | ||
| Deferred revenue | 443472 | 346721 | 274586 | ||
| Total current liabilities | 4586657 | 3529624 | 2663154 | ||
| Non-current content liabilities | 2894654 | 2026360 | 1575832 | ||
| Long-term debt | 3364311 | 2371362 | 900000 | ||
| Other non-current liabilities | 61188 | 52099 | 59957 | ||
| Total liabilities | 10906810 | 7979445 | 5198943 | ||
| Common stock | 1599762 | 1324809 | 60 | ||
| Additional paid-in capital | - | - | 1042810 | ||
| Foreign currency | -47966 | -42502 | -4615 | ||
| Change in unrealized gains on available for sale securities | -599 | -806 | 169 | ||
| Accumulated other comprehensive income (loss) | -48565 | -43308 | -4446 | ||
| Retained earnings (accumulated deficit) | 1128603 | 941925 | 819284 | ||
| Total stockholders' equity (deficiency) | 2679800 | 2223426 | 1857708 |
| Geo Holdings Corp (TOK: 2681) | |||||
| Due to changes with International Financial Reporting Standards (IFRS), recent financials statement presentations have been adjusted to meet this standard. Please note the original historical presentations have remained in the original format | |||||
| Exchange rate used is that of the Year End reported date | |||||
| As Reported Annual Balance Sheet | |||||
| Report Date | 03/31/2016 | 03/31/2015 | 03/31/2014 | ||
| Currency | JPY | JPY | JPY | ||
| Audit Status | Not Qualified | Not Qualified | Not Qualified | ||
| Consolidated | Yes | Yes | Yes | ||
| Scale | Millions | Millions | Thousands | ||
| Cash & deposits | 37683 | 32052 | 19869000 | ||
| Trade notes & accounts receivables | 4100 | 4077 | 3992000 | ||
| Merchandise | 24894 | 23834 | 23495000 | ||
| Deferred tax assets | 2156 | 1806 | 1773000 | ||
| Other current assets | 5462 | 7181 | 5942000 | ||
| Allowance for doubtful accounts | -281 | -292 | 343000 | ||
| Total current assets | 74015 | 68659 | 54729000 | ||
| Asset for rent, gross | 100974 | 104514 | 104647000 | ||
| Accumulated depreciation - asset for rent | -95154 | -97475 | 96055000 | ||
| Asset for rent, net | 5820 | 7038 | 8591000 | ||
| Buildings & structures, gross | 40872 | 39984 | 39478000 | ||
| Accumulated depreciation - buildings & structures | -27470 | -26362 | 25976000 | ||
| Buildings & structures, net | 13402 | 13622 | 13501000 | ||
| Land, net | 5844 | 6356 | 6651000 | ||
| Leased assets, gross | 2176 | 3519 | 4576000 | ||
| Accumulated depreciation - leased assets | -681 | -1764 | 2588000 | ||
| Leased assets, net | 1495 | 1754 | 1988000 | ||
| Other property, plant & equipment, gross | 24838 | 20562 | 17708000 | ||
| Accumulated depreciation - other property, plant & equipment | -18391 | -15292 | 13236000 | ||
| Other property, plant & equipment, net | 6447 | 5270 | 4471000 | ||
| Total property, plant & equipment | 33010 | 34043 | 35205000 | ||
| Total intangible assets | 1865 | 1277 | 2028000 | ||
| Investment securities | 926 | 1002 | 1266000 | ||
| Long-term loans receivable | 2250 | 6682 | 6628000 | ||
| Lease & guarantee deposits | 14905 | 14735 | 15034000 | ||
| Deferred tax assets | 3342 | 3774 | 2845000 | ||
| Other investments & other assets | 1222 | 1188 | 1760000 | ||
| Allowance for doubtful accounts | -1332 | -3751 | 3917000 | ||
| Total investments & other assets | 21315 | 23632 | 23617000 | ||
| Total non-current assets | 56192 | 58952 | 60851000 | ||
| Total assets | 130207 | 127612 | 115581000 | ||
| Trade accounts payable | 12631 | 13540 | 13124000 | ||
| Current portion of long-term borrowings | 8333 | 7097 | 8754000 | ||
| Current portion of bonds | 149 | 149 | 249000 | ||
| Income taxes payable | 4815 | 265 | 1170000 | ||
| Reserve for bonuses | 1665 | 1420 | 1135000 | ||
| Other current liabilities | 10135 | 12595 | 10279000 | ||
| Total current liabilities | 37731 | 35068 | 34713000 | ||
| Bonds | 105 | 254 | 403000 | ||
| Long-term borrowings | 19509 | 21843 | 13910000 | ||
| Lease liabilities | 1612 | 1660 | 1590000 | ||
| Deferred tax liabilities | 23 | 22 | 26000 | ||
| Asset retirement obligations | 4406 | 3994 | 3898000 | ||
| Other non-current liabilities | 1857 | 1554 | 1839000 | ||
| Total non-current liabilities | 27514 | 29329 | 21668000 | ||
| Total liabilities | 65246 | 64398 | 56381000 | ||
| Capital stock | 8871 | 8615 | 8603000 | ||
| Capital surplus | 3283 | 6090 | 6078000 | ||
| Retained earnings | 52542 | 49998 | 44381000 | ||
| Treasury shares | - | -1979 | 334000 | ||
| Total shareholders' equity | 64697 | 62724 | 58729000 | ||
| Valuation difference on available-for-sale securities | 166 | 282 | 297000 | ||
| Loss (gain) on deferred hedge | -15 | - | 297000 | ||
| Total accumulated other comprehensive income | 150 | 282 | 172000 | ||
| Stock acquisition rights | 113 | 206 | 59199000 | ||
| Net assets | 64961 | 63214 | 115581000 | ||
| Total liabilities & net assets | 130207 | 127612 |
| Netflix Inc. (NMS: NFLX) | |||||
| Exchange rate used is that of the Year End reported date | |||||
| As Reported Annual Income Statement | |||||
| Report Date | 12/31/2016 | 12/31/2015 | 12/31/2014 | ||
| Currency | USD | USD | USD | ||
| Audit Status | Not Qualified | Not Qualified | Not Qualified | ||
| Consolidated | Yes | Yes | Yes | ||
| Scale | Thousands | Thousands | Thousands | ||
| Revenues | 8830669 | 6779511 | 5504656 | ||
| Cost of revenues | 6029901 | 4591476 | 3752760 | ||
| Marketing expenses | 991078 | 824092 | 607186 | ||
| Technology & development expenses | 852098 | 650788 | 472321 | ||
| General & administrative expenses | 577799 | 407329 | 269741 | ||
| Operating income (loss) | 379793 | 305826 | 402648 | ||
| Interest expense | 150114 | 132716 | 50219 | ||
| Interest & other income (expense) | 30828 | -31225 | -3060 | ||
| Income before income taxes - United States | 188078 | 95644 | 325081 | ||
| Income (loss) before income taxes - foreign | 72429 | 46241 | 24288 | ||
| Income (loss) before income taxes | 260507 | 141885 | 349369 | ||
| Current tax provision (benefit) - federal | 54315 | 52557 | 86623 | ||
| Current tax provision (benefit) - state | 5790 | -1576 | 9866 | ||
| Current tax provision (benefit) - foreign | 60571 | 26918 | 16144 | ||
| Total current tax provision (benefit) | 120676 | 77899 | 112633 | ||
| Deferred tax provision (benefit) - federal | -24383 | -37669 | -10994 | ||
| Deferred tax provision (benefit) - state | -14080 | -17635 | -17794 | ||
| Deferred tax provision (benefit) - foreign | -8384 | -3351 | -1275 | ||
| Total deferred tax provision (benefit) | -46847 | -58655 | -30063 | ||
| Provision for (benefit from) income taxes | 73829 | 19244 | 82570 | ||
| Net income (loss) | 186678 | 122641 | 266799 | ||
| Weighted average shares outstanding - basic | 428822 | 425889 | 420546 | ||
| Weighted average shares outstanding - diluted | 438652 | 436456 | 431893 | ||
| Year end shares outstanding | 430054.212 | 427940.44 | 422910.887 | ||
| Net income (loss) per share - basic | 0.44 | 0.29 | 0.634 | ||
| Net income (loss) per share - diluted | 0.43 | 0.28 | 0.617 | ||
| Number of full time employees | 4500 | 3500 | 2189 | ||
| Number of part time & temporary employees | 200 | 400 | 261 | ||
| Total number of employees | 4700 | 3700 | 2450 | ||
| Number of common stockholders | 290 | 237 | 203 | ||
| Foreign currency translation adjustments | -5464 | -37887 | - | ||
| Geo Holdings Corp (TOK: 2681) | |||||
| Exchange rate used is that of the Year End reported date | |||||
| As Reported Annual Income Statement | |||||
| Report Date | 03/31/2016 | 03/31/2015 | 03/31/2014 | ||
| Currency | JPY | JPY | JPY | ||
| Audit Status | Not Qualified | Not Qualified | Not Qualified | ||
| Consolidated | Yes | Yes | Yes | ||
| Scale | Millions | Millions | Thousands | ||
| Total revenue | 267910 | 270308 | 262324000 | ||
| Cost of sales | -151798 | -157825 | 152301000 | ||
| Gross profit | 116112 | 112483 | 110022000 | ||
| Selling, general & administrative expenses | -99559 | -102925 | 100823000 | ||
| Operating income | 16552 | 9558 | 9198000 | ||
| Interest & dividend income | 49 | 114 | 111000 | ||
| Rental income | 1268 | 1167 | 1193000 | ||
| Other non-operating income | 1043 | 1062 | 453000 | ||
| Total non-operating income | 2361 | 2343 | 1758000 | ||
| Interest expense | -230 | -231 | 332000 | ||
| Rental expenses | -759 | -609 | 595000 | ||
| Transfer to reserve for doubtful account | - | -227 | - | ||
| Other non-operating expenses | -100 | -803 | - | ||
| Total non-operating expenses | -1089 | -1871 | 684000 | ||
| Ordinary income | 17824 | 10030 | 1612000 | ||
| Imapirment loss | -1319 | -1543 | 9344000 | ||
| Other extraordinary losses | -13 | - | 203000 | ||
| Total extraordinary losses | -1333 | -1543 | 203000 | ||
| Income before income taxes | 16491 | 8486 | 1218000 | ||
| Income taxes - current | -5779 | -2074 | 514000 | ||
| Income taxes - deferred | -147 | 925 | 87000 | ||
| Total income taxes | -5927 | -1149 | 1821000 | ||
| Profit | 10563 | 7337 | 7726000 | ||
| Profit attributable to owners of parent | 10563 | 7337 | 4027000 | ||
| Average number of shares outstanding - basic | 51.331 | 53.169 | -39000 | ||
| Average number of shares outstanding - diluted | 51.623 | 53.29 | 3987000 | ||
| Year end shares outstanding | 48.244 | 52.295 | 3738000 | ||
| Earnings per share - basic | 205.78 | 137.99 | -70000 | ||
| Earnings per share - diluted | 204.62 | 137.68 | 3808000 | ||
| Number of full time employees | 3825 | 3579 | 53996.5 | ||
| Number of part time employees | 10421 | 10114 | 54066.499 | ||
| Number of common stockholders | 57105 | 65030 | 53996.5 | ||
This term you have learned to understand a companyâs financial story using the language of accounting. The recording and reporting of information is essential to decision makers and other users of financial information; numbers on the various financial statements are used to help further understand the financial condition of the business. This process is known as financial ratio analysis and allows us to analyze the companyâs financial position in relation to other organizations in the industry. In this final assignment, you will apply the concepts you have learned throughout the term to perform financial statement analysis and to offer some recommendations.
Assume that you are a health care consultant hired by the Dependable DME Company. DME is Durable Medical Equipment and includes all equipment that benefits patients who have certain medical conditions. The owner of the company, David Smith, is interested in applying for a loan to expand his business; he desires to open a second location in another city. He is preparing to apply to a local bank for a loan.
The bank will base its decision on the following averages for the DME industry:
| Ratio | Industry Average |
| Current ratio | 1.50 |
| Quick ratio | 0.80 |
| Receivables turnover ratio | 18.0 |
| Inventory turnover ratio | 20.0 |
| Debt to assets ratio | 0.56 |
| Profit margin | 10.25% |
The balance sheet data for Dependable DME Company follows:
| December 31, 2017 | December 31, 2016 | |
| Cash | $75,000 | $60,000 |
| Accounts receivable | 40,000 | 20,000 |
| Inventory | 30,000 | 20,000 |
| Prepaid insurance | 5,000 | 5,000 |
| Total current assets | 140,000 | 105,000 |
| Property and equipment | 600,000 | 550,000 |
| Accumulated depreciation | 140,000 | 110,000 |
| Total property and equipment | 460,000 | 440,000 |
| Total assets | $600,000 | $545,000 |
| Accounts payable | $60,000 | $60,000 |
| Other current liabilities | 40,000 | 45,000 |
| Total current liabilities | 100,000 | 105,000 |
| Bonds payable | 150,000 | 150,000 |
| Total liabilities | 250,000 | 255,000 |
| Common stock | 250,000 | 250,000 |
| Retained earnings | 100,000 | 40,000 |
| Total stockholdersâ equity | 350,000 | 290,000 |
| Total liabilities and stockholdersâ equity | $600,000 | $545,000 |
The income statement data for Dependable DME Company follows:
| Sales | $600,000 |
| Cost of goods sold | 350,000 |
| Gross profit | $250,000 |
| Operating expenses | 100,000 |
| Operating income | $150,000 |
| Interest expense | 25,000 |
| Income before taxes | $125,000 |
| Income tax expense | 65,000 |
| Net income | $60,000 |
Required:
Calculate the following six (6) ratios: Current Ratio, Quick Ratio, Receivables Turnover Ratio, Inventory Turnover Ratio, Profit Margin Ratio and Debt to Assets Ratio. Be sure to show the actual calculation as well as your final answer.
You are only required to calculate the ratios for 2017; however, for two of the ratios (Receivables Turnover Ratio and Inventory Turnover Ratio), you will need data from 2016 for the formula. When calculating the Quick Ratio, please note that Short-Term Investments are $0 in this scenario. (24 points; 4 points for each ratio calculation)
Below each ratio, comment on the interpretation of the ratio. In other words, what does the result tell you, specifically? (8 points)
Based upon the industry averages upon which the bank relies, should they approve the loan to Mr. Smith? Why or why not? (7 points)
In one-half page, comment on what financial aspect of Dependable DME Company looks good and where can Mr. Smith make some improvements. Specifically identify at least two recommendations to Mr. Smith that can be made to improve the financial position of his business. (8 points)