Netflix Financial Performance and Health Analysis 2015–2017
This paper examines Netflix's recent financial performance and current financial health using data drawn from its 2017 annual report. Beginning with an overview of the company's business segments — domestic streaming, international streaming, and domestic DVD — the paper analyzes three years of income statement trends, including revenue growth, gross profit, operating income, and net income. It then reviews the statement of cash flows before assessing Netflix's capitalization structure, debt-to-equity ratio, current ratio, and available cash resources. The paper concludes with a market valuation using market capitalization and price-to-earnings ratio, highlighting the high investor expectations embedded in Netflix's share price.
- Organizational Context: Netflix's history, business segments, and growth strategy
- Consolidated Income Statement Analysis: Revenue, gross profit, and net income trends 2015–2017
- Cash Flow Statement Analysis: Operating, investing, and financing cash flows reviewed
- Capitalization and Financial Leverage: Debt-to-equity ratio and debt-driven growth financing
- Liquidity and Cash Resources: Current ratio, subscriber base, and available resources
- Financial Value of the Company: Market cap and price-to-earnings ratio valuation
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What makes this paper effective
- Uses specific figures drawn directly from Netflix's annual report to ground every analytical claim, giving the analysis credibility and precision.
- Moves logically from revenue and profitability to cash flow, then to capitalization and liquidity, before finishing with market valuation — mirroring the order a financial analyst would follow.
- Contextualizes raw numbers with ratio analysis (debt-to-equity, current ratio, P/E), showing awareness that figures are only meaningful in relation to benchmarks or trends.
Key academic technique demonstrated
The paper demonstrates trend analysis — comparing the same financial metrics across three consecutive years rather than treating a single year in isolation. This longitudinal approach allows the writer to distinguish between a one-off result and a sustained pattern, which is essential in financial statement analysis. It also illustrates how to combine qualitative business context (strategy, content investments, subscriber growth) with quantitative financial data to produce a rounded assessment.
Structure breakdown
The paper opens with a business overview (organizational context and segment structure), then works through the income statement, cash flow statement, and underlying performance before pivoting to financial health (capitalization, liquidity, cash resources). It closes with a market valuation section. Each section is self-contained but feeds into the overall conclusion that Netflix is growing rapidly while carrying significant debt — a structure well-suited to undergraduate finance or accounting courses.
Organizational Context
Netflix is a United States-based entertainment company that specializes in on-demand online streaming video, in addition to a DVD-by-mail service within America. The organization was founded in Scotts Valley in 1997 and two years later introduced its prevailing consumer subscription model. Today, Netflix's consumer base comprises more than 117 million subscribers across 190 countries worldwide. Netflix is a forerunner in the internet delivery of television shows and movies, having unveiled its streaming service in the 2007 financial year. From that point onwards, the company developed an ecosystem for internet-connected screens and brought in progressively larger amounts of content, enabling consumers to enjoy television shows and movies directly on their internet-connected devices. Owing to these significant endeavors, Netflix has experienced increasing consumer acceptance of, and investment in, the delivery of television shows and movies directly over the internet (Netflix, 2018).
The business operations of Netflix are categorized into three segments: Domestic Streaming, International Streaming, and Domestic DVD. The Domestic Streaming segment generates revenues from monthly membership fees for services comprising streaming content to members within the United States. The International Streaming segment generates revenues from monthly membership fees for services comprising streaming content to members residing outside the United States. The Domestic DVD segment generates revenues from monthly membership fees for services comprising DVD-by-mail only (Netflix, 2018).
In the 2011 financial year, Netflix transformed its business model by increasing its original content and making major investments in its own original series. Renowned television series that have achieved notable success include House of Cards and Orange Is the New Black. Furthermore, in 2017, the corporation began an aggressive venture into the production of feature films, with the primary objective of releasing numerous films. Unlike conventional broadcasters, Netflix's main objective is not to attract as broad an audience as possible but instead to cater to niches and effectively offer every segment of the population a television show or film they cannot live without.
The key strategy Netflix employs to deliver these product offerings is by growing its streaming membership business internationally within the parameters of its profit margin targets. The company continually enhances the experience of its members through the expansion of streaming content, with an emphasis on a programming mix that engages and excites subscribers. Netflix also continuously improves its user interface and extends its streaming services to an ever-increasing number of internet-connected screens, making it possible for subscribers to download a variety of titles for offline viewing. Most importantly, Netflix continues to grow and develop its streaming services both locally and globally (Netflix, 2018).
References
Milling, B. E. (2003). The basics of finance: Financial tools for non-financial managers. iUniverse.
Netflix. (2018). 2018 Annual Report. Retrieved from
Rodriguez, A. (2018). Twenty years ago, Netflix.com launched. The movie business has never been the same. Quartz. Retrieved from https://qz.com/1245933/twenty-years-ago-netflix-com-launched-the-movie-business-has-never-been-the-same/
Wahlen, J., Baginski, S., & Bradshaw, M. (2014). Financial reporting, financial statement analysis and valuation. Nelson Education.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2009). Managerial accounting: Tools for business decision making. John Wiley & Sons.
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