Netflix Financial Ratios

SHORT TERM (LIQUIDITY) - quick ratio, current ratio

LONG TERM (PROFITABILITY) - steady growth, return on sales

Netflix is financially viable in the short term, and the company will likely stabilize in the long term. When evaluating the financial health of Netflix over the past five years, it was found that the current ratio is generally increasing, despite a decrease in 2016, showing investors that the company will be financially viable in the future. The quick ratio also shows investors that Having an ideal current ratio is important to the financial status of a company such as Netflix, as is the quick ratio.

Investors should avoid Netflix if they want a slow and steady value company. This is because Netflix is very aggressive in using debt to finance in its

expansion and growth which can be seen through the company’s debt to equity ratio and quick ratio. Despite Netflix’s subpar ratio performance, the reason the company will stay viable in the long term is due the company’s strategy and focus on the customer.

The company is successful due to the increase in the number of subscriptions, increasing its global streaming subscriptions from 74.7 million to 93.8 million by the end of the 2016 fiscal year. This fact is also explained by the company generating its own original content with shows such as House of Cards and Orange is the New Black. Netflix has a high customer retention rate due to the reputation that it has gained as a platform subscribers to connect and relax. Netflix subscribers are less likely to cancel their subscriptions than are their counterparts who subscribe to Amazon Prime or Hulu.

Netflix has a unique business model. The company strategy focuses on differentiation. Netflix works to outcompete its competitors through the differentiation of its service. Netflix places customer experience above all else. The company prides itself in knowing that customer experiences is directly related to company financial viability, and with that known, the company works to ensure that each user has a great experience with the Internet streaming service. Netflix is a brand that is focused, not one that simply tries to do everything. By focusing on the entertainment industry, Netflix is able to

succeed in its industry. Netflix believes that entertainment is a right for every person, and it works to ensure that each and every customer is able to be entertained. The company has differentiated itself from competitors through its rare use of technology. The company also provides its subscribers with a way to get certain titles that they could not get otherwise, through the availability of DVD rentals. Technology makes it easy for subscribers to stream unlimited video content on their computers, televisions, and other mobile devices. Each user pays a fixed monthly fee to receive a subscription to stream unlimited online content each month. With this unique strategy, Netflix has the leading Internet streaming network in the United States, and has successfully expanded overseas with over 93 million streaming subscriptions in over 190 countries worldwide. This company strategy is appropriate for a company such as Netflix because it explains the everyday work that Netflix does. Each day, the company works to ensure that its customers are satisfied, and they do that by differentiating the service provided to each individual. Netflix offers different plans for its customers to choose from. Each plan begins with a free month trial, after which the user would start paying a fixed monthly fee. The subscriber can cancel their plan at anytime, and each plan, basic, standard, or premium, comes with unlimited movies and TV shows but increases the number of screens that users can watch at the same time. This is strategic for Netflix as it has a lot of family plan users, most of whom would invest in the premium plan. By providing its customers with a choice of the plan they want, Netflix is differentiating itself from its competitors such as Hulu Plus and Amazon. Overall, this is the right strategy for Netflix to follow and it has been successful since the company was founded in 1997.
As of December 1, 2017, the stock price of Netflix (NFLX) is overvalued. The P/E (price to earnings) ratio of Netflix is overvalued at 181.83 because the company’s earnings per share ratio is relatively low at $1.03. While many investors would rather invest in a company with a low P/E, aggressive investors that seek growth might decide to invest in a company such as Netflix, with a high P/E. Two of the main competitors of Netflix are Time Warner and Amazon. Amazon’s stock is overvalued by a larger value than Netflix, as its P/E ratio is 293.39, while Time Warner’s stock is undervalued with a P/E ratio of 17.36. In this case, Netflix is in the middle of its two competitors when evaluating the stock. When evaluating the EV/EBITDA ratio for Netflix compared to the entertainment industry, it was found that Netflix’s ratio was lower than 95% of the 338 global media (diversified) industry. Considering this, Netflix is overvalued in stock throughout its industry and in relation to competitors.