Financial Situation of Netflix
Its my final assignment for corporate finance. Its an 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. 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 Netflixs earnings situation. Provide evidence for any and all claims you make. 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 Netflixs 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 Netflixs current capital structure and additionally identify anything out of the ordinary. b. Analyze all material (!) changes in Netflixs 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 Netflixs financial advisor, what would you recommend? 4) Dividend policy review: a. Provide an overview of Netflixs dividend policy of the last 5 years. When and why did Netflix: 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 Netflixs CAPM beta coefficient and provide an interpretation b. Compare Netflixs CAPM efficient to the beta of its main competitor and explain in detail: i. how you calculated Netflixs beta, ii. which input parameters you used, iii. the data of which period you processed (Hint: you need not stick to 5 years here!), and 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? 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?