Analysis and Interpretation of ROE and RNOA with No Noncontrolling Interest The 2018 balance sheets and income statement for Netflix Inc. follow. Refer to these financial statements to answer the requirements.

NETFLIX INC. Consolidated Statements of Earnings

For Year Ended December 31, $ thousands

2018

Revenues

$15,794,341

Cost of revenues

9,967,538

Marketing

2,369,469

Technology and development

1,221,814

General and administrative

630,294

Operating income

1,605,226

Other income (expense)

Interest expense

(420,493)

Interest and other income

41,725

Income before income taxes

1,226,458

Provision for income taxes

15,216

Net income

Net Income $ 1,211,242

NETFLIX INC. Consolidated Balance Sheets
in millions	2018	2017
Current assets
Cash and cash equivalents	$3,794,483	$2,822,795
Current content assets, net	5,151,186	4,310,934
Other current assets	748,466	536,245
Total current assets	9,694,135	7,669,974
Noncurrent content assets, net	14,960,954	10,371,055
Property and equipment, net	418,281	319,404
Other noncurrent assets	901,030	652,309
Total assets	25,974,400	$19,012,742
Current liabilities
Current content liabilities	$4,686,019	$4,173,041
Accounts payable	562,985	359,555
Accrued expenses	477,417	315,094
Deferred revenue	760,899	618,622
Total current liabilities	6,487,320	5,466,312
Noncurrent content liabilities	3,759,026	3,329,796
Long-term debt	10,360,058	6,499,432
Other noncurrent liabilities	129,231	135,246
Total liabilities	20,735,635	15,430,786
Stockholders equity
Preferred stock, $0.001 par value	0	0
Common stock, $0.001 par value	2,315,988	1,871,396
Accumulated other comprehensive loss	(19,582)	(20,557)
Retained earnings	2,942,359	1,731,117
Total shareholders equity	5,238,765	3,581,956
Total liabilities and shareholders equity	$25,974,400	$19,012,742

(a) Compute net operating profit after tax (NOPAT) for 2018. Assume that the combined federal and state statutory tax rate is 22%.

Round to the nearest whole number. 2018 NOPAT = $Answer

(b) Compute net operating assets (NOA) for 2018 and 2017. 2018 NOA = $Answer

2017 NOA = $Answer

(c) Compute RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2018. Do not use NOPM x NOAT to calculate RNOA. Do not round until your final answer. Round answer to two decimal places.

2018 RNOA = Answer

% 2018 NOPM = Answer

% 2018 NOAT = Answer

(d) . Compute net nonoperating obligations (NNO) for 2018 and 2017. 2018 NNO = $Answer

2017 NNO = $Answer

(e) Compute return on equity (ROE) for 2018. Round answer to two decimal places.

2018 ROE = Answer

% (f) Infer the nonoperating return component of ROE for 2018. Use above answers to calculate. Round answer to two decimal places.

2018 nonoperating return = Answer

%

(g). Comment on the difference between ROE and RNOA. What does this relation suggest about Netflixs use of equity capital?

ROE>RNOA implies that Netflix's equity has grown faster than its NOA. The faster increase of equity compared to NOA allows higher dividends to be paid to Netflix's stockholders.

ROE>RNOA implies that Netflix is able to borrow money to fund operating assets that yield a return greater than its cost of debt. The excess accrues to the benefit of Netflix's stockholders.

ROE>RNOA implies that Netflix has taken on too much financial leverage. The high financial leverage results in a higher interest rate on Netflix's debt, therefore the cost of debt is greater.

ROE>RNOA implies that Netflix has increased its financial leverage during the period. The increase in financial leverage also increases Netflix's risk, therefore increasing the expected ROE by Netflix's stockholders.