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	$15,955,550
Cost of revenues	9,967,538
Marketing	2,530,678
Technology and development	1,221,814
General and administrative	791,503
Operating income	1,444,017
Other income (expense)	0
Interest expense	(420,493)
Interest and other income	202,934
Income before income taxes	1,226,458
Provision for income taxes	15,216
Net income	$1,211,242

NETFLIX INC. Consolidated Balance Sheets
in thousands, except par value	2018	2017
Current assets
Cash and cash equivalents	$3,955,692	$2,822,795
Current content assets, net	5,151,186	4,472,143
Other current assets	909,675	536,245
Total current assets	10,016,553	7,831,183
Noncurrent content assets, net	14,960,954	10,532,264
Property and equipment, net	579,490	319,404
Other noncurrent assets	901,030	813,518
Total assets	$26,458,027	$19,496,369
Current liabilities
Current content liabilities	$4,686,019	$4,334,250
Accounts payable	724,194	359,555
Accrued expenses	477,417	476,303
Deferred revenue	922,108	618,622
Total current liabilities	6,809,738	5,788,730
Noncurrent content liabilities	3,920,235	3,329,796
Long-term debt	10,360,058	6,499,432
Other noncurrent liabilities	129,231	135,246
Total liabilities	21,219,262	15,753,204
Stockholders equity
Preferred stock, $0.001 par value	0	0
Common stock, $0.001 par value	2,315,988	2,032,605
Accumulated other comprehensive loss	(19,582)	(20,557)
Retained earnings	2,942,359	1,731,117
Total shareholders equity	5,238,765	3,743,165
Total liabilities and shareholders equity	$26,458,027	$19,496,369
Combined federal and state statutory tax rate	22%

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

	NOPAT

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

	Year	NOA
	2018
	2017

(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.

	Numerator	Denominator	RNOA

	Numerator	Denominator	NOPM

	Numerator	Denominator	NOAT

(d) Compute net nonoperating obligations (NNO) for 2018 and 2017. Confirm the relation: NOA = NNO + Total equity.

	Year	NNO
	2018
	2017

	Year	NNO	Total equity	NOA
	2018
	2017

(e) Compute return on equity (ROE) for 2018.

	Numerator	Denominator	ROE

(f) Infer the nonoperating return component of ROE for 2018. Use above answers to calculate.

	ROE	RNOA	Nonoperating component of ROE