Analysis of NetFlix using data from its annual report.

http://finance.yahoo.com/q/is?s=NFLX+Income+Statement&annual

1. Perform a vertical and horizontal analysis for the past two years. What do you conclude?

2. Calculate all other ratios listed in your formula sheet. What does each of the current years ratios indicate about the firm in comparison with last years ratios?

3. Calculate and compare the actual internal growth rate with the one from the previous year. Do the same for the sustainable growth rate. What do you conclude?

4. Does the firm have outstanding bonds in the market? If yes list one of them in the format seen in class. If not, explain why the firm does not issue any debt. Is it a good strategy?

5. How does the market value of the stock compare with its book value? Is the market value of the stock accurately reflecting the true condition of the firm? Explain.

6. Compute the cash flow from assets of the most current year using the indirect method. What does it indicate?

7. Compare the total you found in the previous question, with the cash flow from assets reported by the firm.

8. Calculate the rate of return on the firms stock using the Dividend Growth Model. If you cannot find enough information about your firms dividend policy, you should describe the rationale of the DGM and demonstrate its use in calculating the price of a stock.

9. Calculate the required rate of return to invest on the firm using the CAPM (Rate of Return = Risk-free rate + Average Risk Premium * Beta). Define each term of the equation

10. What is the current weighted average cost of capital (WACC) of the firm? What effect would a change in the debt to equity ratio have on the weighted average cost of capital and the cost of equity capital of the firm? (Make reasonable assumptions if you can not find some of the information you need)

11. How is the capital Structure of the firm? What do you conclude about it?

12. Paste the graph of the firms stock in the past five years. What do you conclude by that?

Part II Recommendation Using the data found on part I, write a four paragraph recommendation letter about the firms financial condition.