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P3.51.Stat Question 1 Partially correct Mark 6.00 out of 11.00 P Flag question 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 $1,211,242 2018 2017 NETFLIX INC. Consolidated Balance Sheets in millions 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 = $ 1,506,681 (b) Compute net operating assets (NOA) for 2018 and 2017. 2018 NOA = $ 11,804,340 2017 NOA = $ 7,258,593 (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 = 12 X % 2018 NOPM = 9 X % 2018 NOAT = 1.33 x (d). Compute net nonoperating obligations (NNO) for 2018 and 2017. 2018 NNO = $ 6,565,575 2017 NNO = $ 3,676,637 (e) Compute return on equity (ROE) for 2018. Round answer to two decimal places. 2018 ROE = 18.26 X % (f) Infer the nonoperating return component of ROE for 2018. Use above answers to calculate. Round answer to two decimal places. 2018 nonoperating return = 7.65 X % (g). Comment on the difference between ROE and RNOA. What does this relation suggest about Netflix's use of equity capital? OROE>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. OROB>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. OROE>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. OROE>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

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P3.51.Stat Question 1 Partially correct Mark 6.00 out of 11.00 P Flag question 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 $1,211,242 2018 2017 NETFLIX INC. Consolidated Balance Sheets in millions 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 = $ 1,506,681 (b) Compute net operating assets (NOA) for 2018 and 2017. 2018 NOA = $ 11,804,340 2017 NOA = $ 7,258,593 (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 = 12 X % 2018 NOPM = 9 X % 2018 NOAT = 1.33 x (d). Compute net nonoperating obligations (NNO) for 2018 and 2017. 2018 NNO = $ 6,565,575 2017 NNO = $ 3,676,637 (e) Compute return on equity (ROE) for 2018. Round answer to two decimal places. 2018 ROE = 18.26 X % (f) Infer the nonoperating return component of ROE for 2018. Use above answers to calculate. Round answer to two decimal places. 2018 nonoperating return = 7.65 X % (g). Comment on the difference between ROE and RNOA. What does this relation suggest about Netflix's use of equity capital? OROE>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. OROB>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. OROE>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. OROE>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