Introduction This problem is based on Netflix Inc. and it is designed to underscore the power of financial ratios and the relationship between "numbers and strategy." Whether we are making a personal plan for retirement or we are leading an organization, when making decisions that involve financial resources and strategies, ratios are an important because they highlight relationships. In the introductory paragraphs of their SEC Form 10-K, prepared for the 2018 fiscal year, Netflix describes their company as "... the world's leading internet entertainment service with over 139 million paid memberships in over 190 countries enjoying TV series, documentaries and feature films across a wide variety of genres and languages." (Netflix Inc., 2018) Numbers are an essential part of the Netflix story. Netflix was founded in 1997 on a business model that employed the then "new idea" of placing videos in mailers and mailing them to subscribers in return for small rents. Subscribers would take the videos out of the mailers, watch them on their players at home, and send them back to Netflix. The company has come a long way since 1997. Netflix is an outstanding example of a company that has continuously "reinvented itself" in response to challenges emanating from a rapidly changing environment. Still, their future success is in no way guaranteed. The excerpt which follows is taken from the 2018 10-K report Netflix filed with the SEC. We are a pioneer in the internet delivery of TV shows and movies, launching our streaming service in 2007. Since this launch, we have developed an ecosystem for internet-connected screens and have added increasing amounts of content that enable consumers to enjoy TV shows and movies directly on their internet-connected screens. As a result of these efforts, we have experienced growing consumer acceptance of, and interest in, the delivery of TV shows and movies directly over the internet. Our core strategy is to grow our streaming membership business globally within the parameters of our profit margin targets. We are continuously improving our members' experience by expanding our streaming content with a focus on a programming mix of content that delights our members. In addition, we are continuously enhancing our user interface and extending our streaming service to more internet-connected screens. Our members can download a selection of titles for offline viewing. (Netflix Inc., 2018) Netflix has embraced the concept of providing original programming. Their programs and documentaries have been honored with Emmy, Golden Globe, and Academy Oscar awards.

Capitalization Metrics

Many individuals have chosen to purchase their homes rather than rent, and many of these owners depend upon mortgages as a source of long-term financing. During the housing crisis beginning in 2008, homeowners who bought with minimal down payments and homeowners who borrowed extensively against their home's appreciation found themselves in a highly leveraged position when the housing crisis struck. These decisions made by homeowners' parallel decisions made by Netflix executives.

1, As reported on December 31, 2018, December 31, 2017, and December 31, 2016, what percentage of total assets is financed by long-term debt? Round to 2 decimal places. Ans.: December 31, 2018 ______ %; December 31, 2017 ______ %; December 31, 2016 ______ %

2. As reported on December 31, 2018, December 31, 2017; and December 31, 2016 what percentage of total assets is financed by contributed capital paid-in by stockholders? Round to 2 decimal places. Ans.: December 31, 2018 ______ %; December 31, 2017 ______ %; December 31, 2016 ______ %

3.As reported on December 31, 2018, what percentage of total assets is financed by past profits that were reinvested in the company? Note: Ignore the amount reported as "Accumulated other comprehensive loss;" it is relatively small and immaterial. Round to 2 decimal places. Answer _______ % 3.4.D (4 points) During the three-year period ended December 31, 2018, has Netflix depended upon leveraging debt as an essential part of their growth strategy? Explain.

4. In October of 2018, Netflix announced its intent to sell to institutional buyers $2 billion in bonds through an offering of U.S. dollar and Euro denominated bonds. The bonds are not secured by fixed assets or any other collateral and the proceeds will be used for operating purposes. At the time of the issuance, Moody's assigned Netflix a long-term credit rating of Ba3, which is considered speculative, or 'junk.' Investors purchasing these bonds will receive relatively higher interest payments to compensate them for the underlying risk and Netflix will incur higher debt carrying expense because of the relatively high rate they must pay. Netflix stockholders, on the other hand, have not received any dividends during the three-year period ended December 31, 2018. How do you explain the stockholders' willingness to accept the Board of Directors decision to withhold dividend payments to stockholders?