Part 3. 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.

3.1. Managing liquidity is a challenge faced by individuals and organizations alike. In the case of a shutdown by the Federal government, employees who do not receive their regular paychecks are acutely aware of the potential for a liquidity crisis in their household. The business strategy embraced by Netflix is a high-risk strategy which also underscores the importance of managing liquidity. You can think of the current ratio as a "financial vital sign" corresponding to pulse or blood pressure in the domain of "medical vital signs."

3.1.A .Compute the current ratio for Netflix as of December 31, 2018, December 31, 2017, December 31, 2016. Note: Do NOT include "Deferred revenue" in the computation of this ratio. Round to 2 decimal places. Answers: December 31, 2018 _______; December 31, 2017 _______; December 31, 2016 _______

3.1.B (2 points) Is there a trend in Netflix's current ratio over the three-year period under consideration and, if so, does the trend indicate that Netflix's short-term liquidity position has significantly improved or deteriorated? Explain. Operating/Profitability Metrics