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.

Like Netflix, GameStop is a company that sells entertainment. By 2019, GameStop had become the largest retailer of new and used video games, hardware, entertainment software, and accessories with roughly 4,000 GameStop, EB Games, and Micromania branded stores in the US and 2,000-plus stores in Europe, Australia, and Canada. Their stores and e-commerce websites stocked more than 6,000 video game related items, with more than half of sales coming from new video game hardware and software. GameStop was also selling downloadable add-on content from publishers and operating 1,300 smartphone retail locations under the AT&T, Cricket Wireless, Simply Mac, and Spring Mobile banners (note, Spring Mobile was slated for divestiture), and they published the video game magazine Game Informer. (Dun & Bradstreet, Inc., 2019) If Netflix is "new school," then GameStop is "old school." At the beginning of 2019, Netflix is a company in the growth phase and GameStop is a mature company in the harvest phase. Whereas, Blockbuster Video provides an example of a company that's in the "extinction phase." In 2004 there were over 9,000 Blockbuster Video stores; and in July of 2018, the city of Bend, Oregon gained a new tourist attractionthey became the home of the last remaining Blockbuster Video Store. Presented below are SWOT analyses for Netflix and GameStop prepared as of March 20, 2019 and sourced from D&B Hoovers. SWOT is a familiar acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and Weaknesses are intended to describe conditions internal to the organization. Opportunities and Threats are terms used to describe the external environment within which the organization operates.

Required: Financial data for GameStop are provided in the accompanying Excel Spreadsheet prepared for this Module Submission. Over the three-year period included in the Excel Spreadsheet, sales and gross profit percentages of GameStop have fluctuated somewhat, but net income decreased drastically in the fiscal year ended Feb. 3, 2018. In this year, GameStops earnings per share fell by about 90% from $3.42 reported for the fiscal year ended Jan. 28, 2017 to $0.34 for the fiscal year ended Feb. 3, 2018.

4.1. It appears that the company suddenly become barely profitable during fiscal ended Feb. 3, 2018? What are the reasons for the dramatic change in net income for the fiscal year ended Feb. 3, 2018 in comparison to the net income reported for the preceding fiscal year ended Jan. 28, 2017?

4.2 During the three-year period reported in the Excel Spreadsheet, what is the combined total of the amount that GameStop paid in dividends to stockholders and paid out for the repurchase of outstanding common stock (treasury stock)? Answer $________________

4.3 Explain why the sum of the amount of cash paid out in dividends added to the amount of cash committed to repurchasing stock (treasury stock) is an indicator of the companys intentions regarding growth.

12 Months Ended Netflix Inc. Consolidated Income Statement thousands) (in Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2016 Revenues Cost of revenues Gross Margin $ 15,794,341 9,967,538 5,826,803 $ 11,692,713 8,033,000 3,659,713 $ 8,830,669 6,257,462 2,573,207 Expenses: Marketing expense Technology and development expense General and administrative expense Total Expenses 2,369,469 1,221,814 630,294 4,221,577 1,436,281 953,710 431,043 2,821,034 1,097,519 780,232 315,663 2,193,414 Operating income 1,605,226 838,679 379,793 Interest expense Other income (expense) Income before income tax expense 420,493 41,725 1,226,458 238,204 (115,154) 485,321 150,114 30,828 260,507 Income tax expense Net income 15,216 $ 1,211,242 (73,608) $ 558,929 73,829 $ 186,678 Earnings per share Dividend per share Closing Market Price $ 2.78 $ 0.00 $ 259.28 $ 1.29 $ 0.00 $ 196.10 $ 0.44 $ 0.00 $ 124.96 Netflix Inc. Consolidated Balance Sheet (in thousands) As of Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2016 Current assets: Cash and cash equivalents Current content assets, net Other current assets Total current assets $ 3,794,483 5,151,186 748,466 9,694,135 $ 2,822,795 4,310,934 536,245 7,669,974 $ 1,467,576 3,726,307 526,408 5,720,291 Non-current assets: Non-current content assets, net Property and equipment, net Other non-current assets Total non-current assets 14,960,954 418,281 901,030 16,280,265 10,371,055 319,404 652,309 11,342,768 7,274,501 250,395 341,423 7,866,319 Total assets 25,974,400 19,012,742 13,586,610 4,686,019 562,985 477,417 760,899 6,487,320 4,173,041 359,555 315,094 618,622 5,466,312 3,632,711 312,842 197,632 443,472 4,586,657 Current liabilities: Current content liabilities Accounts payable Accrued expenses Deferred revenue Total current liabilities Non-current liabilities: Non-current content liabilities Long-term debt Other non-current liabilities Total non-current liabilities 3,759,026 10,360,058 129,231 14,248,315 3,329,796 6,499,432 135,246 9,964,474 2,894,654 3,364,311 61,188 6,320,153 Total liabilities 20,735,635 15,430,786 10,906,810 Owner's Equity Preferred stock Common stock Accumulated other comprehensive loss Retained earnings Total owner's equity 0 2,315,988 (19,582) 2,942,359 5,238,765 0 1,871,396 (20,557) 1,731,117 3,581,956 0 1,599,762 (48,565) 1,128,603 2,679,800 Total liabilities and stockholders' equity $ 25,974,400 $ 19,012,742 $ 13,586,610 GameStop Corp. Consolidated Income Statement (in millions) 12 Months Ended Jan. 28, 2017 Feb. 03, 2018 Jan. 30, 2016 Net sales Cost of sales Gross Margin $ 9,224.6 $ 6,184.5 $ 3,040.1 $ 8,607.9 $ 5,598.6 $ 3,009.3 $9,363.8 $ 6,445.5 $ 2,918.3 Expenses: Selling, general and administrative expenses Depreciation and amortization Goodwill impairments Asset impairments Total Expenses $ 2,363.0 $ 150.7 $ 32.8 $ 358.0 $ 2,904.5 $ 2,252.6 $ 165.2 $ 0.0 $33.8 $ 2,451.6 $ 2,108.9 $ 156.6 $ 0.0 $ 4.6 $ 2,270.1 Operating Income $ 135.6 $ 557.7 $ 648.2 Interest income Interest expense Income before income tax expense $ 1.5 $ 56.8 $ 80.3 $ 0.8 $53.8 $ 504.7 $ 0.4 $ 23.4 $ 625.2 Income tax expense Net income $ 45.6 $ 34.7 $ 151.5 $ 353.2 $ 222.4 $ 402.8 Earnings per share Dividend per share Closing Market Price $0.34 $ 0.38 $ 16.14 $3.42 $ 0.37 $ 24.12 $ 3.80 $ 0.37 $26.20 GameStop Corp. Consolidated Balance Sheets (in millions) As of Jan. 28, 2017 Feb. 03, 2018 Jan. 30, 2016 Current assets: Cash and cash equivalents Receivables, net Merchandise inventories, net Prepaid expenses and other current assets Total current assets $ 864.4 $ 182.7 $ 1,366.7 $ 124.9 $ 2,538.7 $ 669.4 $ 220.9 $ 1,121.5 $ 128.9 $ 2,140.7 $ 450.4 $ 176.5 $ 1,163.0 $147.6 $ 1,937.5 Property and equipment: Land Buildings and leasehold improvements Fixtures and equipment Total property and equipment Less accumulated depreciation Property and equipment, net $ 19.9 $ 769.8 $ 973.5 $ 1,763.2 $1,330.0 $ 433.2 $18.6 $ 724.5 $931.4 $ 1,674.5 $ 1,203.5 $ 471.0 $ 17.3 $ 668.2 $ 874.6 $ 1,560.1 $ 1,075.6 $ 484.5 Non-current assets: Deferred Tax Assets, Net, Noncurrent Goodwill Other intangible assets, net Other non-current assets Total non-current assets $ 158.2 $1,667.3 $ 169.5 $ 74.7 $ 2,069.7 $59.0 $ 1,725.2 $ 507.2 $72.8 $ 2,364.2 $39.0 $1,476.7 $ 330.4 $ 62.2 $ 1,908.3 Total assets $5,041.6 $ 4,975.9 $4,330.3 Current liabilities: Accounts payable Accrued liabilities Income taxes payable Total current liabilities $ 902.0 $976.1 $ 37.5 $ 1,915.6 $ 616.6 $ 1,090.9 $ 54.0 $ 1,761.5 $631.9 $ 1,041.4 $ 121.1 $ 1,794.4 Non-current liabilities: Deferred income taxes Other long-term liabilities Other long-term liabilities Total non-current liabilities $ 5.0 $88.6 $ 817.9 $911.5 $ 23.0 $ 122.3 $ 815.0 $ 960.3 $ 29.6 $ 345.4 $79.9 $ 454.9 Total liabilities $ 2,827.1 $ 2,721.8 $ 2,249.3 Owners' equity: Class A common stock Additional paid-in capital Accumulated other comprehensive income (loss) Retained eamings Total owners' equity $0.1 $ 22.1 $ 12.2 $ 2,180.1 $ 2,214.5 $ 0.1 $ 0.0 $ (47.3) $ 2,301.3 $ 2,254.1 $0.1 $ 0.0 $ (88.8) $ 2,169.7 $ 2,081.0 Total liabilities and stockholders' equity $5,041.6 $ 4,975.9 $ 4,330.3 GameStop Corp. Consolidated Statements of Cash Flows (in millions) 12 Months Ended Jan. 28, 2017 Feb. 03, 2018 Jan 30, 2016 Net cash flows provided by operating activities 434.9 537.1 656.8 Cash flows from investing activities: Purchase of property and equipment Acquisitions, net of cash acquired of $0.0, $0.1, and $13.9, respectively Proceeds from Divestiture of Businesses Other Net cash flows used in investing activities (113.4) (8.5) 55 (142.7) (441.2) 0 5.9 (578) (173.2) (267.5) 0 (3.9) (444.6) 3.2 (63.7) Cash flows from financing activities: Repayment of acquisition-related debt Repurchase of common shares Dividends paid Proceeds from Issuance of Long-term Debt Borrowings from the revolver Repayments of revolver borrowings Payments of Financing Costs Payments Related to Tax Withholding for Share-based Compensation Issuance of common stock, net of share repurchases for withholding taxes Excess Tax Benefit from Share-based Compensation, Financing Activities Net cash flows (used in) provided by financing activities (21.8) (22) (155.2) 0 373 (373) 0 (3.5) (0.4) (63.1) (155.5) 475 545 (545) (8.1) (8.4) (2.2) (194.3) (154.1) 0 463 (463) 0 0 (202.5) (0.8) 238.7 0 4.4 (346.2) Exchange rate effect on cash and cash equivalents 26.3 21.2 (25.7) Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 195.0 669.4 864.4 219.0 450.4 669.4 (159.7) 610.1 450.4 Netflix Inc. GameStop Corp. Strengths Customer Base Financial Performance Market Presence High Liquidity Sustained Revenue Growth Distribution Network Multi-Channel Selling Weaknesses Liquidity Ratio Dependence on Few Suppliers Financial Performance Opportunities Investment in Broadening Content Portfolio Growth in Movies and Entertainment Industry Business Expansion Initiatives Growing Global Video Games Market Growth of Web-Based Stores Growing Mobile Broadband Subscriptions Threats Video Piracy Foreign Exchange Fluctuations Market Competition Government Regulations Piracy and Unauthorized Copying Currency Translation 12 Months Ended Netflix Inc. Consolidated Income Statement thousands) (in Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2016 Revenues Cost of revenues Gross Margin $ 15,794,341 9,967,538 5,826,803 $ 11,692,713 8,033,000 3,659,713 $ 8,830,669 6,257,462 2,573,207 Expenses: Marketing expense Technology and development expense General and administrative expense Total Expenses 2,369,469 1,221,814 630,294 4,221,577 1,436,281 953,710 431,043 2,821,034 1,097,519 780,232 315,663 2,193,414 Operating income 1,605,226 838,679 379,793 Interest expense Other income (expense) Income before income tax expense 420,493 41,725 1,226,458 238,204 (115,154) 485,321 150,114 30,828 260,507 Income tax expense Net income 15,216 $ 1,211,242 (73,608) $ 558,929 73,829 $ 186,678 Earnings per share Dividend per share Closing Market Price $ 2.78 $ 0.00 $ 259.28 $ 1.29 $ 0.00 $ 196.10 $ 0.44 $ 0.00 $ 124.96 Netflix Inc. Consolidated Balance Sheet (in thousands) As of Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2016 Current assets: Cash and cash equivalents Current content assets, net Other current assets Total current assets $ 3,794,483 5,151,186 748,466 9,694,135 $ 2,822,795 4,310,934 536,245 7,669,974 $ 1,467,576 3,726,307 526,408 5,720,291 Non-current assets: Non-current content assets, net Property and equipment, net Other non-current assets Total non-current assets 14,960,954 418,281 901,030 16,280,265 10,371,055 319,404 652,309 11,342,768 7,274,501 250,395 341,423 7,866,319 Total assets 25,974,400 19,012,742 13,586,610 4,686,019 562,985 477,417 760,899 6,487,320 4,173,041 359,555 315,094 618,622 5,466,312 3,632,711 312,842 197,632 443,472 4,586,657 Current liabilities: Current content liabilities Accounts payable Accrued expenses Deferred revenue Total current liabilities Non-current liabilities: Non-current content liabilities Long-term debt Other non-current liabilities Total non-current liabilities 3,759,026 10,360,058 129,231 14,248,315 3,329,796 6,499,432 135,246 9,964,474 2,894,654 3,364,311 61,188 6,320,153 Total liabilities 20,735,635 15,430,786 10,906,810 Owner's Equity Preferred stock Common stock Accumulated other comprehensive loss Retained earnings Total owner's equity 0 2,315,988 (19,582) 2,942,359 5,238,765 0 1,871,396 (20,557) 1,731,117 3,581,956 0 1,599,762 (48,565) 1,128,603 2,679,800 Total liabilities and stockholders' equity $ 25,974,400 $ 19,012,742 $ 13,586,610 GameStop Corp. Consolidated Income Statement (in millions) 12 Months Ended Jan. 28, 2017 Feb. 03, 2018 Jan. 30, 2016 Net sales Cost of sales Gross Margin $ 9,224.6 $ 6,184.5 $ 3,040.1 $ 8,607.9 $ 5,598.6 $ 3,009.3 $9,363.8 $ 6,445.5 $ 2,918.3 Expenses: Selling, general and administrative expenses Depreciation and amortization Goodwill impairments Asset impairments Total Expenses $ 2,363.0 $ 150.7 $ 32.8 $ 358.0 $ 2,904.5 $ 2,252.6 $ 165.2 $ 0.0 $33.8 $ 2,451.6 $ 2,108.9 $ 156.6 $ 0.0 $ 4.6 $ 2,270.1 Operating Income $ 135.6 $ 557.7 $ 648.2 Interest income Interest expense Income before income tax expense $ 1.5 $ 56.8 $ 80.3 $ 0.8 $53.8 $ 504.7 $ 0.4 $ 23.4 $ 625.2 Income tax expense Net income $ 45.6 $ 34.7 $ 151.5 $ 353.2 $ 222.4 $ 402.8 Earnings per share Dividend per share Closing Market Price $0.34 $ 0.38 $ 16.14 $3.42 $ 0.37 $ 24.12 $ 3.80 $ 0.37 $26.20 GameStop Corp. Consolidated Balance Sheets (in millions) As of Jan. 28, 2017 Feb. 03, 2018 Jan. 30, 2016 Current assets: Cash and cash equivalents Receivables, net Merchandise inventories, net Prepaid expenses and other current assets Total current assets $ 864.4 $ 182.7 $ 1,366.7 $ 124.9 $ 2,538.7 $ 669.4 $ 220.9 $ 1,121.5 $ 128.9 $ 2,140.7 $ 450.4 $ 176.5 $ 1,163.0 $147.6 $ 1,937.5 Property and equipment: Land Buildings and leasehold improvements Fixtures and equipment Total property and equipment Less accumulated depreciation Property and equipment, net $ 19.9 $ 769.8 $ 973.5 $ 1,763.2 $1,330.0 $ 433.2 $18.6 $ 724.5 $931.4 $ 1,674.5 $ 1,203.5 $ 471.0 $ 17.3 $ 668.2 $ 874.6 $ 1,560.1 $ 1,075.6 $ 484.5 Non-current assets: Deferred Tax Assets, Net, Noncurrent Goodwill Other intangible assets, net Other non-current assets Total non-current assets $ 158.2 $1,667.3 $ 169.5 $ 74.7 $ 2,069.7 $59.0 $ 1,725.2 $ 507.2 $72.8 $ 2,364.2 $39.0 $1,476.7 $ 330.4 $ 62.2 $ 1,908.3 Total assets $5,041.6 $ 4,975.9 $4,330.3 Current liabilities: Accounts payable Accrued liabilities Income taxes payable Total current liabilities $ 902.0 $976.1 $ 37.5 $ 1,915.6 $ 616.6 $ 1,090.9 $ 54.0 $ 1,761.5 $631.9 $ 1,041.4 $ 121.1 $ 1,794.4 Non-current liabilities: Deferred income taxes Other long-term liabilities Other long-term liabilities Total non-current liabilities $ 5.0 $88.6 $ 817.9 $911.5 $ 23.0 $ 122.3 $ 815.0 $ 960.3 $ 29.6 $ 345.4 $79.9 $ 454.9 Total liabilities $ 2,827.1 $ 2,721.8 $ 2,249.3 Owners' equity: Class A common stock Additional paid-in capital Accumulated other comprehensive income (loss) Retained eamings Total owners' equity $0.1 $ 22.1 $ 12.2 $ 2,180.1 $ 2,214.5 $ 0.1 $ 0.0 $ (47.3) $ 2,301.3 $ 2,254.1 $0.1 $ 0.0 $ (88.8) $ 2,169.7 $ 2,081.0 Total liabilities and stockholders' equity $5,041.6 $ 4,975.9 $ 4,330.3 GameStop Corp. Consolidated Statements of Cash Flows (in millions) 12 Months Ended Jan. 28, 2017 Feb. 03, 2018 Jan 30, 2016 Net cash flows provided by operating activities 434.9 537.1 656.8 Cash flows from investing activities: Purchase of property and equipment Acquisitions, net of cash acquired of $0.0, $0.1, and $13.9, respectively Proceeds from Divestiture of Businesses Other Net cash flows used in investing activities (113.4) (8.5) 55 (142.7) (441.2) 0 5.9 (578) (173.2) (267.5) 0 (3.9) (444.6) 3.2 (63.7) Cash flows from financing activities: Repayment of acquisition-related debt Repurchase of common shares Dividends paid Proceeds from Issuance of Long-term Debt Borrowings from the revolver Repayments of revolver borrowings Payments of Financing Costs Payments Related to Tax Withholding for Share-based Compensation Issuance of common stock, net of share repurchases for withholding taxes Excess Tax Benefit from Share-based Compensation, Financing Activities Net cash flows (used in) provided by financing activities (21.8) (22) (155.2) 0 373 (373) 0 (3.5) (0.4) (63.1) (155.5) 475 545 (545) (8.1) (8.4) (2.2) (194.3) (154.1) 0 463 (463) 0 0 (202.5) (0.8) 238.7 0 4.4 (346.2) Exchange rate effect on cash and cash equivalents 26.3 21.2 (25.7) Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 195.0 669.4 864.4 219.0 450.4 669.4 (159.7) 610.1 450.4 Netflix Inc. GameStop Corp. Strengths Customer Base Financial Performance Market Presence High Liquidity Sustained Revenue Growth Distribution Network Multi-Channel Selling Weaknesses Liquidity Ratio Dependence on Few Suppliers Financial Performance Opportunities Investment in Broadening Content Portfolio Growth in Movies and Entertainment Industry Business Expansion Initiatives Growing Global Video Games Market Growth of Web-Based Stores Growing Mobile Broadband Subscriptions Threats Video Piracy Foreign Exchange Fluctuations Market Competition Government Regulations Piracy and Unauthorized Copying Currency Translation