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Netflix Company, whose incorporation was in 1997, mainly deals with provision of on-demand Internet streaming media. The company had over 20 million subscribers as at the end of December 2011. It is one of the best providers of Internet subscription services for movies and TV shows in the United States as well as other parts of the world. Its headquarters are in Los Gatos, California. The company enjoys a broad market since it has clients drawn from South and North of America, the United Kingdom, Finland, the Caribbean, Ireland, Sweden, Norway and Denmark. The company had 2,348 full-time employees, as well as other 579 temporary and part-time employees as of December 2011. The head of the company is Reed Hastings, who is also the founder and Chief Executive Officer (Hitt, Hoskisson & Ireland, 2006).
The Apple Corporation is a company that is one of the major employers in the world. For instance, in September 2011 it had approximately 60,400 full time employees and other 2,900 contractors and workers. The incorporation of the company was on 1 of April, 1976 by Steve Jobs alongside two other co-founders, Steve Wozniak and Ronald Wayne. Its headquarters are in Cupertino, California. Its main products are computer software, computer hardware, digital distribution as well as consumer electronics. Its best-known products across the world markets include iPhone Smartphone, Mac line of computers, iPad tablet computer, iPod music player, iOS Operating Systems, and Safari Web Browser, iLife and iWork, as well as iTunes media browser among others. Its current head is Tim Cook, who serves as its Chief Executive Officer. The company enjoys a huge market across the world. For instance, it has operations in all six continents (Schneider’s, 2010).
This research reviews the performance of two major telecommunication companies in the United States. It mainly focuses on financial statement analysis of Netflix Corporation, as compared to review of the financial statements of the Apple Corporation as a benchmark company, or better known, competitor. Therefore, this financial analysis compares the calculations of financial ratios for both companies using their annual data for the last three years. There is an in-depth analysis of the financial ratios for Netflix by comparing them to the industry ratios. The research also involves analysis of the stock price of each company on monthly basis for the last five years. In doing so, it determines the trend for the stock prices of both companies and tries to predict their sixth year’s stock prices (Needle & Powers, 2010).
Historical View of the Financial Performance
Considering the Netflix profitability ratios, the firm is doing well. However, Apple Inc. seems to be doing better because it has higher profitability ratios compared to Netflix in all three years that were under consideration for the research. Taking into account the liquidity ratios, Netflix needs to improve and its numbers are below the recommended level. For instance, its current ratio is below two while that of Apple is above two. For a firm to be able to meet its liabilities when they fall due, it should have a ratio of 2:1 (Robinson, 2009). In terms of asset utilization, Netflix seems to be performing better and managing its assets more efficiently than Apple. This is because it has higher asset utilization ratios. In addition to these market ratios indicate that Netflix has been performing well in the market. Its E.P.S has improved from 0.99 in 2007 to 4.28 in 2011. Even though compared to Apple its E.P.S is still low, the firms seems to be a good choice for investors. Comparing the firm’s financial performance with the other companies in the industry, the resultant ratios show that the firm’s performance is above the average. For instance, it has higher profitability ratios than those of the industry. It also has a higher E.P.S than that of the industry. However, during the year, the firm’s liquidity ratio was below the industry’s average. Nevertheless, comparing it with other firms in the industry, it is above average. It also has a higher total asset turnover ratios as well as debt equity ratios compared with those of the industry.
Just like other telecommunication businesses, Netflix Inc. has quite a few risky issues. For instance, in order for it to perform well in business it must compete effectively as well as attract new and retain old subscribers. In addition to this, it has to recover from a negative consumer reaction that resulted from price revisions on its main products. However, these are average business risks and they might not affect a potential investor’s decision. The company in 2011 did not have serious legal proceedings that could affect its performance in the market. As such, there is no big threat that can discourage potential investors not to invest in Netflix. In addition to this, when other market factors such as diluted E.P.S are considered, the decision to invest in the firm remains unchanged. This is because there is only a small difference between the basic E.P.S and the diluted E.P.S. Based on the above stated findings, Netflix is performing well as seen from all the analysis done in this paper. There is also a good possibility that the firm will perform better in next year as shown by the stock price forecasts. Despite this forecast, Netflix has to devise brilliant strategies that will help it sustain competition. Compared to its benchmark competitor, Apple Inc., it has a big room for improvement. Nevertheless, investing in the firm is a good idea that potential investors should consider.