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Question 26

Following is the income statement for NetFlix Inc. for the year ended December 31, 2011. Prepare forecasted income statements for the company for 2012 and 2013.

NETFLIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

Year ended December 31,

2011

2010

2009

Revenues

$3,204,577

$2,162,625

$1,670,269

Cost of revenues:

Subscription

1,789,596

1,154,109

909,461

Fulfillment expenses

250,305

203,246

169,810

Total cost of revenues

2,039,901

1,357,355

1,079,271

Gross profit

1,164,676

805,270

590,998

Operating expenses:

Marketing

402,638

293,839

237,744

Technology and development

259,033

163,329

114,542

General and administrative

117,937

64,461

46,773

Legal settlement

9,000

-

-

Total operating expenses

788,608

521,629

399,059

Operating income

376,068

283,641

191,939

Other income (expense):

Interest expense

(20,025)

(19,629)

(6,475)

Interest and other income

3,479

3,684

6,728

Income before income taxes

359,522

267,696

192,192

Provision for income taxes

133,396

106,843

76,332

Net income

$ 226,126

$160,853

$115,860



Use the following assumptions to develop the forecasted income statements:

Revenue growth

39.0%

Subscription costs to revenues

55.8%

Fulfillment expenses to revenues

7.8%

Marketing expense to revenues

12.6%

Technology and development to revenues

8.1%

General and administrative to revenues

3.7%

Legal settlement

$0

Interest expense

No change

Interest and other income

No change

Provision for income taxes to Income before income taxes

37.1%

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Jamar Ferry
Jamar FerryLv2
29 Sep 2019

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Please help by showing how you got the answers,

The comparative financial statements of Stargel Inc. are as follows. The market price of

Stargel Inc. common stock was $119.70 on December 31, 2014.

Stargel Inc.

Comparative Retained Earnings Statement

For the Years Ended December 31, 2014 and 2013

2014 2013

Retained earnings, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,375,000 $4,545,000

Add net income for year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000 925,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,275,000 $5,470,000

Deduct dividends:

On preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,000 $ 45,000

On common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 95,000 $ 95,000

Retained earnings, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,180,000 $5,375,000

Stargel Inc.

Comparative Income Statement

For the Years Ended December 31, 2014 and 2013

2014 2013

Sales (all on account) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,050,000 $9,450,000

Sales returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000

Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000,000 $9,400,000

Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,350,000 4,950,000

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,650,000 $4,450,000

Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000,000 $1,880,000

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 1,410,000

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,500,000 $3,290,000

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,150,000 $1,160,000

Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 140,000

$ 1,300,000 $1,300,000

Other expense (interest) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000 150,000

Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,130,000 $1,150,000

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,000 225,000

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 900,000 $ 925,000

Stargel Inc.

Comparative Balance Sheet

December 31, 2014 and 2013

Dec. 31, 2014 Dec. 31, 2013

Assets

Current assets:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500,000 $ 400,000

Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,010,000 1,000,000

Accounts receivable (net). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740,000 510,000

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,190,000 950,000

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 229,000

Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,690,000 $3,089,000

Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,350,000 2,300,000

Property, plant, and equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,740,000 3,366,000

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,780,000 $8,755,000

Liabilities

Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 900,000 $ 880,000

Long-term liabilities:

Mortgage note payable, 8%, due 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,000 $ 0

Bonds payable, 10%, due 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000 1,500,000

Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,700,000 $1,500,000

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,600,000 $2,380,000

Stockholders

The following income statement and balance sheet for Virtual Gaming Systems are provided. Earnings per share for the year ended December 31, 2012, are $1.00. The closing stock price on December 31, 2012, is $28.00.

VIRTUAL GAMING SYSTEMS
Income Statement
For the year ended December 31, 2012
Sales revenue $3,051,000
Cost of goods sold 1,969,000

Gross profit 1,082,000
Expenses:
Operating expenses 869,000
Depreciation expense 42,000
Loss on sale of land 9,000
Interest expense 16,900
Income tax expense 49,400


Total expenses 986,300

Net income $ 95,700

VIRTUAL GAMING SYSTEMS
Balance Sheet
December 31
2012 2011
Assets
Current assets:
Cash $ 190,000 $ 157,000
Accounts receivable 97,000 74,000
Inventory 106,000 146,000
Prepaid rent 12,000 8,000
Long-term assets:
Investment in bonds 129,000 0
Land 220,000 250,000
Equipment 239,000 181,000
Less: Accumulated depreciation (71,000) (29,000)

Total assets $ 922,000 $ 787,000

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 67,000 $ 81,000
Interest payable 6,000 23,000
Income tax payable 19,000 29,000
Long-term liabilities:
Notes payable 292,000 237,000
Stockholders' equity:
Common stock 303,000 281,000
Retained earnings 235,000 136,000

Total liabilities and stockholders’ equity $ 922,000 $ 787,000

Required:

Calculate the following profitability ratios for 2012. (Round your answers to 1 decimal place. Omit the "%" sign in your response.)

Profitability Ratios
1. Gross profit ratio %
2. Return on assets %
3. Profit margin %
4. Asset turnover times
5. Return on equity %
6. Price-earnings ratio times

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