Du Pont Company Analysis Project on Netflix

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Table of Contents

Summary of conclusions
Profitability Ratios
Conclusion
Reference

Netflix, Incorporated is a joint-stock public company that was incorporated in Delaware in August 1997 and is listed on the NASDAQ stock exchange. The company operates in the Music & Video Stores industry; under the entertainment sector. Its main competitors are Blockbuster and Amazon.com. (Investor Guide n. d).

The Company is owned by Mutual Funds such as Legg Mason Opportunity Prim, Goldman Sachs Growth Opportunities I, Fidelity Advisor Mid Cap II-A, Davis Opportunity B, Hussman Strategic Growth, Oppenheimer, Main St Small Cap A, Vanguard Small Cap Index, Goldman Sachs Tollkeeper A, Lord Abbett Developing Growth A, and Vanguard Total Stock Mkt Idx. (Investor Guide n. d)

In May 2002, the company completed its initial public offering. The Company provides more than 12 million subscribers with an online movie rental subscription service, and it has a comprehensive library where its subscribers can access more than 55,000 movies, television, and other filmed entertainment titles. Under the Company’s subscription plan, subscribers are allowed to have up to three titles at any given time with no due dates. The subscribers are not charged any fees for staying too long with the borrowed items, and they are not charged any shipping charges. Subscribers only pay a monthly subscription of $17.99. (Investor Guide n. d)

The Company accommodates a variety of movie-watching preferences by offering several subscription plans. The company’s proprietary recommendation service facilitates the selection of titles at the Company’s Web site by subscribers. The company then sends the selected titles on DVD to the subscribers by United States mail. The subscribers have an option of returning the DVDs to the Company via the Company’s prepaid mailers. (Investor Guide n. d)

The company can create a customized store for each subscriber by using its proprietary recommendation service. It is also able to effectively merchandise its comprehensive library of titles by using personalized recommendations generated by its proprietary recommendation service. (Investor Guide n. d)

The Company continually makes an effort to deepen its subscriber relationships by investing in improvements to its service. It also seeks to differentiate its service from that of its competitors by investing in improvements to its service. (Investor Guide n. d)

The Company’s main focus is to improve its website experience and functionality. It seeks to add value for its subscribers by including unique features such as Friends SM which is its social networking, and Profiles SM which is its queue management feature. The company offers a free trial period of 14 days. This motivates consumers to subscribe to the Company’s service. (Investor Guide n. d)

The Company has more than 55,000 DVD titles, which it purchased directly from studios, distributors, and independent producers. The Company has a network of shipping centers that enable it to ship and receive DVDs throughout the United States. (Investor Guide n. d)

Summary of conclusions

From the calculation of ratios, the following conclusions can be made.

Profitability Ratios

Net Profit Margin

We can observe from the ratios that the net profit margin was the highest in 2009 and that it has been increasing over the years. The net profit margin increased from 6.9 % in 2007 to 10.6 % in 2008 and 12.8 % in 2009. This was a 53.6 % increase in 2008 and a 20.8 % increase in 2009. This shows that the firm’s ability to earn income has improved over the years, shown by the increase in the proportion of sales that contribute to profit. (Graham, Smart, & Megginson, 2009).

The percentage increase in the net profit margin however dropped in 2009 as compared to 2008.

Return on Assets

From the ratios, we also observe that the return on assets has also been increasing over the years, from 19.9 % in 2007 to 33.1 % in 2008 and 59.1 % in 2009. This was a 66.3 % increase in 2008 and a 26.0 % increase in 2009. This shows that the management has been improving in its employment of assets to generate income, although the percentage increase in 2009 dropped as compared to 2008. (Graham, Smart, & Megginson, 2009).

Return on equity

We can observe from the ratios that the Du Pont return on equity has also been increasing over the years, from 19.4 % in 2007 to 45.1 % in 2008 and 107.6 % in 2009. This was a 132.5 % increase in 2008 and a 138.6 % increase in 2009. The percentage increase in 2009 was higher than it was in 2008. This shows that the management has been improving in its ability to generate income for the owners of the company; therefore the owners have been getting a higher return on their investment every year.

Conclusion

The company is good for investment because it offers a high return on investment, and I would include its shares in my portfolio. (Brealey, Myers, & Marcus, 2007)

Reference

Brealey, R., Myers, S., & Marcus A. (2007) Fundamentals of Corporate Finance. Irwin: McGraw-Hill

Graham, J., Smart, S., Megginson, W. (2009). Corporate Finance: Linking Theory to what Companies Do. South Western Educational Publishing.

Investor Guide (n. d). Investor Guide. Web.

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