1. Find online (at sec.gov) the annual 10-K report of Netflix (NFLX) for fiscal year 2021 (filed in January 2022). Answer the following questions:
a. How much cash did Netflix have at the end of the fiscal year 2021?
b. What were Netflix’s total liabilities in 2021?
c. How much debt did Netflix have in 2021?
d. What was the book value of Netflix’s equity in 2021?
e. What was the net working capital of Netflix in 2021?
f. What is your favorite streaming television show from Netflix or a similar streaming service?
2. Using the balance sheets of Netflix for 2020 and 2021, calculate the following ratios: a. Current ratio
b. Quick ratio
c. Debt-to-Capital ratio
d. Assets-to-Equity e. Debt-to-Equity
3. Find the income statement of Netflix for 2021 and calculate the following ratios: a. Return on Assets
b. Return on Equity
c. Total Asset Turnover
d. Return on Invested Capital
e. Gross Margin (check definition of gross profit)
4. In March 2022, Walmart (WMT) had a book value of equity of $83.3 billion, 2.8 billion shares outstanding, and a market price of $142.07 per share. Walmart also had cash of $14.8 billion, and total debt of $59.3 billion. Two years earlier, in January 2020, Walmart had a book value of equity of $74.7 billion, 2.9 billion shares outstanding with a market price of $111.35 per share, cash of $9.5 billion, and total debt of $74.7 billion. Over this period, what was the change in Walmart’s:
a. Market capitalization? b. Market-to-book ratio? c. Enterprise value?
5. In early 2020, Abercrombie & Fitch (ANF) had a book equity of $1,059 million, a price per share of $11.30, and 65.8 million shares outstanding. At the same time, The Gap (GPS) had a book equity of $3,316 million, a share price of $12.07, and 378.0 million shares outstanding.
a. What is the market-to-book ratio of each of these clothing retailers? b. What conclusions can you draw by comparing the two ratios?
6. Vaccine Systems has 6.5 billion shares outstanding and a share price of $18. Vaccine is considering developing a new networking product in house at a cost of $500 million. Alternatively, Vaccine can acquire a firm that already has the technology for $900 million worth (at the current price) of Vaccine stock. Suppose that absent the expense of the new technology, Vaccine will have Earnings per Share of $0.80.
a. Suppose Vaccine develops the product in house. What impact would the development cost have on Vaccine’s EPS? Assume all costs are incurred this year and are treated as an R&D expense, Vaccine’s tax rate is 35%, and the number of shares outstanding is unchanged.
b. Suppose Vaccine does not develop the product in house but instead acquires the technology. What effect would the acquisition have on Vaccine’s EPS this year? (Note that acquisition expenses do not appear directly on the income statement. Assume the firm was acquired at the start of the year and has no revenues or expenses of its own, so that the only effect on EPS is due to the change in the number of shares outstanding.)
c. Which method of acquiring the technology has a smaller impact on earnings? Is this method cheaper? Explain.
7. Use Yahoo Finance to answer the following questions with information on Amazon (AMZN) stock: a. What was its closing price on September 1, 2022 (see Historical Data)?
b. What was the company’s EPS for the last full reported year?
c. What is the company’s trailing P/E ratio using the above information?
d. What is the average (consensus) analyst EPS estimate for the current year (see Analysis)? e. What is the company’s forward P/E ratio based on your answer to question d)?
8. Nokela Industries purchases a $40 million cyclo-converter. The cyclo-converter will be depreciated by $10 million per year over four years, starting this year. Suppose Nokela’s tax rate is 40%.
a. What impact will the cost of the purchase have on earnings for each of the next four years?
b. What impact will the cost of the purchase have on the firm’s cash flow for the next four years?
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