Pro-Forma Financial Statement Analysis
As seen in Appendix [ ], the pro-forma financial statements extends out three years,
forecasting financials for FY 2020, 2021, and 2022. Total revenue for the company is projected
to increase 21.64%, 17.79%, and 15.10% for FY 2020, 2021, and 2022 respectively, concluding
with a projected total revenue of $33,242,765 in FY 2022. Additionally, Netflix’s total expenses
are projected to increase incrementally between FY 2020-2022; however, expenses are projected
to increase by a smaller percentage than net income, allowing net income to substantially
increase year-over-year between FY 2020-2022 (35.12%, 25.99%, and 20.63% respectively) for
a projected net income total of $3,833,938 in FY 2022. The implementation of Netflix’s
proposed new strategy is expected to increase the company’s projected total revenue by [ ],
resulting in a total revenue of [ ] in FY 2022 under the company’s new strategy. This increase in
revenue will offset the increase in projected total expenses under the new strategy (percentage
increase year-over-year), and ultimately allow net income to increase by [ ]. Therefore, the
implementation of Netflix’s proposed new strategy is projected to increase the company’s net
income for a total of [ ] by FY 2022.
Pro-Forma Ratio Analysis
As seen in Appendix [ ], through the utilization of the pro-forma income statement with
projections from the implementation of Netflix’s proposed new strategy, the company’s
profitability ratios (gross profit margin, operating profit margin, ROA, and ROE) are forecasted
to increase from FY 2019 to 2020. This increase across profitability ratios indicates that the
proposed new strategy is projecting to improve Netflix’s overall profitability and ability to
generate income, specifically when it comes to the company’s operating profit margin as the ratio
is projected to increase 23.08% between FY 2019 and 2020. Additionally, Netflix’s total debt to
total equity ratio is projected to decrease by 13.79%, indicating that the proposed new strategy is
likely to reduce the company’s overall investment risk as its assets are not increasingly being
leveraged to finance the new strategy.
Net Present Value Analysis
Utilizing cash flow projections found in Appendix [ ] and a projected initial cost of [ ] to
implement the proposed new strategy, the net present value of proposed new strategy is [ ]. This
present valuation of future earnings indicates the overall positive profitability of the company’s
new strategy, as cash inflows are projected to exceed cash outflows between FY 2020 and 2022.
EBIT/EPS Analysis
As seen in Appendix [ ], Netflix’s EBIT has steadily increased year-over-year between
FY 2017 and FY 2019, as has its EPS. In forecasting the best way to pay for the new proposed
strategy which has the lowest negative impact on EPS, it would make sense to continue the
company’s historic balance of debt and equity financing (with a larger emphasis on debt
financing), as the proposed new strategy is projected to only incrementally increase expenses
while more greatly increasing net income and operating profit margin.
