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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

From the following consolidated statements of earnings for Netflix, Inc., prepare a vertic analysis in the form of a common-size income statement (percentages only) for 2013.

NETFLIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)

Twelve Months Ended December 31,2013
Revenues $4,374,562
Cost of revenues 3,083,256
Marketing 503,889
Technology and development 378,769
General and administrative 180,301
Operating income 228,347
Other income (expense)
Interest expense (29,142)
Interest and other (3,002)
Loss on extinguishment of debt (25,129)
Income before income taxes 171,074
Provision for income taxes 58,671
Net income $ 112,403

To determine

To calculate: The vertical analysis of an provided income statement for Netflix, Inc. for the year December 31,2013 from the consolidated statements of operations of Netflix Inc.

Explanation

Given Information:

The consolidated statement of operation of Netflix, Inc.

Netflix, Inc. Consolidated statements of operations (in thousands) ($)
Revenue $4,374,562
Cost of revenues $3,083,256
Technology and development $503,889
General administrative $180,301
Operating income $228,347
Other income(expense)
Interest expense ($29,142)
Interest and other ($3,002)
Loss on extinguishment of debt ($25,129)
Income before income taxes $171,074
Provision for income taxes $58,671
Net income $112,403

Formula used:

Follow the steps to prepare a vertical analysis of an income statement:

Step 1: Use the percentage formula, Rate=Portion÷Base, to determine the rate of each item on the income statement. Net sales items are used as base and each items as portion.

Step 2: Round each answer to the nearest tenth of a percent.

Step 3: Count the percentage of each statement item in a column to the right of the amount.

Calculation:

Take revenues as the base parameter to calculate the percentages. Mark Revenues as 100%.

Compute percentage of cost of revenues by substituting cost of revenues to $3,083,256 and Revenues to $4,374,562

%of Cost of revenues=Cost of revenuesRevenues×100=$3,083,256$4,374,562×100=70.48%

Compute percentage of marketing by substituting marketing to $503,889 and Revenues to $4,374,562

%of Marketing=MarketingRevenues×100=$503,889$4,374,562×100=11.5%

Compute percentage of technology and development by substituting technology and development to $378,769 and Revenues to $4,374,562

%of Technology and development=Technology and developmentRevenues×100=$378,769$4,374,562×100=8.6%

Compute general and administrative expenses by substituting general and administrative expenses to $180,301 and Revenues to $4,374,562

%of General and administrative expenses=General and administrative expensesRevenues×100=$180,301$4,374,562×100=4.1%

Compute percentage of operating income by substituting operating income to $228,347 and Revenues to $4,374,562

%of operating income=Operating incomeRevenues×100=$228,347$4,374,562×100=5.2%

Compute percentage of interest expense by substituting interest expenses to ($29,142) and Revenues to $4,374,562

%of interest expense=Interest expenseRevenues×100=($29,142)$4,374,562×100=(0.6%)

Compute percentage of interest and other by substituting interest and other to ($3,002) and Revenues to $4,374,562

%of interest and other expenses=Interest and other expensesRevenues×100=($3,002)$4,374,562×100=(0

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