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Analysis of Income Taxes

Advanced level

Income Tax Expense (Benefit)
Effective Income Tax Rate (EITR)
Components of Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities, Classification
Adjustments to Financial Statements: Removal of Deferred Taxes
Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Income Tax Expense (Benefit)

Netflix Inc., income tax expense (benefit), continuing operations

US$ in thousands

	12 months ended:	Dec 31, 2020		Dec 31, 2019		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016
	Federal
	State
	Foreign
	Current tax provision
	Federal
	State
	Foreign
	Deferred tax provision
	Provision for (benefit from) income taxes

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

Item	Description	The company
Current tax provision	Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations.	Netflix Inc.’s current tax provision increased from 2018 to 2019 and from 2019 to 2020.
Deferred tax provision	Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations.	Netflix Inc.’s deferred tax provision decreased from 2018 to 2019 but then increased from 2019 to 2020 exceeding 2018 level.
Provision for (benefit from) income taxes	Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Netflix Inc.’s provision for (benefit from) income taxes increased from 2018 to 2019 and from 2019 to 2020.

Effective Income Tax Rate (EITR)

Netflix Inc., effective income tax rate (EITR) reconciliation

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	U.S. federal statutory tax rate
	Effective tax rate

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

Item	Description	The company
Effective tax rate	Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Netflix Inc.’s effective tax rate increased from 2018 to 2019 and from 2019 to 2020.

Components of Deferred Tax Assets and Liabilities

Netflix Inc., components of deferred tax assets and liabilities

US$ in thousands

		Dec 31, 2020		Dec 31, 2019		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016
	Stock-based compensation
	Federal and California tax R&D credits
	Foreign tax credits
	Accruals and reserves
	Operating leases
	Foreign net operating losses
	Unrealized gain/loss
	Other
	Gross deferred tax assets
	Valuation allowance
	Deferred tax assets
	Depreciation & amortization
	Operating leases
	Deferred tax liabilities
	Net deferred tax assets (liabilities)

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

Item	Description	The company
Gross deferred tax assets	Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Netflix Inc.’s gross deferred tax assets increased from 2018 to 2019 and from 2019 to 2020.
Deferred tax assets	Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Netflix Inc.’s deferred tax assets increased from 2018 to 2019 and from 2019 to 2020.
Net deferred tax assets (liabilities)	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting.	Netflix Inc.’s net deferred tax assets (liabilities) increased from 2018 to 2019 but then slightly decreased from 2019 to 2020 not reaching 2018 level.

Deferred Tax Assets and Liabilities, Classification

Netflix Inc., deferred tax assets and liabilities, classification

US$ in thousands

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	Deferred tax assets (classified as Other non-current assets)

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

Item	Description	The company
Deferred tax assets (classified as Other non-current assets)	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent.	Netflix Inc.’s deferred tax assets (classified as Other non-current assets) increased from 2018 to 2019 but then slightly decreased from 2019 to 2020 not reaching 2018 level.

Adjustments to Financial Statements: Removal of Deferred Taxes

Netflix Inc., adjustments to financial statements

US$ in thousands

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Noncurrent deferred tax assets, net
	Total assets (adjusted)
	Adjustment to Stockholders’ Equity
	Stockholders’ equity (as reported)
	Less: Net deferred tax assets (liabilities)
	Stockholders’ equity (adjusted)
	Adjustment to Net Income
	Net income (as reported)
	Add: Deferred income tax expense (benefit)
	Net income (adjusted)

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

Netflix Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Netflix Inc., adjusted financial ratios

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

Financial ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Netflix Inc.’s adjusted net profit margin ratio improved from 2018 to 2019 and from 2019 to 2020.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Netflix Inc.’s adjusted total asset turnover ratio deteriorated from 2018 to 2019 but then improved from 2019 to 2020 exceeding 2018 level.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Netflix Inc.’s adjusted financial leverage ratio decreased from 2018 to 2019 and from 2019 to 2020.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Netflix Inc.’s adjusted ROE improved from 2018 to 2019 and from 2019 to 2020.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Netflix Inc.’s adjusted ROA improved from 2018 to 2019 and from 2019 to 2020.

Netflix Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	As Reported
	Selected Financial Data (US$ in thousands)
	Net income
	Revenues
	Profitability Ratio
	Net profit margin¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Adjusted net income
	Revenues
	Profitability Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

2020 Calculations

¹ Net profit margin = 100 × Net income ÷ Revenues
= 100 × ÷ =

² Adjusted net profit margin = 100 × Adjusted net income ÷ Revenues
= 100 × ÷ =

Profitability ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Netflix Inc.’s adjusted net profit margin ratio improved from 2018 to 2019 and from 2019 to 2020.

Adjusted Total Asset Turnover

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	As Reported
	Selected Financial Data (US$ in thousands)
	Revenues
	Total assets
	Activity Ratio
	Total asset turnover¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Revenues
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

2020 Calculations

¹ Total asset turnover = Revenues ÷ Total assets
= ÷ =

² Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= ÷ =

Activity ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Netflix Inc.’s adjusted total asset turnover ratio deteriorated from 2018 to 2019 but then improved from 2019 to 2020 exceeding 2018 level.

Adjusted Financial Leverage

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	As Reported
	Selected Financial Data (US$ in thousands)
	Total assets
	Stockholders’ equity
	Solvency Ratio
	Financial leverage¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Adjusted total assets
	Adjusted stockholders’ equity
	Solvency Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

2020 Calculations

¹ Financial leverage = Total assets ÷ Stockholders’ equity
= ÷ =

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= ÷ =

Solvency ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Netflix Inc.’s adjusted financial leverage ratio decreased from 2018 to 2019 and from 2019 to 2020.

Adjusted Return on Equity (ROE)

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	As Reported
	Selected Financial Data (US$ in thousands)
	Net income
	Stockholders’ equity
	Profitability Ratio
	ROE¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Adjusted net income
	Adjusted stockholders’ equity
	Profitability Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

2020 Calculations

¹ ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × ÷ =

² Adjusted ROE = 100 × Adjusted net income ÷ Adjusted stockholders’ equity
= 100 × ÷ =

Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Netflix Inc.’s adjusted ROE improved from 2018 to 2019 and from 2019 to 2020.

Adjusted Return on Assets (ROA)

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	As Reported
	Selected Financial Data (US$ in thousands)
	Net income
	Total assets
	Profitability Ratio
	ROA¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Adjusted net income
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2021-01-28), 10-K (filing date: 2020-01-29), 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27).

2020 Calculations

¹ ROA = 100 × Net income ÷ Total assets
= 100 × ÷ =

² Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × ÷ =

Profitability ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Netflix Inc.’s adjusted ROA improved from 2018 to 2019 and from 2019 to 2020.

	Netflix Inc.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

	All companies
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

Netflix Inc. (NASDAQ:NFLX)

Analysis of Income Taxes

Income Tax Expense (Benefit)

Effective Income Tax Rate (EITR)

Components of Deferred Tax Assets and Liabilities

Deferred Tax Assets and Liabilities, Classification

Adjustments to Financial Statements: Removal of Deferred Taxes

Netflix Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Netflix Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)