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Netflix Inc. (NFLX)
Analysis of Income Taxes
Difficulty: Advanced
- Income Tax Accounting Policy
- Income Tax Expense (Benefit)
- Effective Income Tax Rate (EITR)
- Components of Deferred Tax Assets and Liabilities
- Deferred Tax Assets and Liabilities, Classification
- Analyst Adjustments: Removal of Deferred Taxes
- Adjusted Ratios: Removal of Deferred Taxes (Summary)
- Adjusted Current Ratio
- Adjusted Net Profit Margin
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Income Tax Accounting Policy
Netflix records a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain.
Netflix did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. Netflix may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Netflix recognizes interest and penalties related to uncertain tax positions in income tax expense.
Source: 10-K (filing date: 2019-01-29).
Income Tax Expense (Benefit)
Netflix Inc., income tax expense (benefit), continuing operations
USD $ in thousands
Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
| 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 2016 to 2017 but then declined significantly from 2017 to 2018. |
| Deferred tax provision | Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. | Netflix Inc.’s deferred tax provision declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 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 declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level. |
Effective Income Tax Rate (EITR)
Netflix Inc., effective income tax rate (EITR) reconciliation
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
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| U.S. federal statutory tax rate | |
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| Effective income tax rate | |
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Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
| Item | Description | The company |
|---|---|---|
| Effective income tax rate | Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. | Netflix Inc.’s effective income tax rate declined from 2016 to 2017 but then slightly increased from 2017 to 2018. |
Components of Deferred Tax Assets and Liabilities
Netflix Inc., components of deferred tax assets and liabilities
USD $ in thousands
Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
| Item | Description | The company |
|---|---|---|
| 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 2016 to 2017 and from 2017 to 2018. |
Deferred Tax Assets and Liabilities, Classification
Netflix Inc., deferred tax assets and liabilities, classification
USD $ in thousands
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Deferred tax assets (classified as Other current assets) | |
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| Deferred tax assets (classified as Other non-current assets) | |
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Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
| 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 2016 to 2017 and from 2017 to 2018. |
Analyst Adjustments: Removal of Deferred Taxes
Netflix Inc., adjustments to financial data
USD $ in thousands
Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
Netflix Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Netflix Inc., adjusted ratios
Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | Netflix Inc.’s adjusted current ratio improved from 2016 to 2017 and from 2017 to 2018. |
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Netflix Inc.’s adjusted net profit margin improved from 2016 to 2017 and from 2017 to 2018. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Netflix Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 and from 2017 to 2018. |
| 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 increased from 2016 to 2017 but then declined significantly from 2017 to 2018. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. | Netflix Inc.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Netflix Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018. |
Netflix Inc., Ratios: Reported vs. Adjusted
Adjusted Current Ratio
Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
2018 Calculations
1 Current ratio = Current assets ÷ Current liabilities
= ÷ =
2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | Netflix Inc.’s adjusted current ratio improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Net Profit Margin
Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
2018 Calculations
1 Net profit margin = 100 × Net income ÷ Revenues
= 100 × ÷ =
2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenues
= 100 × ÷ =
| 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 improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
2018 Calculations
1 Total asset turnover = Revenues ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= ÷ =
| 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 deteriorated from 2016 to 2017 and from 2017 to 2018. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
2018 Calculations
1 Financial leverage = Total assets ÷ Stockholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= ÷ =
| 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 increased from 2016 to 2017 but then declined significantly from 2017 to 2018. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
2018 Calculations
1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted stockholders’ equity
= 100 × ÷ =
| 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 2016 to 2017 and from 2017 to 2018. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2019-01-29), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-27), 10-K (filing date: 2016-01-28), 10-K (filing date: 2015-01-29).
2018 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × ÷ =
| 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 2016 to 2017 and from 2017 to 2018. |