Netflix Inc. (NASDAQ:NFLX)

The period under review demonstrates fluctuating performance in profitability and financial leverage. Return on Assets (ROA) initially decreased before exhibiting a strong upward trend, while Financial Leverage consistently declined. These movements have a clear impact on Return on Equity (ROE), which mirrors the ROA trend but is amplified by the changes in leverage.

Return on Assets (ROA)

ROA experienced a decrease from 11.48% in 2021 to 9.24% in 2022. Subsequently, a recovery began, with ROA reaching 11.10% in 2023, and accelerating to 16.24% in 2024. This positive momentum continued into 2025, with ROA reaching 19.75%. This indicates improving efficiency in asset utilization over the later years of the period.

Financial Leverage

Financial Leverage showed a consistent downward trend throughout the period. Starting at 2.81 in 2021, it decreased to 2.34 in 2022, and 2.37 in 2023. The decline continued, reaching 2.17 in 2024 and further decreasing to 2.09 in 2025. This suggests a reduction in the company’s reliance on debt financing.

Return on Equity (ROE)

ROE followed a pattern of decline and recovery similar to ROA. It decreased from 32.28% in 2021 to 21.62% in 2022, coinciding with the initial drop in ROA and the decrease in Financial Leverage. ROE then increased to 26.27% in 2023, 35.21% in 2024, and reached 41.26% in 2025. The increasing ROE, coupled with decreasing leverage, suggests that the company is becoming more efficient at generating profits from shareholder investments while simultaneously reducing its financial risk.

The interplay between ROA and Financial Leverage is evident in the ROE figures. While decreasing leverage mechanically reduces ROE, the substantial increase in ROA over the latter part of the period more than offset this effect, resulting in a significant overall increase in ROE. This indicates a shift towards more sustainable and profitable growth.

The period under review demonstrates fluctuating performance across key financial ratios impacting overall Return on Equity (ROE). A notable trend is the improvement in ROE from 2021 to 2025, though with intermediate declines. This change is driven by shifts in Net Profit Margin, Asset Turnover, and Financial Leverage, which are analyzed in detail below.

Net Profit Margin

Net Profit Margin experienced a decrease from 17.23% in 2021 to 14.21% in 2022, before recovering to 16.04% in 2023. A significant upward trend is then observed, with the margin reaching 22.34% in 2024 and further increasing to 24.30% in 2025. This indicates improving profitability over the later years of the period.

Asset Turnover

Asset Turnover exhibited a slight decline from 0.67 in 2021 to 0.65 in 2022. It then showed a consistent increase, reaching 0.69 in 2023, 0.73 in 2024, and peaking at 0.81 in 2025. This suggests increasing efficiency in utilizing assets to generate revenue.

Financial Leverage

Financial Leverage decreased consistently throughout the period, moving from 2.81 in 2021 to 2.34 in 2022, 2.37 in 2023, 2.17 in 2024, and finally 2.09 in 2025. This indicates a reduction in the reliance on debt financing.

The decline in ROE from 2021 to 2022 was primarily driven by the decrease in Net Profit Margin, partially offset by a slight decrease in Asset Turnover and a more substantial decrease in Financial Leverage. The subsequent recovery and strong growth in ROE from 2022 to 2025 are attributable to the combined positive effects of increasing Net Profit Margin and Asset Turnover, despite the continued decline in Financial Leverage. The increasing Net Profit Margin appears to be the dominant factor in the ROE improvement, suggesting enhanced operational efficiency and pricing power. The increasing Asset Turnover further supports this, indicating better asset utilization. The decreasing Financial Leverage, while reducing risk, has a moderating effect on ROE, as it signifies less debt being used to amplify returns.

Overall, the analysis suggests a strengthening financial position and improved profitability over the period, culminating in a significantly higher ROE by 2025. The company appears to be becoming more efficient in its operations and more profitable, while simultaneously reducing its financial risk through decreased leverage.

The five-component DuPont analysis reveals notable shifts in performance over the observed period. Return on Equity (ROE) experienced volatility, initially declining before exhibiting a strong upward trajectory. This fluctuation is attributable to changes in the underlying components of profitability, efficiency, and financial leverage.

Profitability (EBIT Margin)

The EBIT Margin demonstrated a decline from 2021 to 2022, falling to 18.88%. However, a consistent and substantial increase followed, reaching 29.88% by 2025. This suggests improved operational efficiency and/or pricing power in the later years of the period.

Efficiency (Asset Turnover)

Asset Turnover showed a gradual improvement throughout the period, increasing from 0.67 in 2021 to 0.81 in 2025. This indicates increasing efficiency in utilizing assets to generate revenue, suggesting better asset management practices.

Financial Leverage

Financial Leverage decreased steadily from 2.81 in 2021 to 2.09 in 2025. This signifies a reduction in the reliance on debt financing, potentially indicating a more conservative capital structure or improved internal funding capabilities.

Tax Burden

The Tax Burden remained relatively stable, fluctuating between 0.85 and 0.88 throughout the period. This suggests consistent tax planning or a lack of significant changes in applicable tax rates.

Interest Burden

The Interest Burden exhibited a slight upward trend, increasing from 0.88 in 2021 to 0.94 in 2025. This increase, though modest, could be a consequence of changes in debt composition or prevailing interest rates, despite the overall decrease in financial leverage.

The initial decline in ROE from 2021 to 2022 was likely driven by the combination of a lower EBIT Margin and a slightly decreased Asset Turnover, partially offset by the decrease in Financial Leverage. The subsequent recovery and strong growth in ROE from 2023 onwards were primarily fueled by the significant improvement in the EBIT Margin, coupled with the continued increase in Asset Turnover. The decreasing Financial Leverage further contributed to the ROE expansion, albeit to a lesser extent. The consistent Tax and Interest Burdens suggest these factors did not significantly influence the overall ROE trend.

The financial performance, as indicated by the two-component DuPont analysis, reveals notable shifts over the five-year period. Return on Assets (ROA) experienced fluctuations, ultimately demonstrating a strong upward trend. This trend is attributable to changes in both Net Profit Margin and Asset Turnover.

Net Profit Margin

The Net Profit Margin exhibited volatility during the observed period. It decreased from 17.23% in 2021 to 14.21% in 2022, before recovering to 16.04% in 2023. A significant increase is then observed, reaching 22.34% in 2024 and further rising to 24.30% in 2025. This suggests improving profitability in the later years of the period.

Asset Turnover

Asset Turnover showed a modest, but consistent, upward trend. Starting at 0.67 in 2021, it declined slightly to 0.65 in 2022. However, it then increased to 0.69 in 2023, 0.73 in 2024, and reached 0.81 in 2025. This indicates increasing efficiency in utilizing assets to generate revenue.

Return on Assets (ROA)

ROA mirrored the combined effect of the Net Profit Margin and Asset Turnover. It decreased from 11.48% in 2021 to 9.24% in 2022, coinciding with the decline in Net Profit Margin. The ROA then recovered to 11.10% in 2023, followed by substantial growth to 16.24% in 2024 and 19.75% in 2025. The latter increases are driven by both improvements in profitability and asset utilization.

The positive correlation between the Net Profit Margin and ROA is evident, particularly in the final two years. The increasing Asset Turnover also contributed to the overall improvement in ROA, though to a lesser extent than the margin expansion. The combined effect of these factors suggests a strengthening financial position over the analyzed timeframe.

The financial performance, as indicated by the four-component DuPont analysis, demonstrates a generally improving trend in profitability and efficiency between 2021 and 2025. Return on Assets (ROA) increased from 11.48% to 19.75% over the period, driven by improvements in both margins and asset utilization. A detailed examination of the components reveals the key drivers of this overall improvement.

EBIT Margin

The EBIT Margin experienced initial decline from 22.24% in 2021 to 18.88% in 2022, before exhibiting a consistent upward trend, reaching 29.88% in 2025. This suggests successful cost management or pricing strategies implemented in the later years of the period. The substantial increase in the EBIT Margin is a primary contributor to the overall ROA improvement.

Asset Turnover

Asset Turnover showed a modest, but consistent, increase from 0.67 in 2021 to 0.81 in 2025. This indicates increasing efficiency in utilizing assets to generate revenue. While the improvement is not as dramatic as the EBIT Margin, it consistently contributes positively to the ROA.

Tax Burden

The Tax Burden remained relatively stable throughout the period, fluctuating between 0.85 and 0.88. This indicates consistent tax planning or a stable tax rate environment. The minimal variation in this component suggests it did not significantly influence the overall ROA changes.

Interest Burden

The Interest Burden exhibited a slight upward trend, increasing from 0.88 in 2021 to 0.94 in 2025. This suggests a potentially increasing reliance on debt financing, or changes in interest rates. However, the impact of this increase was offset by the substantial improvements in EBIT Margin and Asset Turnover, resulting in a net positive effect on ROA.

In summary, the increase in ROA is primarily attributable to the significant improvement in the EBIT Margin, complemented by a steady increase in Asset Turnover. The Tax Burden remained stable, while a slight increase in the Interest Burden was more than offset by the gains in profitability and efficiency. These trends suggest strengthening financial health and improved operational performance.

The period under review demonstrates fluctuating profitability metrics, with a general upward trend in recent years. A disaggregation of net profit margin reveals the interplay between operational efficiency, financial leverage, and tax obligations. The analysis focuses on the relationships between EBIT margin, tax burden, interest burden, and ultimately, net profit margin.

Net Profit Margin

Net profit margin experienced a decline from 17.23% in 2021 to 14.21% in 2022, before initiating a recovery. Subsequent increases were observed, reaching 16.04% in 2023, 22.34% in 2024, and culminating in 24.30% in 2025. This indicates improving overall profitability in the later years of the period.

EBIT Margin

The EBIT margin mirrors a similar pattern to net profit margin, though with greater volatility. A decrease from 22.24% in 2021 to 18.88% in 2022 is followed by a recovery to 20.48% in 2023. Significant growth is then observed, with the EBIT margin reaching 27.40% in 2024 and 29.88% in 2025. This suggests improvements in core operational profitability are a primary driver of the overall net profit margin trend.

Tax Burden

The tax burden remained relatively stable throughout the period, fluctuating between 0.85 and 0.88. A slight decrease to 0.86 is noted in 2025, but the overall impact on net profit margin appears minimal given the consistency of this ratio. This suggests changes in the effective tax rate did not significantly contribute to the observed profitability trends.

Interest Burden

The interest burden exhibited a gradual increase over the period, rising from 0.88 in both 2021 and 2022 to 0.90 in 2023, 0.93 in 2024, and 0.94 in 2025. This indicates a growing proportion of earnings are allocated to interest expenses. While the increase is moderate, it partially offsets the gains from improved EBIT margin, contributing to the difference between the EBIT and net profit margin trends.

In conclusion, the observed improvements in net profit margin are largely attributable to substantial gains in EBIT margin. The increasing interest burden partially mitigates these gains, while the tax burden remains relatively constant. The period demonstrates a positive trajectory in profitability, particularly in the final two years, driven by core operational improvements.