Finance and accounting
1. Describe some of the changes in corporate governance since Sarbanes-Oxley was passed. Be sure to discuss Board of Directors, audit committees, executive compensation, stakeholder interests. Some changes were directly as a result of SOX but others evolved separately.
2. Since going into the streaming business (and reducing the DVD business), Netflix regularly has had negative cash flow (until 2020) from operations, yet over the past 4 years the stock has returned 55%, 39%, 21% and 67%. Is operating cash flow always important to a businesses’ success? In what situations (company-specific, economic) is it not that important? You may use Netflix as an example, or other public companies.
3. Pick a public company that has a streaming business (<link is hidden> Disney, Roku, HBO through AT&T) and compare and contrast its content amortization policies with Netflix. As an investor, which would you feel more comfortable owning? Does its overall amortization expense amount or proportion compared to other expenses or revenue affect your decision?
4. Pick 2 public companies (different from Netflix and your other company in #3 above) and do a deep dive into their accounting policies, MD&A, “notes to the financial statements” and latest financial statements. Which of the 2 do you think has a higher quality of earnings and why? Be specific about accounts and accounting policies. Use quotes from the annual reports to justify your opinion.
For #4, consult your notes from our lecture on earnings quality, the Ford case, the article “How Are Earnings Managed”. You can discuss the inherent nature of earnings quality in certain industries (<link is hidden> those industries where estimates are significant, or complex revenue recognition is used will have lower earnings quality) but also look specifically for things in each company’s annual report that might point to lower earnings quality or earnings management in 2020.
