Question

Analyze and compare Amazon to Netflix Amazon, Inc. (AMZN) is one of the largest Internet retailers in the world. Netflix, Inc. (NFLX) provides digital streaming and DVD rentals in the United States. Amazon and Netflix compete in streaming and digital services; however, Amazon also sells many other products online. The cash, temporary investments, operating expenses, and depreciation expense from recent financial statements were reported as follows for both companies (in millions):
Amazon Netflix
Balance sheet year:
Cash $19,334 1,468
Short term investment 6647 266
Income Statement:
Operating expense 131,801 8,451
Depreciation expense 8,116 4,925

Required:
a. Determine the days' cash on hand for Amazon and Netflix.
b. Interpret the results

Answer 1

Answer:

a. We have:

Days' cash on hand for Amazon = 77 days

Days' cash on hand for Netflix = 180 days

b. The results show Amazon can keep up with its expenses for 77 days using the current cash reserves if it makes no sales, while Netflix can keep up with its expenses for 180 days using the current cash reserves if it makes no sales.

Explanation:

a. Determine the days' cash on hand for Amazon and Netflix.

Days' cash on hand = (Cash + Short term investment) / ((Operating expense - Depreciation expense) / 365) …………… (1)

Using equation (1), we have:

Days' cash on hand for Amazon = ($19,334 + $6,647) / (($131,801  - $8,116) / 365) = 77 days

Days' cash on hand for Netflix = ($1,468 + $266) / (($8,451 - $4,925) / 365) = 180 days

b. Interpret the results

The results show Amazon can keep up with its expenses for 77 days using the current cash reserves if it makes no sales.

However, the results show that Netflix can keep up with its expenses for 180 days using the current cash reserves if it makes no sales.