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GuruFocus has detected 4 Warning Signs with Netflix Inc \$NFLX.
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Netflix Inc (NAS:NFLX)
Sloan Ratio %
13.63% (As of Mar. 2017)

Richard Sloan from the University of Michigan was first to document what is referred to as the "accrual anomaly". His 1996 paper found that shares of companies with small or negative accruals vastly outperform (+10%) those of companies with large ones.

Netflix Inc's Sloan Ratio for the quarter that ended in Mar. 2017 was 13.63%.

As of Mar. 2017, Netflix Inc has a Sloan Ratio of 13.63%, indicating there is a warning stage of accrual build up.

Definition

Earnings contain a lot of non cash earnings which is called accruals. The Sloan ratio is a way to identify firms with low non-cash or accrual-derived earnings relative to their cash flow.

Netflix Inc's Sloan Ratio for the fiscal year that ended in Dec. 2016 is calculated as

 Sloan Ratio = (Net Income (A: Dec. 2016 ) - Cash Flow from Operations (A: Dec. 2016 ) - Cash Flow from Investing (A: Dec. 2016 )) / Total Assets (A: Dec. 2016 ) = (186.678 - -1473.984 - 49.765) / 13586.61 = 11.86%

Netflix Inc's Sloan Ratio for the quarter that ended in Mar. 2017 is calculated as

 Sloan Ratio = (Net Income (TTM) - Cash Flow from Operations (TTM}) - Cash Flow from Investing (TTM)) / Total Assets (Q: Mar. 2017 ) = (337.242 - -1589.25 - -30.088) / 14359.096 = 13.63%

Netflix Inc's Net Income for the trailing twelve months (TTM) ended in Mar. 2017 was 40.755 (Jun. 2016 ) + 51.517 (Sep. 2016 ) + 66.748 (Dec. 2016 ) + 178.222 (Mar. 2017 ) = \$337 Mil.
Netflix Inc's Cash Flow from Operations for the trailing twelve months (TTM) ended in Mar. 2017 was -226.293 (Jun. 2016 ) + -461.941 (Sep. 2016 ) + -557.16 (Dec. 2016 ) + -343.856 (Mar. 2017 ) = \$-1,589 Mil.
Netflix Inc's Cash Flow from Investing for the trailing twelve months (TTM) ended in Mar. 2017 was -2.896 (Jun. 2016 ) + 23.976 (Sep. 2016 ) + 24.422 (Dec. 2016 ) + -75.59 (Mar. 2017 ) = \$-30 Mil.

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Explanation

A former University of Michigan researcher, Richard Sloan's 1996 paper found that shares of companies with small or negative accruals vastly outperform (+10%) those of companies with large ones. In fact, for the 40-year period between 1962 and 2001, buying the lowest accrual companies and shorting the highest accrual companies resulted in an average annual compounded return of 18%, more than double the S&P 500's 7.4% annual return over the same period.

According to How to Beat the Market with the Sloan Ratio:

If the Sloan Ratio is between -10% and 10%, the company is in the safe zone and there is no funny business with accruals.

If the Sloan Ratio is less than between -25% and -10% on the negative side, and between 10% and 25% on the positive side, this is a warning stage of accrual build up.

If the Sloan Ratio is less than -25% or greater than 25%, and this ratio is consistent over several quarters or even years, be careful. Earnings are highly likely to be made up of accruals.

As of Mar. 2017, Netflix Inc has a Sloan Ratio of 13.63%, indicating there is a warning stage of accrual build up.

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Netflix Inc Annual Data

 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 sloanratio (%) 33.06 -9.11 5.43 0.05 5.68 6.06 5.00 4.16 10.30 11.86

Netflix Inc Quarterly Data

 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Mar17 sloanratio (%) 4.16 5.71 7.66 9.03 10.30 9.85 9.69 10.85 11.86 13.63
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