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Netflix, Inc. Message Board

  • news_to_use news_to_use May 12, 2011 12:07 PM Flag

    ***Accounting Trick NFLX is Using***

    I was trying to find out how their shareholders equity could be going down (book value declining) while the company was showing what appeared to be good profits. This is normally impossible. In the notes to consolidated statements, I found it - this is copied directly from the 10Q: "The Company acquires DVD content for the purpose of renting such content to its subscribers and earning subscription rental revenues, and, as such, the Company considers its direct purchase DVD library to be a productive asset. Accordingly, the Company classifies its DVD library as a non-current asset on the consolidated balance sheets. The acquisition of DVD content library, net of changes in related liabilities, is classified in the line item “Acquisition of DVD content library” within cash used in investing activities in the consolidated statements of cash flows because the DVD content library is considered a productive asset. Other companies in the in-home entertainment video industry classify these cash flows as operating activities." IN OTHER WORDS, NFLX IS SHOWING A HUGE PORTION OF THEIR OPERATING EXPENSES AS "CASH USED IN INVESTING ACTIVITIES", and all other companies in their industry show these same costs as operating expenses!!! This is in violation of the clear disclosure rules of Sarbanes-Oxley (they need to make this very obvious to investors) and I am sending this information to the SEC as well as several analysts.

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