Question

1. Go to Yahoo! Finance or another source and pick a stock to track for the last year. Discuss the performance of the stock over the last year and offer your thoughts being specific about why the stock has done well or not.

2. What are some reasons that a company might choose common stock as means of financing their business rather than using debt? Also comment on why a company might choose debt over common stock

Answer 1

I Have selected the stock of Netflix to discusss the performance of it throughout the last year as the stock is one of the most popular and has been economic proof in the past in comparison to the returns to its peers.

The stock is currently trading at $332.18 as at 20 March 2020.

Summary - The company was listed on NYSE in 2002 and has been one of the best performing stocks in the last years. The company is a part of NASDAQ index.The main area of service of the company is media services providers or consumer electronics and the market Cap of the company is around $146BN headquartered in Los Angeles. The main reason for the company and its stock being so popular is its presence is in 190 countries around the globe and being used by individuals at a personal level. Them main competitors of the company are Amazon , Hulu, Walt disney etc.

Below is the performance discussion of the company. For a company the perfomacnce is determined by comparing its returns to its competitors and the in comparison to the economy. (we will analyse the economic scenario specific to the factor affecting the sector)

The performance of the stock depends on the subscribers count of the streaming service. the compnay has 167 million subscribers world wide of which 60 million are in US alone. Netflix had a monopoly in the streaming service around 2007 by having a total 91% of video subscription, however this has dropped to 19% in 2019 due to the entry of comptetiors in the market. Still the total subscrier count of the company is growing as it gets intoduced to new markets.

Perfomance -

• In the last 1 year the stock had a high price of $393.52 and a low price of $252.28and the stock is currently at $332.18. The stock has outperformed the expectations however it had a low in the previous year due to not meeting the subscriber targets.
• The stock in the times of economic slow down has still perfomrmed well as there is an increase in the use of internet and digital services throughout the globe it benefits the company as stremaing is a popular digital usage on the internet.and hence this is considered to be a high growth stock.
• While the economy is in bit of a slow down Netflix being in the digital service is a good buy and hence has positive performance indicator.
• Also the stock had a 1 yr return of around 31% in comparison to Amazon which had a 1yr return of around 13%.

2) - Why a company uses common stock to raise finance.

• Common stock is raising money through stock and debt is by borrowing money. in Common stock the ownership of the company is diluted in shares and sold to shareholders and the company is declared public.
• A company might go for common stock funds raising when the company cannot avail loans from banks, also one of the reason for copany goin public is when the maket interest rates are high and hence common stock can be a cheaper source of financing.
• companies with no past performance record can find difficult to get loans from banks however it being popular can help raise fiance through public.
• A company can use debt for financing when the markets interest rates are low and also there is an uncertaininty in the market for returns and hence risk might be high as the financeing might not happen as expected due to the uncertainity.
• Some companies keeping in the nature of the business cannot go public e,g Nulcear power companies. Hence such companies have to go for debit financing also this can be a scenario for some goverment owened companies hwere the main motto is to provide goods & services and not to maximize return which is the case for public companies.