Question

The ratio of cost-of-revenue to revenue (cost-of-revenue/revenue) provides a metric to assess how well Netflix is...

The ratio of cost-of-revenue to revenue (cost-of-revenue/revenue) provides a metric to assess how well Netflix is able to manage its gross profit percentage. An increase in rates charged to customers and/or a decrease in the cost of revenue will result in an increase in the gross profit percentage. If the ratio of “cost-of-revenue to revenue” reported for the year ended December 31, 2016 did not change over the three-year period from the number computed for the year ended December 31, 2016, how much in thousands of dollars would operating income for the year ended December 31, 2018 have increased or (decreased)?

Answer $_____________________ indicate whether the change is an increase or decrease

Consolidated Income Statement                     (in thousands) Dec. 31, 2018 Dec. 31, 2017 Dec. 31, 2016
Revenues $ 15,794,341 $ 11,692,713 $ 8,830,669
Cost of revenues 9,967,538 8,033,000 6,257,462
Gross Margin 5,826,803 3,659,713 2,573,207
Expenses:
Marketing expense 2,369,469 1,436,281 1,097,519
Technology and development expense 1,221,814 953,710 780,232
General and administrative expense 630,294 431,043 315,663
Total Expenses 4,221,577 2,821,034 2,193,414
Operating income 1,605,226 838,679 379,793
Interest expense 420,493 238,204 150,114
Other income (expense) 41,725 (115,154) 30,828
Income before income tax expense 1,226,458 485,321 260,507
Income tax expense 15,216 (73,608) 73,829
Net income $ 1,211,242 $ 558,929 $ 186,678
Business   Accounting   
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Answer #1
Given 2016
Revenues      8,830,669
Cost of revenues      6,257,462
cost-of-revenue to revenue 70.86%
Gross Profit      2,573,207
Derived 2018
Revenues    15,794,341
Derived Cost of revenues @70.86%    11,191,959
Gross Profit      4,602,382
Reported Operating expenenses      4,221,577
Derived Operating income          380,805 A
Reported Operating income      1,605,226 B
Operating income for the year ended December 31, 2018 increased or (decreased)    (1,224,421) A-B
Answer ($ 1,224,421). Negative indicates that the change is a decrease
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