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Walt Disney Company Financial Analysis
Managerial Finance BUSA 302 Dr. Frederick Wolf May 24, 2007
Completed By: Shanna Baumgarten Michaela Baylous Laura Buckner Kari Gurtel
Walt Disney Company Financial Analysis
Table of Contents: • Executive Summary . . . 3 • Background . . . 3 • Financial Statement Analysis . . . 5 o Balance Sheet . . . 5 o Income Statement . . . 8 o Cash Flow Statement . . . 9 • Ratio Analysis . . . 10 o Liquidity . . . 10 o Profitability . . . 12 o Activity . . . 12 o Leverage . . . 14 o Valuation . . . 15 • Sales Forecast . . . 15 o Projected Sales . . . 15 o Forecast Earnings . . . 17 o Pro Forma Statement . . . 17 o Sustainable Growth . . . 18 • Risk Assessment . . . 19 o Economic Conditions . . .20 o Changes in Consumer Demand & Preferences . . . 20 o Changes in Regulation . . . 21 o Intellectual Property Rights . . . 21 o Employee Costs . . . 21 o Pixar . . . 22 o Interest Rates . . . 22 o Foreign Exchange Rates . . . 22 o Restrictions on Trade . . . 23 o Taxes . . . 23 • Financial Restructuring . . . 23 • Recommendations to Management . . . 23 • References . . . 26 • Appendix . . . 27
This was Mickey Mouse’s first cartoon. consumer products quickly followed. From here on out Disney made sure that he owned everything he made instead of selling the rights to the distributors. Background: From its inception in 1923 The Walt Disney Company has always been a company filled with imagination and ingenuity. they are doing fine. On October 16. but compared to other businesses in their industries. Walt Disney quickly rebounded from his betrayal in 1927 with the release of Steamboat Willie on November 28. and recommendations to management. Overall Disney seems to be a good company to invest in. As the cartoon gained success. This spirit was created by the company’s founder Walter Elias Disney and it still thrives today in one of the most successful entertainment businesses of all time. This cartoon only lasted one year before Disney’s distributor went behind his back and hired all of his animators. a sales forecast. a genuine look at different ratios to consider before investing. 1928. The analysis includes a brief summary of the history of the company along with important financial data to determine the value of the company. In 1927 Disney expanded and made an all cartoon series called Oswald the Lucky Rabbit. 1923 a New York distributor contracted with Disney to release Alice’s Wonderland comedies. possible risks facing the company. They have some concerns. This is considered the official beginning of the Walt Disney Studio.Walt Disney Company Financial Analysis 3 Executive Summary: The Walt Disney Company Financial Analysis details the finances at The Walt Disney Company. There is an analysis of the financial statements. which consisted of Mickey .
As the time goes on the public will wait and see what new things Disney comes up with.Walt Disney Company Financial Analysis Mouse dolls. and hopefully it will be truly amazing. and Cars. This was the day that Disneyland was opened. Inc. It was the first full length animated movie. Within weeks of becoming CEO. Robert Iger. In 1996 Disney acquired ABC. Toy Story 2. They have created well know shows such as Desperate Housewives and Grey’s Anatomy. Walt Disney World opened in 1971. assumed the position of CEO at Disney and has continued Disney’s success with record revenues in 2006. Monsters. He is the seventh person to ever lead the company in its history. 1955 was a groundbreaking day in Disney history. It held the record for highest grossing film until the release of Gone with the Wind. Toy Story was created in 1995 through a Pixar/ Disney partnership and was the first full length completely computer animated film. Snow White and the Seven Dwarfs was released in 1937. 4 July 17. toothbrushes. Tokyo Disneyland in 1983. Since then they have done A Bug's Life. The Incredibles. and most recently Disneyland Hong Kong. he arranged for Disney to be the first to broadcast its TV shows over Apple’s iPod. In October of 2005. dishes. Since then. fulfilling one of Walt Disney’s greatest dreams. Disney acquired Pixar in 2006. Finally. Fantasia. The first Mickey Mouse book and comic strips were published in 1930. Over the next several years Disney released Pinocchio. Dumbo. and Bambi. Finding Nemo. Disney Resort Paris in 1992. and figurines.. greatly expanding its media segment which is now the most profitable segment of The Disney Corporation. .
125 “Working capital measures how much in liquid assets a company has available to build its business. and the worth of the company. financial leverage. The debt is the total liabilities. depending on how much debt the company is carrying.Walt Disney Company Financial Analysis 5 Financial Statement Analysis: Balance Sheet The Balance Sheet “is a financial snapshot. working capital. Companies with negative working capital may lack the funds necessary for growth.$10.534.178 Financial leverage is how the company utilizes their money from debt.125 * 23.562 .” (“Working Capital” 2007) Working Capital = Current Assets – Current Liabilities Working Capital = $9. of all the assets the company owns and all the claims against those assets. taken at a point in time. Debt = Total Liabilities = $28. increasing or decreasing debt. In general.” (Higgins 2007) There are a few important facts that can come from Disney’s Balance Sheet such as the book value.537. the asset-to-equity ratio is a .210 Working Capital = ($648) The debt that the company has can also be found on Disney’s Balance Sheet. debt. The number can be positive or negative. growth. companies that have a lot of working capital will be more successful since they can expand and improve their operations. There are three rations to analyze from the balance sheet.000 Book Value = $379. First. The Book Value is equal to the number of shares out standing multiplied by the book value per share which is: Book Value = Book Value per share * Total number of shares outstanding Book Value = $16.
which is low. the debt-to-assets ratio measures how much of Disney’s assets are financed though debt. Disney’s financial leverage comes out to be 2. A ratio over one hints at a riskier venture because it includes financing with higher debt levels.843 / $31. implies high capitalization. Disney’s debt-to-equity ratio is: Debt-to-Equity = Total Long Term Liabilities / Shareholders’ Equity Debt-to-Equity = $10. props and computers for the movies. A ratio less than one means most of the company’s assets are financed through equity. A low asset-to-equity ratio.681 Second. Disney’s capital intensity is involved in the length of time movies take to create. Assets-to-Equity = Assets / Equity Assets-to-Equity = $59.Walt Disney Company Financial Analysis number that represents the capitalization of the company. Looking at Disney’s ratio: Debt-to-Assets = Total Liabilities / Total Assets Debt-to-Assets = $28.341 .820 Debt-to-Equity = .178 / $59998 Debt-to-Assets = . while a high ratio implies low capitalization. and theme park rides and renovations.998 / $22. but it can be accounted 6 for by the type of industry it is. capital intensive. A ratio under one denotes higher financing with equity.469 Disney’s ratio is below one implying most of Disney’s assets are paid for by equity. while a ratio larger than one means Disney’s assets are primarily financed through debt. about 1 to 3.377 Assets-to-Equity = 2. The third ratio is the debt-to-equity ratio.681. This ratio signifies what proportion of debt and equity a company uses to finance its assets.
In general. the ratio decreases. The company is also showing a decreasing debt which can be seen in the debt-to-equity ratios of the past six years. This also demonstrates that the company is slowly paying off its debt. 7 Disney gets 34. Disney is in the mature stage of the company and has a slow to no growth ratio because of that. Disney maintains a total lower financial leverage. new amusement park rides and the cruise lines. Here is a graph to illustrate (see also appendix): 0.6 .1 cents in debt also. but that is a good thing. Investors need not worry about creditors going after Disney.341 ratio suggests for every dollar Disney gets from shareholders for its assets.Walt Disney Company Financial Analysis The . as the years increase. Disney still continues to generate money and reinvest in itself including new movies.
and MGM (18.056 or 5.51%).000 Company Worth = $847.02%). Time Warner (8. ROA = Net Income / Assets ROA = $3. The ROE (Return on Equity) will show how efficiently a company uses its capital.6% Comparing this ROA with other companies such as Six Flags (1.740 8 Income Statement The Disney Company can measure its profitability by using both ROA and ROE.99%).377 ROE = . Harrah’s Entertainment (4. Time Warner (4.47%).97%).28%). (Higgins 2007) This equation has a direct connection with the assets of the company and does not use debt to increase the ratio like the ROE does. ROE = Net Income / Shareholders’ Equity ROE = $3. Company Worth = Shares outstanding * Price per share Company Worth = $36.997 ROA = .374 / $59. (Yahoo Finance 2007) Another way to determine if Disney is a profitable company is to look at the ROA (Return on Assets).79%). (Yahoo Finance 2007) This suggests that .802. Disney is at the higher end of its competitors. Dream Works (1. or income. Dream Works (6.10%). Some competing companies include Six Flags (-28.537.374 / $22.36%).07% Comparing this ROE with other companies in the same industry shows that Disney is in the middle.1507 or 15.Walt Disney Company Financial Analysis The Company Worth is a valuable piece of information for Disney because it provides the market value.02 * 23. which is a measure of the productivity of assets. and MGM (5. This allows Disney to see how much they can sell the company for at any given moment. divided by total assets.13%). Harrah’s Entertainment (8.
so it looks to be that Disney is right on track.53% 2.08% 19. Where as. if a company has an increasing ROE with a decreasing ROA.35% 2.42% 10. it means that management is doing good business. Here is a list of the previous ratios from 2002 through 2006 set side by side for comparison: Year 2006 2005 2004 2003 2002 ROA 5. This increased cash flow has allowed Disney to pay off debt in a reasonable amount of time and keep a moderate debt-to-equity ratio. One important mention: it is important to compare Disney’s ROA and ROE.06% 18. Disney can service its debt because they are a mature company with a well recognized name who still generates revenue. This factor can lead to external funding by a bank or other source to help in the financing its debt. Disney’s ROA has been increasing over the last several years. 9 Another reason why Disney can service its debt is because it has a stable position in their industry. which is not true of Six Flags. This increased cash flow has allowed Disney to be effective in its strategy of financial .77% 4.21% It is important to make sure that any company that has an increasing ROE has an increasing ROA. If a company has a stable ROA and an increasing ROE.Walt Disney Company Financial Analysis Disney has a high productivity of its assets. Cash Flow Statement Disney has steadily increased its cash flow which has created cash efficiency of their operations and the balance sheet. it could mean trouble. The declining ROA implies an unstable company and an increasing ROE can be deceiving.47% ROE 15.84% 10.62% 4.
Liquidity is one determinant of a company’s debt capacity and is an insight as to if an asset can be readily turned into cash or if a liability must be repaid in the near future. and the working capital. it still generates money and positive cash flow allowing reinvesting and paying of debt. Even though Disney is in the mature stage of its company life-cycle. the quick ratio/acid test.Walt Disney Company Financial Analysis 10 operations and allowed the name of Disney to flourish. (Disney’s 2006 annual report) Ratio Analysis: Liquidity Ratios The liquidity ratios consist of the current ratio (also called the working capital ratio). . The company name is one of the most recognized business names in the whole world.
210 Acid Ratio = . A company that has one year with a negative working capital might not be so significant.investopedia. but Disney has had a negative working capital since 2003.$694) / $10. Disney has a rather low current ratio which means that they lack liquidity and cannot reduce it current assets for cash.com). retail businesses. it can be overlooked. The acid test or quick ratio is similar to the current ratio except that inventory is reduced from the numerator because it is not very liquid.652 .562 / $10. In addition. That may be a concern for some. Disney’s current ratio is . .Current Liabilities Working Capital = $9.$10. or not easily turned into cash. The negative value means that Disney cannot fund their short term liabilities with their assets. Disney does compete in the consumer products market along with other markets.87 times Any ratio under one signifies that the company cannot readily pay off their current liabilities. The acid test is: Acid Ratio = (Current assets – Inventory)/ Current Liabilities Acid Ratio = ($9.Walt Disney Company Financial Analysis 11 The current ratio is determined by current assets divided by current liabilities. so the small difference between the two ratios is justified (www.94 times ($9. have a large current ratio with a low acid ratio.562 . Most of Disney’s current assets are capital intensive as stated earlier. whose assets depend greatly on inventory. but with the intensive capital that Disney works with.210 Working Capital = ($648) Any company that has a negative amount for their working capital needs to be investigated more closely. Disney’s working capital is: Working Capital = Current Assets .210) for Disney.
a negative working capital seems to be common with same industry companies like Time Warner. Disney’s accounts receivable program may not be collecting at its best either (www.314 $7. Disney’s net profit margin is $931 / $1555. Activity Ratios .562 $8.819 $6. Profitability Ratios The profitability ratios consist of net profit margin.690) ($355) $30 $585 Disney may have some operational inefficiencies in that their money may be tied up in their inventory. The ratios were comparable to industry ratios and with the two ratios compared together.369 $8. As discussed earlier under the ratio analysis.020 Working Capital ($648) ($323) ($1.669 $7.168 $11. the ROA for Disney is 5. which is a good ratio. The higher the percentage for the net profit margin represents a higher effectiveness of cost control. or 60.605 Current Liabilities $10. The ratios give investors some insight as to how well a company does at creating profits. returns on equity (ROE).210 $9.7%. However.6% and the ROE is 15.07%.investopedia. they look reasonable too. which may be because of their capital intensity.845 $9. Dreamworks. MGM.com). The net profit margin shows how effective a company is at their cost control. and return on assets (ROA).Walt Disney Company Financial Analysis 12 Year 2006 2005 2004 2003 2002 2001 Current Assets $9.059 $8. Six Flags.849 $6. and Carnival Cruise Lines. The margin is calculated by taking net profit over net revenues. It demonstrates how well a company can turn its revenue into profits.
51 The easiest way to understand inventory turnover is to take the 41.707 / ($34. The inventory turnover is Cost of Goods Sold divided by Ending Inventory. For a retail only store that ratio would be too big.51 and divide it by 365 days of the year.285 / 365) Average Collection Period = 50. The movie industry has a very long collection period because it takes so long to make a movie and if Disney has any other partners involved. sales to fixed assets. Disney. The sales to fixed assets ratio is also known as the asset turnover ratio.11 days. Plant. Fixed Asset Turnover = Sales / Net Property. Inventory Turnover = Cost of Goods Sold / Ending Inventory Inventory Turnover = $28. and total asset turnover.997 .167 Fixed Asset Turnover = 1. and Equipment Fixed Asset Turnover = $34.807 / $694 Inventory Turnover = 41. the 8.79 answer received means that Disney’s inventory sits in inventory for less than 9 days before being sold. the process gets more complicated.11 days The average time between sale and receipt of cash for Disney is 50.Walt Disney Company Financial Analysis 13 The activity ratios are inventory turnover. average collection period. is not only retail. Average Collection Period = Accounts Receivable / Credit Sales per Day Average Collection Period = $4. The average collection period measures how well Disney does at collecting its accounts receivable. however.285 / $17. It is an important ratio for Disney because of their many long term assets such as theme parks and studios. After doing that. That is not a bad ratio considering the capital Disney is invested in.
Leverage Ratios The interest coverage ratio tells an investor how well Disney can pay on its interest expense. The ratio is derived from taking earnings before income tax. which means that Disney has more than half of its operating funds available to pay its long term obligations (www.investopedia. and using them efficiently enough to continue to increase their revenue (www. that dollar produces 57.447.com). Disney’s ratio. Disney’s ratio equals . but again. shows that for every dollar Disney has in its assets.998 Total Asset Turnover Ratio = .77.843. . which is really good. which is $6.Walt Disney Company Financial Analysis 14 Disney has a high asset turnover ratio. The total asset turnover ratio signifies how well a company is doing at converting its assets into sales.com).508 / $10.investopedia. Disney is very much capital intensive.biznet. $5.1 cents revenue. Total Asset Turnover Ratio = Revenue / Assets Total Asset Turnover Ratio = $34. divided by interest expense.559.ca). It also says that Disney may have more financing through equity and/or the debt that they do have is at a very good interest rate which would be reasonable for a mature company (www.285 / $59. The cash flow to long term debt ratio takes the cash flow divided by long term debt. A retailer would have a very different ratio. shown below. $119. The high ratio signifies that Disney is efficiently using its fixed assets. The ratio equals 45. A company with this high of ratio means that they will have no problem paying off their interest expense.571 The higher the ratio the better.
34 cents. and price over book value.341. The higher the ratio. Mature companies tend to have higher ratios. 15 Valuation Ratios Disney’s valuation ratios consist of a dividend yield. which tells investors that Disney acquires a small amount of debt.com). price to cash flows.25 on yahoo finance and if the value is too low. The high number tells investors that the market has high expectations of the firm’s future of financial health (www. for every dollar it receives from shareholders. The price over book value was 2. Disney does supply its investors with dividends.investopedia. like Disney. but Disney has a reasonable price to book value.18 according to yahoo finance. Disney’s dividend yield on yahoo finance is .Walt Disney Company Financial Analysis Long term debt-to-equity ratio was discussed earlier in the balance sheet ratios. the more money received. Disney’s ratio is . But to recap. which. The dividend ratio tells a potential investor how well Disney’s revenues support its dividends payouts.31 (90%). The yield ratio tells an investor how much money they could receive per dollar they invest. stock price over earnings per share. dividend payout. The price per earnings ratio is 17. Sales Forecast: Projected Sales . it can be a sign of underevaluation or something else wrong with the company. they can afford to pay their investors their current dividend payments. Disney’s dividend payout is 15% according to yahoo finance.
285 $31. An r2 value of one would represent a perfect solution.Walt Disney Company Financial Analysis Disney has had an increase in its sales for the last several years.752 $27.944 Dollars ($) $25.8.979.000 $15. The earnings 16 from 2001 through 2006 are presented on a graph below.000 $0 $25. it means that whatever number the equation comes up with will be very close to the actual sales. Projected Sales $40.713 $34.000 $30.000 $5.172 $25. The sales growth increased an average of $1. which is a very good mark.000 $20.000 $10.061 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year A regression analysis of the sales data gives an r2 value of .5 times the year needed minus 4. and with the r2 value as high at it is.713 of 2007 should be really close to the actual sales.538. so an r2 of . so the predicted sales of $36.823 million a year. The equation for predicted sales would be 2279.000 $36.979 is almost perfect.329 $30.243. .000 $35. the line of the graph shows a sturdy gradual growth. In addition.
However. The earnings estimation will not be as accurate as the sales.8. and the equation has an r2 value of . In doing so. the Performa statement located in the appendix .500 $4. but earnings can change easily based on variable cost and fixed costs.000 $1. Looking at the graph.000 $2. so the predictability will be less.236 $1.000 $500 ($41) $0 ($500) 2000 2002 2004 Year $3. which is still good.108. The earnings from 2001 through 2007 are located on the graph above with the 2007 data being estimated. the line is not so straight and does fluctuate some.267 $1.533 Dollar ($) 2006 2008 The earnings of Disney are not as linear as the sales are. but it still only has 7% inaccuracy possibility.2 times the year minus 1.374 $2.345 $2. 931. Per Forma Statement Disney does not distinguish the difference between their cost of goods sold and their general fixed expenses.500 $3. the r2 value is still high.814 $3.465. The equation for prediction is 554.000 $3.500 $2.Walt Disney Company Financial Analysis 17 Forecast Earnings Forecast Earings $4.500 $1.
From the various possibilities of expenses. The first column is if the costs were 18 split 50/50 and so on.Walt Disney Company Financial Analysis has been split into different percentages of costs. Sustainable Growth The graph above represents Disney’s sustainable growth rate.000.000 in retained earnings would satisfy some companies. which currently rests at $22. Having a balance of $6.000 in financing is required whether or not the fixed and variable costs are split 50/50 or 25/75. Outside sources like stocks or loans would be more beneficial. The sustainable growth rate is the amount of growth Disney can handle without needing extra financing or end up with too much extra cash. they should keep more in retained earnings. if the money needed to cover the funding does come from only retained earnings. however. or loans. The $15. it would leave the retained earnings with only $6.000 in additional financing. The external funding could come from retained earnings. but for as large of a corporation that Disney is. stocks. Disney will need close to $15.625. The white dots on the graph represent the last 5 .
In 2004 and 2005. Naturally. Disney had cash surpluses or excess cash. The bottom three dots from 2003. foreign exchange rates. television. intellectual property rights. but as long as Disney stays on top and manages their cash correctly. If Disney continues to fluctuate like that. changes in FCC regulations or other applicable regulations. a loan may be more appropriate just for the fact that they have been in both cash deficits and cash surpluses in the past. and tax laws. Disney is going to have many risks associated with their ventures. . and currently in 2007. changes in employee costs. restrictions on trade. theme parks. Their entertainment mediums include movies. with many business lines. Risk Assessment: Disney is a large and very complex company spanning many different entertainment types across the globe. interest rates. The cycle could be ongoing. Pixar’s acquisition. they should not have a problem. show that in those periods. 2006. and consumer products to complement all of the above. If Disney does require external financing. they could pay off the loans when they get back into the surplus again. changes in consumer demands and preferences. Some of the most significant factors that could materially affect the business include economic conditions. cruise lines.Walt Disney Company Financial Analysis years of growth Disney has experienced. radio. the dots appear above the 19 linear line and imply that Disney suffered cash deficits in those years.
Disney’s success absolutely depends on their ability to meet customer demands. As demonstrated by this example. . but if in three years everybody has forgotten about the movie Cars and has no interest. Changes in Consumer Demand and Preferences Most of Disney’s products and services require large capital investments. they are not buying new clothes or other trinkets and consumer goods. their revenues are also declining as consumers spend their hard earned dollars on necessities. This means that while Disney’s own energy costs are rising. Disney’s investment will have been fruitless. and they are not going to go on a fancy vacation to Disneyland.Walt Disney Company Financial Analysis 20 Economic Conditions Entertainment is not a necessity for consumers by most measures and therefore is often one of the first things cut when budgets start to get tight. This means that many people are not going to see movies as often. Consumer’s demands and preferences can change very quickly and often in unexpected ways. For example. but there is absolutely no guarantee that these investments will pay off. This idea will take several years and many millions of dollars to develop and build. This could result from an overall economic slump or it could be from rising prices in other sectors such as energy. Disney is considering putting an area in one or more of their theme parks based on the movie Cars. Recently rising gas prices have put a strain on many people’s budget and they are now trying to save money on other things that they don’t see as necessities.
Other countries also have similar regulatory agencies that control some of Disney’s actions. actors. The FCC is responsible for licensing stations and limiting ownership of the stations. restrict some verbal expressions. they could have a very large impact on Disney’s profitability. directors. privacy. production personnel and many others. and limit the amount of advertising during children’s programs. Employee Costs Many of Disney’s employees are covered by collective bargaining agreements. Disney’s media segment was its most profitable segment in 2006. This includes employees of their theme parks and resorts. but the risk for increased loss still exists. If a . labor disputes are always a risk.Walt Disney Company Financial Analysis 21 Changes in Regulations All radio and television networks are highly regulated by the FCC. the available technology has greatly increased the average consumers’ ability to download and use other people’s intellectual property. Disney has been no exception to phenomenon and therefore has needed to increase spending in order to protect their property rights. As a result. Disney is also subject to many other regulations in regards to safety. but if the FCC were to substantially change their policy. writers. The entertainment industry has been fairly hard hit by this because it has greatly reduced the number of copies they can sell. they prohibit indecent exposure. Intellectual Property Rights Over the last several years. especially in regards to media. and environmental protection.
California. Costa Rica. This list just includes countries that . Both companies have been known for their success in animation and it is believed that the combination of the two can be even more successful. Disney has been actively working to reduce its debt and lock in the remaining debt at low interest rates. Interest Rates Over the last few years. Foreign Exchange Rates Disney has parks in Florida. but there is no guarantee of this success. increases in interest rates can significantly increase Disney’s debt service which will have an adverse affect on cash flow and profitability. offers cruises to the Caribbean as well as a travel agency called Disney Adventures that will take customers to such places as Spain. and Ireland. Italy. Disney acquired Pixar animation through an exchange of stock.Walt Disney Company Financial Analysis 22 dispute does occur it could significantly disrupt operations resulting in reduced revenues and increased costs. The acquisition in 2006 diluted Disney’s earnings per share and is expected to do so again in 2007 and possibly in years to follow. Disney currently employees over 130. Nevertheless. Healthcare costs are currently a major issue across the country because the costs have been rising so rapidly. so benefit costs of employees are very significantly affected by healthcare costs. Increased interest rates also make it harder and more expensive to obtain funding. Tokyo and Paris.000 employees. Pixar In May of 2006.
if the dollar becomes weaker. Disney’s trading between countries could be negatively affected if a country changes their trade policies. it could significantly reduce Disney’s earnings.Walt Disney Company Financial Analysis 23 offer vacation destinations. If any of the governments that Disney does business under decide to raise taxes. it may be more expensive for Disney to trade in other countries which will also affect profits. Financial Restructuring: It would not be economical for Disney to refinance its debt unless they can get a lower interest rate. They are a mature company and get reasonable interest rates currently. For this reason Disney’s profits on a venture can be very sensitive to exchange rates. This is also done to try and protect domestic industries. but debt would still . They could finance with additional equity because they appear to be a stable company and they would be able to sell stock to potential investors. If the dollar becomes stronger than another currency. not all of the countries that Disney conducts business in. Taxes In general. They suck up profits that would have otherwise been reinvested in the business or distributed to shareholders. taxes are bad. Disney’s goods and services may be too expensive in comparison with other things. Conversely. and then Disney will loose revenue. Restrictions on Trade Countries are constantly changing quota and tariffs to try and put their own country in a better position economically or politically.
Steve Jobs. needs to set a good example for The Disney Company’s employees. Disney currently gives their stockholders dividends of 31 cents per share. they should use outside financing instead of their retained earnings because they need to keep a good amount of money in the company. Disney also needs to keep on top of the stock options for their employees. It is a reasonable amount and I believe they should continue. Disney will not want him on their board.Walt Disney Company Financial Analysis be a better choice. so they obviously know how to work with each other. However. Disney recently found backdated stock options that belonged to Steve Jobs from when he was CEO of Pixar. Last year the company produced record revenues and cash flows. than Disney and Disney needs merge the cultures in a way to maximize employee satisfaction. Disney’s Debt to Equity ratio is ok for now. It seems that the company is headed in the right direction. Disney and Pixar have worked together in the past to make animated features. It is comparable to other companies in their market sector. because they do not want a . The employees of Pixar may have a different culture. so not as to loose valuable employees. Recommendations to Management: Congratulations to the Disney Company and the Disney employees for giving the world a great company. Disney’s retained 24 earnings have been growing steadily in the last few years. but there are a few things to watch out for. but they were never actually the same company. I would only recommend an increase if they have the cash flow to support it. or working environment. If Steve Jobs gets much further into trouble. Disney needs to make sure that the acquisition of Pixar Animation Studios goes well. He was also mentioned in a Wall Street Journal article about backdated options at Apple. as far as financing goes. seeing as how he is a member of the board of directors.
if financing is required in the future. * Numbers above are in millions * All financial numbers concerning Disney were from Disney’s 2006 Annual Report .Walt Disney Company Financial Analysis 25 stereotypical name associated with them like Martha Stewart. Disney needs to continue to train their employees about ethical issues so they know ethical integrity is a top priority at Disney. When Disney has excess cash they should use it to either pay down debt or buy back stock. Disney is a mature company and has the credit rating and history to obtain favorable interest rates. They have done a good job so far. use debt. I suggest. they will hopefully continue to lower their debt. They should keep financing down to a minimum. As Disney continues to grow.
Walt Disney Company Financial Analysis 26 References: Higgins. Disney Dollar: http://aes. New York: McGrawHill/Irwin. (2007) Analysis for Financial Management.edu/rwise/banknotes/united_states/UsaDisneyPNL1DisneyDollar-2003A_f.iupui. Robert C.jpg .
53 .672 12.820 Ratio .643 / 23.081 10.Walt Disney Company Financial Analysis 27 Appendix: Debt-to-equity = Long Term Liabilities / Shareholders’ Equity Year 2001 2002 2003 2004 2005 2006 Debt-to-Equity 8.940 / 22.791 9.36 .445 10.39 .39 .45 .34 .395 / 26.210 10.467 / 23.843 / 31.157 / 26.
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