The Walt Disney Company was the “Best Regarded Company” of 2018, according to Forbes and one of
the top 10 “Worlds Most Admired Companies” according to Fortune. It is one of the largest media and
entertainment companies in the world, which internationally operates television, film, and theme parks.
From the Disney Channel and Disney+, to the Marvel films and Disney World, Disney is known as one of
giants of the entertainment world.
In October 16, 1923 Disney Brothers Cartoon Studio was founded by Walt and Roy O Disney. Initially a
leader in the animation industry, they diversified into film, television and theme parks. The name was
later changed to Walt Disney Company in 1987. The location of Walt Disney Studios is Burbank,
California and has been the corporate headquarters since 1940. The current CEO, Robert Iger took over
in 2005.
Robert Iger oversaw the purchase of one of Disney’s biggest animation studios; Pixar. Later, he also
oversaw the acquisition of Marvel in 2009, Lucasfilm in 2012, and 21st Century Fox in 2017. Initially, Iger
intended to step down in 2019, but plans to remain until 2021 for the integration of 21st Century Fox
assets. He is Disney’s single-largest individual shareholder with 1.078 million shares as of March 20,
2019. Christine McCarthy, the senior executive vice president and CFO of Disney has the second largest
number of shares.
The company’s stock symbol is DIS, currently the market summary of Walt Disney company is 147.65
USD and has peaked November 13 at 148, the day after the Disney + streaming service release, jumping
from 138 in just one day. The last peak in 6 months was in July 29 at 146 USD.
Within the Walt Disney Corporation, has four primary business units are operated: Studio
entertainment, media networks, direct to consumer & international, and experiences and products.
Walt Disney Studios encompasses studio entertainment which includes film, a music recording label,
and theatrical divisions. The Media Networks include Walt Disney Television, ESPN and now the
television streaming service Disney+ as well as broadcast, cable, radio, and publishing. Direct to
consumer and international includes theme parks in countries all over the world in Hong Kong, Tokyo,
and Shanghai. Across the world, Disney has 201,000 employees as of September 30, 2018. Disney World
has the largest segment of employees- 130,000 of the 180,000 in 2015. In terms of consumer products,
Disney produces apparel, toys, home décor, books, magazines, food, beverages, electronics, art, and the
Disney Store retail chain.
Disney has internal and external factors that influence the company and reflect the strengths,
weaknesses, threats, and benefits that can impact the corporation. Internal factors reference the
strengths and weaknesses of an internal organization. External factors refer to the opportunity or
threats by an external environment. Disney has many strengths including a large amount of resources,
experience, and a low-cost strategy. Additionally, Disney has minimal financial risks as they have many
partnerships and share initial investment costs. For external factors, Disney has positive government
attitudes. For threats, there are oversaturated markets and foreign competition that are threats to
Disney.
Disney uses market segmentation to define customer needs and wants. Geographically, Disney locates
its theme parks in some of the most tourist places: Europe, Japan, India, and the US. In terms of
demographic segmentation such as age, gender, income and family life cycle; Disney determines where
to place their Disney Store, where to distribute their movies and what movies to create next. For
psychographic segmentation determined by personality, motives, and lifestyles and geodemographics,
Disney uses to determine who is most likely to purchase their products. Disney’s target market are
children and their families. However, it does not only target children and is instead interested in all ages.
They have products, theme park rides, and movies to entertain from child to teen to adult. Primarily,
average income families in urban areas are targeted. Disney stores, for instance, are located in supercenters and malls, theme parks are located in Orlando and San Diego.
Trend Analysis Statment
The following is the trend analysis for Walt Disney Corporation for 2018 and 2019.
Table 1
Trend Analysis (Consolidated Statements of Income)
(In millions, except per share data)
2019
2018
Amount
of
Change
%
Revenues:
Services
$60,542
$50,869
$9,673
16%
Products
$9,028
$8,565
$463
5%
$69,570
$59,434
$10,136
15%
($36,450)
($27,528)
($8,922)
24%
($5,568)
($5,198)
($370)
7%
($11,541)
($8,860)
($2,681)
23%
Depreciation and amortization
($4,160)
($3,011)
($1,149)
28%
Total costs and expenses
($57,719)
($44,597)
($13,122)
23%
Restructuring and impairment charges
Other
income, net
Interest
expense, net
($1,183)
($33)
($1,150)
97%
$4,357
$601
$3,756
86%
($978)
($574)
($404)
41%
($103)
($102)
($1)
1%
$13,944
$14,729
($785)
-6%
Total revenues
Costs and
expenses:
Cost of services (exclusive of depreciation and
amortization)
Cost of products (exclusive of depreciation and
amortization)
Selling, general, administrative and other
Equity in the income (loss) of investees, net
Income from continuing operations before income taxes
Income taxes from continuing operations
($3,031)
($1,663)
($1,368)
45%
Net income from continuing operations
$10,913
$13,066
($2,153)
-20%
$11,584
$13,066
($1,482)
-13%
-472
-468
-4
0.008
$11,054
$12,598
($1,544)
-14%
$6.27
$8.36
($2.09)
-25%
$6.64
$8.36
($1.72)
-21%
$6.30
$8.40
($2.10)
-35%
$6.68
$8.40
($1.72)
-21%
Dilute
d
$1,666
$1,507
$159
10%
Basic
$1,656
$1,499
$157
9%
Income from discontinued operations (includes
income tax expense of $35, $0 and $0, respectively)
Net income
Less: Net income from continuing operations
attributable to noncontrolling and redeemable
noncontrolling interests
Less: Net income from discontinued operations
attributable to noncontrolling interests
Net income attributable to The Walt Disney Company
(Disney)
$671
-58
Earnings per share attributable to Disney:
Diluted(1)
Continuing operations
Discontinued operations
$0
Basic(1)
Continuing operations
Discontinued operations
$0
Weighted average number of common and common
equivalent shares outstanding:
Dividends
($2,895)
($2,515)
$380
15%
Trend Analysis (Consolidated Balance Sheets)
(In millions, except per share data)
Amount
of
Change
2019
2018
%
$5,418
$4,150
$1,268
23%
Receivables
$15,481
$9,334
$6,147
40%
Inventories
$1,649
$1,392
$257
16%
Television costs and advances
Other
current
assets
$4,597
$1,314
$3,283
71%
$979
$635
$344
35%
$28,124
$16,825
$11,299
40%
$22,810
$7,888
$14,922
65%
$3,224
$2,899
$325
10%
$58,589
($32,415
)
$55,238
($30,764
)
$3,351
6%
($1,651)
5%
ASSETS
Current assets
Cash and cash equivalents
Total current assets
Film and
television costs
Investments
Parks, resorts and other property
Attractions, buildings and equipment
Accumulated depreciation
$26,174
$24,474
$1,700
6%
Projects in
progress
$4,264
$3,942
$322
8%
Land
$1,165
$1,124
$41
4%
$31,603
$29,540
$2,063
7%
$23,215
$6,812
$16,403
71%
$80,293
$31,269
$49,024
61%
$4,715
$3,365
$1,350
29%
$193,984
$98,598
$95,386
49%
$17,762
$9,479
$8,283
47%
Intangible assets,
net
Goodwil
l
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities
Current portion of borrowings
$8,857
$3,790
$5,067
57%
Deferred revenue and other
$4,722
$4,591
$131
3%
$31,341
$17,860
$13,481
43%
Borrowings
Deferred income
taxes
$38,129
$17,084
$21,045
55%
$7,902
$3,109
$4,793
61%
Other long-term liabilities
$13,760
$6,590
$7,170
52%
$8,963
$1,123
$7,840
87%
---
---
$53,907
$36,779
32%
$42,494
$82,679
$17,128
($40,185
)
-95%
($6,617)
($3,097)
($3,520)
53%
($907)
($67,588
)
($66,681
)
$88,877
$48,773
$40,104
45%
$5,012
$4,059
$953
19%
$93,889
$52,832
$41,057
44%
$193,984
$98,598
$95,386
49%
Total current liabilities
Commitments and contingencies
Redeemable noncontrolling interests
Equity
Preferred
stock
Common stock, $.01 par value, Authorized - 4.6 billion
shares, Issued - 1.8 billion shares at
September 28, 2019 and 2.9 billion shares at
September 29, 2018
Retained
earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 19 million shares at September
28,
2019 and 1.4 billion shares at September 29, 2018
Total Disney Shareholders' equity
Noncontrolling interests
Total
equity
Total liabilities and equity
Given 2018 and 2019 financial data of the Walt Disney Company, we can see noteworthy
increases in total revenues, and total costs and expenses. There is a significant decrease in net
income and earnings per share, diluted and basic, between the two years. Total revenues
increased by 15%, equating to a dollar amount of $10,136 in millions. Costs and expenses
increased by 23%, increasing $13,122 million from 2018 to 2019. Net income had significant
decreases by 13%, or $1,482 million. Basic earnings and diluted earnings per share both
decreased by 21%. Finally, dividends increased by 15%.
With further analysis on Disney’s consolidated balance sheet data from 2018 and 2019, we can
see significant increases in total current assets, total assets, total equity, total current liabilities,
and total liabilities and shareholder equity. Between 2019 and 2019, total current assets rose
-99%
40%, a $11,299 million increase. Total assets rose 49%, a $95,386 million increase. Total equity
increased 44%, a $41,057 million increase. Total current liabilities rose 43%, a $13,481 million
decrease. Finally, total liabilities and shareholder equity rose 49%, a $95,386 million increase.
Common Size Income Statement
The following is the common size income statement for Walt Disney Co.
As can be observed from the table, there are very few significant (greater than 20%) fluctuations
between the years with the largest being 7.93%. (Please note that the reasons specified for the
percentage changes below are only a part of the comprehensive list).
Net income from continuing operations “notes the after-tax earnings that a business has
generated from its operational 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠.[1] ” Though the net income from continuing operations
has decreased by ~6% and the net income has decreased by ~5%; the overall trend of operating
income over the years has been positive (as seen by the 𝑐ℎ𝑎𝑟𝑡 [2] below). The recent changes,
along with standard fluctuations, can be attributed to various reasons including the current
political atmosphere in Hong Kong. According to a news 𝑎𝑟𝑡𝑖𝑐𝑙𝑒 [3] , Disney reported a loss of
$55,000,000 in operating income at the Hong Kong Disneyland. If the current trends continue,
the company could lose up to $275,000,000 by September 2020. A small percentage of the
decline can also be attributed to “the movement of the U.S. dollar against major currencies
including the impact of our hedging program (FX Impact).[4] ”
Total costs and expenses has increased by nearly 8%. As explained by the Walt Disney Co.
annual 𝑟𝑒𝑝𝑜𝑟𝑡 [4] , a few of the contributing factors for the increase in cost of services include
“…higher film and television cost amortization driven by an increase in theatrical and TV/SVOD
distribution revenue and contractual rate increases for television programming.” It also increased
due to “…the consolidation of BAMTech and higher costs at our parks and resorts reflecting cost
inflation, higher technology and operations support expenses and a special fiscal 2018 domestic
employee bonus.” “…Higher sports programming costs, a full year of operations at Shanghai
Disney Resort and new guest offerings and inflation at our other parks and resorts…” also played
a role. “The profitability of the leisure-time industry may be influenced by various factors that
are not directly controllable, such as economic conditions including business cycle and exchange
rate fluctuations, the political environment, travel industry trends, amount of available leisure
time, oil and transportation prices, weather patterns and natural disasters."[4] These fluctuations
are fairly common and can be expected of any company the size of Walt Disney Co.
Financial Ratios
Below, we have calculated the financial ratios for the years 2018 and 2019.
Table 2
2019
2018
%
2019
2018
%
Current ratio
0.90
0.94
-4%
Return on sale %
17.03
24.96
-32%
Quick ratio
0.84
0.86
-2%
Total assets turnover
0.48
0.61
-21%
Accounts Receivable
Turnover
5.61
3.63
55%
EBIT to sales
0.26
0.22
18%
Average collection
period
65.1
101
-35%
Return on assets %
7.56
12.96
-38%
Inventory turnover
27.63
23.6
7
17%
Earnings per share,
basic
$6.88
$8.40
-18%
Total‐debt‐to‐total‐
assets
0.52
0.46
13%
Price‐earnings (PE)
18.72
13.99
34%
Total‐debt‐to‐total‐
equity
0.53
0.43
23%
Book value per
common share
$49.32
$32.78
50%
Interest coverage
9.51
21.7
6
-56%
Market‐to‐book (PB)
2.61
3.57
-27%
Return on common
stockholders’ equity
0.12
0.26
-54%
Dividend‐yield %
1.20
1.44
-17%
Gross profit rate or
percentage
017
0.45
-62%
Dividend‐payout
0.28
0.20
40%
Current and Quick Ratio:
In 2019, Disney displaying a current ratio of 0.9 tells us that Disney does not have enough
current assets to cover the payments due on the company’s current liabilities. Similarly, Disney
showing a quick ratio of 0.84 indicates that they don’t have enough quick assets to pay off their
current liabilities. This is not good for Disney because it means that they are in a less than
favorable position, and don’t have enough assets to be instantly liquidated to pay off their current
liabilities.
Accounts Receivable Turnover and Average Collection Period:
Disney’s accounts receivable turnover ratio, 5.61, indicates that they are collecting their average
receivables 5.61 times per year. Having a high accounts receivable turnover ratio displays
Disney’s effectiveness for extending credits, collecting debts, and having a high likelihood of
having customer debts paid quickly. Additionally, Disney showed an average collection period
of 65.1 days. They are collecting their average receivables every 65.1 days. These numbers are
good for Disney because this means they are more likely to receive payments for debts, instead
of having to write off bad debt. It also shows that their extending credit to reliable customers and
that they have effective collection methods.
Inventory Turnover:
Inventory Turnover ratio in 2019 was 27.63, meaning that Disney sells its entire inventory within
a 65. day period. This figure is impressive for a huge conglomerate such as Disney. This is good
for Disney because having high inventory turnover means that there is a significant demand for
Disney products and services. However, there was a 17% in turnover time from 2018, which
indicates that there has been a dip in their sales or an increase in inventory within the past year.
Total Debt to Total Assets:
Total debt to total assets for Disney in 2019 was 0.52. This ratio indicates that 52% of Disney’s
assets are being financed by its creditors. Having a lower ratio of debt-to-assets, this means a
greater portion of Disney is funded by equity and has a higher degree of financial flexibility.
This measure is good for Disney because it means there is a lower degree of leverage towards
Disney, thus they are more likely to remain consistent during huge swings in the market, such as
a recession.
Total Debt to Total Equity:
Total debt to total equity is another measure to evaluate a company’s financial leverage. In 2019,
Disney’s total debt to total equity ratio was 0.53. This measure is good for Disney because it
shows that they are financing their company more through shareholder’s equity versus debt from
lenders. There are less resources borrowed, thus lower potential risk for bankruptcy.
Interest Coverage:
Disney having a 9.51 interest coverage ratio shows that they can cover their current interest
payments more than nine times over. By having a higher interest coverage ratio, they have a
high margin of safety for paying interest on their debts owed. This shows a strong financial
position for Disney. However, there was a 56% decrease in this ratio between 2018 and 2019
indicating some instability in the company’s ability to pay its debts.
Return on Stockholders Equity:
Return on stockholder’s equity measures financial performance on the basis of return on net
assets. Disney holding a 0.12 ROE, tells us that the company the company was less effective in
managing its assets to create profits in 2019. Compared to 2018, there is a 54% decrease in ROE.
There was less return of money to investors which could result in less funding and trust in the
future.
Gross Profit Rate or Percentage:
Disney’s gross profit decreased by approximately 62% in 2019, indicating a much lower gross
profit margin of 0.17 compared to 0.45 in 2018. A reduction in gross profit rate doesn’t bode
well for Disney because they are receiving a lower percentage of returns on its net sales.
However, Disney’s expenses on expansion could be factors contributing to this rapid reduction in
gross profit.
Return on Sales:
Return on Sales is a ratio that allows us to interpret the efficiency Disney has to turn sales into
profits. We calculate this data by dividing operating profit by net sales. Disney current ratio is
17.03 down 32% from last year. We can use this margin to analyze other similar companies to
assess the efficiency of Disney, Netflix an alternative entertainment (media) company had a ratio
of 10.16, and Universal Corp. who had a ratio of 8.14. By looking at companies within the same
lines of business and in similar size we can compare the efficiency of Disney. Overall Disney
seems to be outperforming the competition.
Total Assets Turnover:
The Total assets turnover ratio is the total sales to total assets. This ratio helps us interpret how
efficiently Disney is allocating their assets to generate sales. Disney’s ratio is .48 down 21%
from the previous year. Although Disney is currently down they are still doing well. Netflix is
currently has a ratio of .7 while Universal sits at 1.04. This tells us that Disney’s ability to
generate sales is not at peak performance.
EBIT to Sales:
EBIT to Sales is a metric we can view as a liquidity measure. This ratio tells us how much cash
Disney receives for each dollar of sales revenue. This ratio could help inform investors of an
inability to turn profits. Disney currently has a ratio of .26 up 18% from the year previous. This
indicates that the company is indeed profitable but not immediately liquidable.
Return on Assets:
Return on assets is yet another efficiency ratio. Unlike other metrics ROA factors into account
the companies debts. ROA measures how effectively a company transfers assets into profits.
Disney ROA ratio is just under .08, down 38% from 2018. This tells us that Disney's latest
indeavers have temporarily decreased their ability to earn profits. This might be due to their
recent allocation of assets to enter into the streaming market. We can ultimately predict that in
the year following we will see a large increase to Disney’s ROA after the launch of Disney+.
Earnings Per Share (Basic)
EPS (Basic) is a metric of a company’s profit on a per share of stock basis. In 2019 Disney had a
return of $6.68 per share. This means that they are very profitable especially on a per share basis.
However this is down nearly 18% from 2018. Disney’s EPS may be down from the year
previous due to a over-anticipation of growth. Disney’s EPS compared to previous years
suggests that there is still room for future growth. We can expect that 2020 will show a higher
EPS after the launch of new services.
Price-Earnings (P-E)
The PE ratio measures the above EPS by dividing the Market Value per Share by Earnings per
Share. This is a rough valuation of the company relating share price to EPS. Although EPS fell in
2019 the PE ratio grew by 34% to 18.72, this could suggest that the stock is overvalued however
it is more likely that investors are forecasting positive growth rates in the years to come.
Book Value per Common Share
The Book Value per Common Share helps us me per share value of a company based on
common shareholder’s equity. Theoretically this represents what the shareholders will receive if
the company was liquidated. Disney has seen a 50% increase from 2018 in BVPS to a recent
high of $49.9. This increase is generally caused by expected profitability and growth as well as
the increased safety/diversification of business.
Market to Book:
The P/B ratio is calculated by dividing the share price by the book value found above. This
calculation helps us value Disney’s Stock relative to its underlying assets. Disney’s P/B ratio is
down 27% to 2.61. A general rule suggests anything under 3 is good and a competitive
comparison suggests that Disney is on par with the industry average dramatically outperforming
Netflix (P/B: 20.4).
Dividend Yield:
Disney’s dividend yield for the year 2019 was 1.18%. This ratio compares how much Disney
paid out in dividends relative to its share price. Disney saw a 17% decrease from the year prior.
Dividend Payout:
The dividend payout is the total amount of dividends paid out comparative to the total net
income. For 2019 Disney’s Ratio increased to 28%. This ratio is of huge importance to investors
looking to profit from dividends.
Statement of Cash Flows
In an analysis of Disney’s Statement of Cash Flows using Table 1, we look at the company’s
cash management and in turn determine its ability to meet its stakeholder’s obligations. In 2018,
Disney’s major use of cash was $4,465 toward Investments in parks, resorts and other properties.
In 2019, the major use of cash was $1,581 toward Acquisitions. There was an inflow of cash in
the Cash from Financial Activities for both 2018 and 2019. The sources of cash in 2018 are:
$1,056 from Borrowings, proceeds of $210 from exercise stock options, and Contributions from /
sales of noncontrolling interests of $399. The sources of cash in 2019 are: Commercial paper
borrowings of $4,318, Borrowings of $38,240, proceeds from exercise stock options of $318,
and contributions from/sales of noncontrolling interests of $737. Disney did pay cash dividends
during the last three years. In fact, the company paid dividends of $2,445 in 2017, $2,515 in
2018, and $2,895 in 2019. Free cash flow, or Cash Flow from Operations less Capital
Expenditure, was $9,830 in 2018 and $1,117 in 2019. In analysis Disney’s cash management
during these two years, the company does not reassure its stakeholders of its ability to meet its
obligations to them. When operating cash flow is less than net income, there is something wrong
with the cash cycle. In Disney’s statement of cash flows, its cash from operating activities is
$5,984 and net income is $11,054, indicating an issue. In this case, stakeholders would be urged
to determine the source of cash hemorrhage and whether the issue is short term or long term.
Using a trend analysis between 2018 and 2019, Walt Disney Company shows increases in total
revenues, assets, equity, dividends, liabilities, shareholder equity, costs, and expenses. There are
decreases in net income, and earnings per share. Within the Common Size income statement, we
observe few fluctuations between the two years. Operating income and cost of services display a
positive trend, which can be due to increases in technology, inflation, and/or employee bonuses.
Regarding the increases in gross profit, we can assume it resulted from economic conditions,
acquisitions, political environment, travel industry trends, transportation prices, and weather
patterns and natural disasters. These fluctuations are common and could be expected of one the
size of Walt Disney Company.
After extensive analysis of Disney’s Statement of Cash Flows, we see the company’s
management of cash and the ability to uphold obligations to stockholders. In 2019, The company
underwent great restructuring and shifted its focus on investment in parks and other properties to
studio acquisitions. We see borrowings as a source of cash, which could be dangerous in the
long term if the primary source is borrowed rather than earned. Because the operating cash flow
is less than net income, this could suggest a negative trend to the Stockholders and could provide
an issue if it is long term. Signs of financial instability or negative returns to stockholders could
result in a reduction in investments and trust from current and future investors.
Through our financial ratio analysis, we see that while Disney has less assets than necessary to
cover its current liabilities. Additionally, return on stockolder’s equity shows that there was a
decrease in ROE, which may result in less funding in the future. While Disney displays lower
return on sales and lower total assets turnover than previous years, they are still outperforming
the competition. However, they also have a lower earnings per share and return on assets than
competitors. Disney also has a decreased gross profit ratio, but this could be due to their rapid
expansion and multiple entertainment acquisitions; their overall gross profit did increase between
2018 and 2019. They are in a strong financial position through receivable turnover ratio,
inventory turnover, debt to total assets, total debt to total equity, interest coverage. Additionally
their EBIT to sales gives us an indication of liquidity and is up from the previous year. Finally,
book value per common share as well as P/B ratio are both up.
In conclusion, while Disney displays some decreases in financial statistics marking financial
position, they are overall following a trend of consistent growth and market dominance.
Although showing some trouble with their cash flow and current ability to pay off debts, they
remain relatively stable from year to year. Additionally, when compared to other entertainment
businesses, Disney outperforms them in their own metrics. Disney appears to be in a strong
financial position while still showing potential for growth.