Introduction to Company
The Walt Disney Company began as a simple cartoon studio in the 1920’s and
today is a worldwide entertainment super power. The company originally began
with both Walt and his brother Roy when they moved to California in the early
twenties. After brief stints with short clips of other animated characters Mickey
Mouse was born. Mickey Mouse appeared in the first animated video with sound
called “Steamboat Willie.” It opened with rave reviews and from there a star was
born and Disney became an animation power house winning the first ever Oscar for
animated film and has continued to win ever sense.
The consumer side of Disney also rose from humble beginnings. A man was
standing in a hotel lobby with $300 and asked if he could put Mickey on paper for
school children. Never ones to turn down money the brothers accepted and thus a
consumer market was born.
Soon there were Mickey dolls, plates, radios
toothbrushes and even books and comic strips were available with Mickey on them.
Then in 1934 Disney decided to make the first even animated movie, Snow
White and the Seven Dwarfs. It took 3 years too make and was the highest grossing
movie until Gone with the Wind. In the 1950s the first live action movie was made.
Walt, always a forward thinker saw potential in television and thus launched the
Disneyland anthology series for TV. It was one all 3 networks and last for 29 years
making it the longest running prime time TV show.
In 1955 Disneyland opened. Disneyland came about after Walt became
frustrated with not being able to have anywhere where both he and his daughters
could play together. Walt believed it would “never be completed… as long as there
was still imagination in the world.” This still holds true since new attractions are
constantly being added.
The company thrived for many years continuing to grow and prosper. Then
in ‘71 Disneyworld opened with multiple hotels, campsites and numerous other
attractions for people to visit. However the expansion did not stop there, as Tokyo
Disneyland and eventually Euro Disney would come to be.
In 1983 Disney again expanded and purchased the Disney Channel and also
opened a new film label, Touchstone. Then Hollywood Records was formed which
offered a wide variety of music. They also moved into publishing with Hyperion and
after the success of the Mighty Ducks movie, the National Hockey League started the
Mighty Ducks of Anaheim, a new venture for Disney.
The early 1990’s brought about much new collaboration and innovation.
Disney began making films with Pixar, a computer animation. Disney then took the
stage in many Broadway productions, even winning a Tony of The Lion King in 97.
In 1996 Disney began to build a model community in Celebration, Florida, that will
one day be home to 20,000 people. The California Angles were also purchased that
year. The biggest venture that year however was the acquisition of Capital
Cities/ABC.
This gave Disney 10 TV stations, 21 radio stations, seven daily
newspapers, multiple cable networks like the History Channel and ESPN. In ’98 a
cruise line opened it has two ships and takes passengers to their own private island,
Castaway Cay.
In 2005 Robert Iger became CEO and has greatly expanded the company,
making it easily accessible to the public through all forms of modern technology.
Also new creative efforts have made Disney a more expansive and innovational
company than ever.
SWOT Analysis
Strengths
 Target Standardization
 Creative Process
 Popular Brand Name
 Diversification
 Global Company
 Multiple Business Segments
 Business Experience
 Target Customer: Children
Opportunities
 Merchandise
 Global Localization
 Cheaper alternatives
 Multiple Franchises
 New acquisition of Marvel
 Disney School of Management
 Global appeal
Weakness
 High Sunk Cost
 High Investment
 High Risk Factor
 Excessive Research and
Development
 Constant Change
Threats
 Competitors
 High Demanding
 Hasty acquisitions
 Product Differentiation
 Economy
Strengths
One of Disney’s biggest strength would be a combination of two things: Brand Name
and their target audience. By targeting at kids, they will inevitably become life long
customers.
Disney is associated with fun and happiness, and good childhood
memories and is something that people like to associate themselves with. They
make fun for all ages which people are naturally drawn to. They are also very
creative. They have and entire team of Imagineers whose sole job is to come up
with new and exciting things for the world of Disney. They have been in business
since the Great Depression and have an ample amount of experience. They are a
global business and have customers all over the world. They have an extremely
diverse corporation with hands in nearly every aspect of the entertainment
industry, which helps get their name out there even more. All of these elements help
to make Disney a strong corporation.
Weaknesses
One weakness for Disney is that things are constantly changing within the company.
They seem to constantly acquire and then resell things, which makes it hard to
follow and train staff on how to run different aspects of the business. The also have
extensive research and development which can detract from the over all profit
making of the business. Disney also has a high sunk factor, which means that there
have been lost of purchase that cannot be recovered.
There is also a high
investment which means a lot of people have invested in it. So if they pulled out for
some reason the business would be in trouble. There is also a high risk factor, which
means that there is a probability that there will be a different outcome than is
expected.
Opportunities
Disney has multiple opportunities for new income. Disney is always coming out
with new merchandise, whether it me a TV show, toy or a movie. They are also
really involved in the community and that in turn can produce product loyalty. They
are also are constantly looking for ways to save money and make less of an impact
on the environment. They also recently acquired Marvel which will help bring in
more revenue. They also have a school of management and animation that can help
filter students in the new jobs at Disney and thus cut down on training costs. Also
since Disney is a brand name people are generally pretty accepting of their products
Threats
Competitors are always a threat to any business. Of course not many business are
as extensive as Disney but since Disney does spread itself pretty thing there are
competitors in every aspect of the company.
Working for Disney is fairly
demanding. They ask a lot from people in terms of being creative and innovative,
which can be hard. Since there is a lot of product differentiation, Disney really
doesn’t have a one main thing that it does. With all the different areas of the
company and enterprises, it can be hard to keep it all connected and going. Since
the economy has also been on the decline it can be a threat to the company since
they may have to cut back in order to survive.
Horizontal Analysis
Walt Disney Corportion
Consolidated Balance Sheets
September 27, 2008 and September 29, 2007
(in millions)
2008
2007
Amount
Percentage
Assets
Current assets
Cash and cash equivalents
Receivables
Inventories
Television Costs
Deferred income taxes
Other current assets
Total current assets
$3,001
5,373
1,124
541
1,024
603
11,666
$3,670
5,032
641
559
862
550
11,314
$(669)
341
483
(18)
162
53
352
(18.23%)
6.78
75.35
(3.22)
18.79
9.64
3.11
5,394
1,563
5,123
995
271
568
5.29
57.09
31,493
30,260
1233
4.07
(16,310
)
15,183
1,169
1,180
17,532
(15,145)
1165
7.7
2,428
22,151
1,763
62,497
2,494
22,085
1,484
60,928
(66)
66
279
1569
(2.65)
0.3
18.8
2.58
5,980
5,949
31
0.52
3,529
2,082
3,280
2,162
249
(80)
7.59
(3.7)
11,591
11,391
200
1.76
Film and television costs
Investments
Parks, resorts and other property at
cost
Attractions, buildings and
equipment
Accumulated depreciation
Projects in progress
Land
Intangible assets, net
Goodwill
Other assets
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable and other
accrued liabilities
Current portion of barrowings
Unearned royalties and other
advances
Total current liabilities
15,115
1,147
1,171
17,433
68
22
9
99
0.45
1.92
0.77
0.58
Borrowings
Deferred income taxes
Other long-term liabilities
Minority interest
Commitments and contingencies
(Note 14)
Shareholders’ equity
Preferred stock, $.01 par value
Authorized-100 million shares,
issued none
Common stock, $.01 par value
Authorized-3.6 billion shares
Issued-2.6 billion shares
Retained earnings
Accumulated other comprehensive
loss
Total Liabilities
11,110
2,350
3,779
1,344
11,892
2,573
3,024
1,295
(782)
(223)
755
49
(6.58)
(8.67)
24.97
3.78
26,546
28,413
(81)
24,207
24,805
(157)
2339
3608
(76)
9.66
14.55
(48.41)
54,878
48,855
6023
12.33
Treasury Stock
(22,555
)
32,323
62,497
(18,102)
(4,453) 24.60
30,753
60.928
1,570
1,569
5.11
2.58
Summary of Horizontal Analysis Balance Statement:
According to this Horizontal Analysis both assets and the liabilities costs
went up. However the stockholders equity went down. This means that over all the
company has acquired more assets and also acquired more expenses, so the
likelihood of their profits also increasing is not so high. Since the stockholders
equity went down this means that there has been either less dependency on the
stockholders to help or that stockholders have sold off their stock and no longer
support Disney. Since the economy has been in the decline it is probably more likely
that stockholders have sold their stock and the Disney Corporation has had to be
more fiscally independent from their stockholders. (journalofaccountancy.com)
Trend Analysis
Walt Disney Corporation
Balance Sheet
September 27, 2008 and September 29, 2007
2008
Index
2007
Index
2006
Index
Assets
Current Assets
Cash and cash
equivalents
$3,001
124.47
$3,670 152.22 $2,411 100%
Receivables
5,373
114.15
5,032
106.9
4,707
100
Inventories
1,124
161.96
641
92.36
694
100
Television costs
541
130.36
559
134.7
415
100
Deferred income
taxes
1,024
172.97
862
145.61
592
100
603
81.16
550
74.02
743
100
Total current
assets
11,666
122
11,314 118.32
9,562
100
Film and television
costs
5,394
103.04
5,123
97.86
5,235
100
Investments
1,563
118.86
995
75.66
1,315
100
31,493
109.19
30,260 104.91 28,843
100
-16,310
118.35
15,145
13,781
100
15,183
100.8
15,115 100.35 15,062
100
1,169
128.04
1,147
100
Other current
assets
Parks, resorts and
other property, at
cost
Attractions,
buidings and
equipment
Accumulated
depreciation
Project in Progress
109.9
125.63
913
Land
1,180
98.99
1,171
98.24
1,192
100
17,532
102.13
17,433 101.55 17,167
100
Intangible assets, net
2,428
83.52
2,494
85.79
2,907
100
Goodwill
22,151
98.43
22,085
98.13
22,505
100
Other assets
1,763
134.89
1,484
113.54
1,307
100
62,497
104.17
60,928 101.55 59,998
100
Accounts Payable
and other accrued
liabilites
5,980
101.06
5,949
100.54
5,917
100
Current portion of
barrowings
3,529
131.58
3,280
122.3
2,682
100
Unearned royalties
and other advances
2,082
129.23
2,162
134.2
1,611
100
Total current
liabilities
11,591
113.53
11,391 111.57 10,210
100
Borrowings
11,110
102.46
11,892 109.67 10,843
100
Deferred income
taxes
2,350
88.65
2,573
97.06
2,651
100
Other long-term
liabilities
3,779
120.7
3,024
96.58
3,131
100
Minority interests
1,344
100.07
1,295
96.42
1,343
100
Liabilities and
Shareholders' Equity
Current Liabilities
Commitments and
contingencies
Shareholders' equity
Preferred stock,
$.01 par value
Authorized-100 million shares,
Issued-none
Common stock,
$.01 par value
Authorized-3.6
billion shares,
Issued-2.6 billion
shares
26,546
118.63
24,207 108.18 22,377
100
Retained earnings
28,413
137.72
24,805 120.24 20,630
100
Accumulated other
comprehensive loss
-81
1012.5
54,878
127.63
-157
1962.5
-8
48,855 113.62 42,999
100
100
Walt Disney Corporation
Income Statement
September 27, 2008 and September 29, 2007
2008
Index
2007
Index
2006
Index
Revenues
$37,843
112.13 $35,510
105.22
$33,747
100%
Costs and expenses
-30,439
107.21 -28,681
101.02
-28,392
100
Other
(expenses)/income
-59
67.05
1,004
1140.91
88
100
Net interest
expense
-524
88.51
-593
100.17
-592
100
Equity in the
income of investees
581
122.83
485
102.54
473
100
Income from
continuing
operations before
income taxes and
minority interests
7,402
139.03
7,725
145.1
5,324
100
Income tax
-2,673
145.51
-2,874
156.45
-1,837
100
Minority
-302
165.03
-177
96.72
-183
100
Income from
continuing
operations
4,427
133.99
4,674
141.46
3,304
100
13
18.57
70
100
4,687
138.92
3,374
100
2.24
1.6
100
0.01
0.03
100
Discontinued
operations, net of
tax
Net Income
4,427
131.21
Diluted Earning per
share:
Earnings per
share, continuing
operations
Earnings per
share, discontinued
operations
2.28
Earnings per
share
2.28
2.25
1.64
100
2.34
2.33
1.65
100
0.01
0.03
100
2.34
1.68
100
Basic Earnings per
share:
Earnings per
share, continuing
operations
Earnings per
share, discontinued
operations
Earnings per
share
2.34
Weighted average number of
common and common
equivalent shares outstanding:
Diluted
1,948
93.83
2,092
100.77
2,076
100
Basic
1,890
94.26
2,004
99.95
2,005
100
Vertical Analysis
Walt Disney Corporation
Common Size-Balance Sheets
September 27, 2008 and September 29, 2007
2008
2007
Assets
Current Assets
18.67%
18.57%
3.78%
2.57%
Property Plant & Equipment
36.68%
37.02%
Goodwill
35.44%
36.25%
Intangible Assets
3.88%
4.09%
Other Assets
1.54%
1.50%
100%
100%
Current Liabilities
18.55%
18.70%
Long Term Debt
18.16%
19.97%
Other Liabilities
5.15%
3.91%
Deferred Long Term Liability Charges
4.27%
4.83%
Minority Interest
2.15%
2.13%
51.72%
50.47%
100%
100%
Long Term Investments
Total Assets
Liabilities and Stockholder’s Equity
Stockholders Equity
Total Liabilities and Stockholders Equity
Summary of the Vertical Analysis Sheet:
A vertical analysis sheet maps out where their money is coming from and
what it is going into. According to this analysis, the majority of the assets are made
up of property plant and equipment. There are a greater percentage of current
assets long-term investments and other assets in 2008 than there were in 2007.
However they cut back on property plan & equipment, goodwill, and intangible
assets. As for the liabilities and Stockholders equity, there was a drop in long-term
debt but their other liabilities went up. The stockholders equity also increased, as
there must have been a need for more cash flow and available funds in the year
2008 than there was in 2007.
Ratio Analysis
Ratio Analysis - 2008
Liquidity Ratio






Current Ratio – 1.006 times
Quick Ratio - .86 times
Receivable Turnover Ratio – 7.63 times
Days Sales Uncollected – 47.81 days
Inventory Turnover – 27.08 times
Days Inventory on Hand – 13.48 days
Profitability Ratios




Profit Margin – 11.7%
Asset Turnover - .61 times
Return on Assets – 7.2%
Return on Equity – 14.0%
Long Term Solvency


Debt to Equity Ratio - .93 times
Interest Coverage Ratio – 11.40 times
Cash Flow Adequacy Ratio




Cash Flow Yield – 1.23 times
Cash Flow to Sales – 14.40%
Cash Flow to Assets – 9.0%
Free Cash Flows - $3,686,000,000
Market Strength Ratios


Price/earning (P/E) ratio – 12.52 time
Dividend yield – Do Not Pay
Ratio Analysis - 2007
Liquidity Ratio






Current Ratio - .99 times
Quick Ratio - .85 times
Receivable Turnover Ratio – 7.74 times
Days Sales Uncollected – 47.16 days
Inventory Turnover – 44.09 times
Days Inventory on Hand – 8.28 days
Profitability Ratios




Profit Margin – 13.20%
Asset Turnover - .59 times
Return on Assets – 7.80%
Return on Equity – 15.00%
Long Term Solvency


Debt to Equity Ratio - .948 times
Interest Coverage Ratio – 11.35 times
Cash Flow Adequacy Ratio




Cash Flow Yield – 1.157
Cash Flow to Sales – 15.30%
Cash Flow to Assets – 9.00%
Free Cash Flows - $3,855,000,000
Market Strength Ratios


Price/earning (P/E) ratio – 14.32 time
Dividend yield – Do Not Pay
Liquidity
After having computed the liquidity ratios for a company, it is much easier to
determine a company’s marketability. In the case of the Walt Disney Company,
the current ratio went up from .99 to 1.006, which means that the company now
has enough money to pay of all of their debts in the short term. The receivable
turnover ratio looks at the accounts receivable as well as the effectiveness of
their credit policies. From 2007 to 2008 Disney saw on a marginal decrease in
their turnover rate from 7.74 to 7.64. This .1 difference should not be of too large
a concern however especially since their current and quick ratios both
increased. You can determine the average number of days it takes to collect the
receivables from the Days Sale Uncollected ratio. Disney’s went up .65 days
which again is not ideal but a small increase is not too concerning. Inventory
turnover determines the amount of inventory the company currently has. This
decreased by 17.01, which is not a very good. This is an indication that they are
having a hard time selling their products so there is less of a need to have a large
inventory on hand. Also, according to the days inventory on hand ratio they are
now selling their inventory off at a date of 13.48 days where as in 2007 it took
8.28 days.
Profitability
The profitability of a company is essentially their ability to earn a profit. The
profit margin for Disney did decrease from 2007 to 2008 1.5%. However since
the asset turnover rose from .59 to .61 this means that the company is more
efficiently using their assets to produce sales since Disney received more
revenue in 2008. However, since net income went down in 2008, so did the
return on assets, which went down .55%. While Disney may have earned more
revenue but they are not making money as efficiently as possible. This is again
reflected in the return on equity, which dropped 1%. Again reflecting the fact
that Disney did not use their money as wisely this year as they did last year.
Long Term Solvency
The solvency of a company is its ability to survive for an extended period of time.
A good way to do this is to compare the Liabilities to the Stockholders Equity.
Disney’s went down from 2007 to 2008 by .02. While it is bad to see this
number decrease the margin of decrease was not very significant and there for
there should not be too much to worry about. The interest coverage ratio
actually increased by .04 which means that Disney is less likely to default on
their interest payments which is very good for investors. While their
profitability did go down, Disney made sure that they kept their investors well
paid which is an important thing if you want to keep your business moving
forward.
Cash Flow Adequacy
Cash Flow ratios monitor how well a company can pay long term debt with its
operating activities. Cash flow yield actually increased from 2007 to 2008 which
means that they were able to generate enough money from the operating
activities to pay off all the debts they had acquired. The cash flow of sales ratio
however decreased, which means that the cash generating abilities of their sales
went down, which can be a problem. The cash flow to assets actually stayed the
same, which means the assets generated the same amount of cash flow. Free
cash flow also decreased which is the amount of cash that remains after
providing for commitments, which was to be expected based upon the other
information.
Summary and Recommendations
Reference Page