Business finance project financial statement analysis the walt disney company

NATIONAL ECONOMICS UNIVERSITY SCHOOL OF ADVANCED EDUCATIONAL PROGRAMS BUSINESS FINANCE PROJECT FINANCIAL STATEMENT ANALYSIS The Walt Disney Company Lecturer: Prof Taewon Yang Advanced Finance 63C - Group 2: Đỗ Phương Anh – 11210339 Phạm Thu Hương – 11217101 Nguyễn Mai Thảo Anh – 11215493 Nguyễn Thái Châu Anh – 11211030 Lê Phương Thảo – 11215382 Nguyễn Lê Lan Chi – 11219444 Trương Mỹ Anh - 11210799 Ngô Quỳnh Chi – 11211079 Nguyễn Thị Thùy Dương – 11211603 Ngô Phương Linh – 11213213 Trần Khánh Linh – 11213432 Phạm Thanh Phương – 11214875 Nguyễn Ngọc Quỳnh - 11215091 Nguyễn Thị Cẩm Vân – 11216199 Hanoi, 2023 TABLE OF CONTENTS A INTRODUCTION I Overview - Business Model 1 Linear Network Direct-to-Consumer Content Sales/Licensing and Other Disney Parks, Experiences and Products (DPEP) II Recent news and developments B FINANCIAL STATEMENT ANALYSIS I Balance Sheet Analysis Analysis of changes in Assets and Liabilities and Equity 1.1 Asset 1.2 Liabilities and Equity Analysis of structure and changes in structures of Assets and Liabilities and Equity 2.1 Assets 2.2 Liabilities and Equity II Income Statement Analysis III Ratio Analysis 10 Liquidity ratios 10 Financial leverage ratios 11 Asset management ratio 12 Profitability ratio 13 Market value ratio 14 IV Cash Flow from Assets Analysis 15 Calculation 15 1.1 Operating cash flow 15 1.2 Net capital expenditure 15 1.3 Net working capital (NWC) 16 1.4 Cash Flow from Assets: 16 Analysis of changes in cash flow from assets in 2021 and 2022 16 V Company Performance 18 Financial performance 18 Operational performance 18 Summary 19 C CONCLUSION AND RECOMMENDATION 19 I Conclusion 19 II Recommendation 19 REFERENCE APPENDIX I A INTRODUCTION Overview - Business Model Overview of business model: The Walt Disney Company (DIS) operates various entertainment businesses such as theme parks, resorts, a cruise line, and broadcast television networks It also produces live events and streams a wide range of film and TV content through its digital streaming services Competition: Disney faces competition from companies like Paramount Global, Comcast Corp., Sony Group Corp., AT&T Inc., Netflix Inc., Apple Inc., Amazon.com Inc., Six Flags Entertainment Corp., SeaWorld Entertainment Inc., and Hilton Worldwide Holdings Inc Disney Media and Entertainment Distribution (DMED): This segment includes three components: Linear Networks, Direct-to-Consumer, and Content Sales/Licensing and Other Here is a summary of the financial performance by segment: Linear Network Disney’s Linear Networks segment operates a long list of properties, including domestic and international cable networks such as Disney, ESPN, and National Geographic; ABC broadcast television network and eight domestic television stations; and a 50% equity investment in A+E Television Networks Revenue for this segment was $7.7 billion in Q1 FY 2022, with operating income of $1.5 billion This segment accounts for approximately 35% of total revenue and 38% of total operating income Direct-to-Consumer Disney’s Direct-to-Consumer (DTC) segment is composed of its various streaming services, including Disney+; Disney+ Hotstar; ESPN+; Hulu; and Star+ Revenue for this segment was $4.7 billion in Q1 FY 2022, representing a 33.8% increase from the same period the previous year The operating loss for this segment was $593 million, wider than the operating loss of $466 million reported in the year-ago quarter This segment accounts for around 21% of total revenue Content Sales/Licensing and Other Disney’s Content Sales/Licensing and Other segment sells film and television content to third-party TV and subscription video-on-demand (VOD) services The segment also includes the following operations: theatrical distribution; home entertainment distribution, such as DVD and Blu-ray; music distribution; staging and licensing of live entertainment events on Broadway and around the world; post-production services through Industrial Light & Magic and Skywalker Sound; and a 30% ownership interest in Tata Sky Ltd., an India-based operator of a direct-to-home satellite distribution platform This segment generated revenue of $2.4 billion in Q1 FY 2022, a 42.9% increase from the previous year However, the segment reported an operating loss of $98 million compared to operating income of $188 million in the year-ago quarter This segment accounts for approximately 11% of total revenue Disney Parks, Experiences and Products (DPEP) This segment includes theme parks, resorts, and consumer products Disney’s Parks, Experiences and Products segment is composed of theme parks and resorts in Florida, California, Hawaii, Paris, Hong Kong, and Shanghai It also includes a cruise line and vacation club Revenue comes mainly from selling theme park admissions, food, beverages, various merchandise, resort and vacation stays, and royalties from licensing intellectual properties Revenue for this segment was $7.2 billion in Q1 FY 2022, representing a significant increase of 101.6% from the year-ago quarter The segment reported operating income of $2.5 billion, a significant improvement from the operating loss of $119 million in Q1 FY 2021 This segment accounts for about 33% of Disney's total revenue and approximately 62% of total operating income II Recent news and developments Walt Disney, in comparison to other rivales, has gained great advantages due to its treasure of intellectual property The company’s enormous collection of characters and shows, which has become people’s precious part of their childhood, makes it easier for the company to take initiatives, put out movies, shows and theme park attractions Recently, Disney’s utilisation of new visual effect technology in depicting characteristics has been a spotlight of its recent activities with the movies Elemental Besides, thanks to Iger - CEO of Walt Disney’s newly adopted strategy, the company has successfully narrowed its loss due to higher cost in the previous year In fact, Disney’s streaming services have gained many more millions subscriptions thanks to its effective effort, investment and greater focus on quality of content over quantity And later on this year, Disney will increase the price of its ad-free subscription plan All of this should help the company approach its goal of profitability for Disney+ in the 2024 fiscal year B FINANCIAL STATEMENT ANALYSIS Balance Sheet Analysis The balance sheet, basically, shows what a firm has It is a convenient means of organising and summarising what a firm owns (its assets), what a firm owes (its liabilities), and I the difference between the two (the firm’s equity) at a given point of time A balance sheet that combines common-size and base year analyses - which is also called the standardised balance sheet, not only the trend can be discussed and analysed, the effect of the firm’s overall growth can also be taken into consideration THE WALT DISNEY COMPANY (DIS) - SUMMARY OF STANDARDISED BALANCE SHEETS Balance Sheet (in million dollars) 9/29/2022 9/29/2021 9/29/2020 Combined Commonsize and Base year Common-Base year Common size 2021 2020 2021 2022 2022 2021 2022 ASSET Current Assets Cash And Cash Equivalents 11,615 15,959 17,914 0.89 0.65 8.9% 7.8% 5.7% 0.88 0.64 Receivables, net 12,652 13,367 12,708 1.05 1.00 6.3% 6.6% 6.2% 1.04 0.99 Inventory 1,742 1,331 1,583 0.84 1.10 0.8% 0.7% 0.9% 0.83 1.09 Prepaid Assets 1,890 2,183 2,171 1.01 0.87 1.1% 1.1% 0.9% 1.00 0.86 Other Current Assets 1,199 817 875 0.93 1.37 0.4% 0.4% 0.6% 0.92 1.36 29,098 33,657 35,251 0.95 0.83 17.5% 16.5% 14.3% 0.95 0.82 Total Current Assets Non-current assets Net PPE 33,596 32,624 32,078 1.02 1.05 15.9% 16.0% 16.5% 1.01 1.04 Gross PPE 72,952 70,544 67,595 1.04 1.08 33.5% 34.6% 35.8% 1.03 1.07 Accumulated Depreciation 39,356 37,920 35,517 1.07 1.11 -17.6% -18.6% -19.3% 1.06 1.10 92,734 95,186 96,862 0.98 0.96 48.1% 46.7% 45.5% 0.97 0.95 3,218 Goodwill And Intangible Assets Other Investments And Advances 3,935 3,903 1.01 0.82 1.9% 1.9% 1.6% 1.00 0.82 Non Current Deferred Assets 35,777 29,549 25,022 1.18 1.43 12.4% 14.5% 17.6% 1.17 1.42 Other Non Current Assets 8,658 8,433 1.03 1.09 4.2% 4.3% 4.5% 1.02 1.08 9,208 Document continues below Discover more from: Corporate finance 328 documents Go to course Test Bank for Fundamentals of Corporate Finance 10th Edition by Ross 107 Corporate finance 97% (66) Test Bank Fundamentals of Corporate Finance 12th edition Chapter 31 Corporate finance Total Non-Current Assets 174,533 Total Assets 100% (17) 169,952 166,298 1.02 1.05 82.5% 83.5% 203,609 201,549 1.0102 1.0103 100.0% 100.0% TN1 corporate finance 203,631 85.7% 100.0% 1.01 1.00 Corporate finance LIABILITIES AND 38 OWNERS' EQUITY 1.04 1.00 100% (12) Current liabilities Accounts Brooks Payable and other Answers Introductory Econometrics 20,213 20,894 16,801 1.24 accrued liabilities Corporate finance Current 56 portion of borrowings 3,070 Deferred revenue and other 5,790 Total current liabilities Borrowings 29,073 10.3% 8.3% 1.23 1.19 5,866 5,711 1.03 0.54 1.5% 2.9% 2.8% 1.02 94% (17) 0.53 4,317 4,116 1.05 1.41 2.8% 2.1% 2.0% 1.04 1.39 31,077 26,628 1.17 1.09 14.3% 15.3% 13.2% 1.16 1.08 Corporate-Finance-Note-Chapter Chapter0.86 6, online note with useful 0.91 information 45,299 48,540 52,917 to0.92 22.2% 23.8%full of 26.3% 0.85 Deferred Income Tax 8,363 Corporate finance 18 Other long-term liabilities 12,518 95,253 Total liabilities Equity for1.20 Finance9.9% 7,246 7,288 0.99 1.15 4.1% 3.6% 3.6% 0.98 14,522 17,204 0.84 0.73 6.1% 7.1% 8.5% 0.84 1.14 100% (7) 0.72 101,385 104,037 0.97 0.92 46.8% 49.8% 51.6% 0.96 0.91 Ebook Tài doanh nghiệp (Lý thuyết & thực hành quản lý ứng dụng cho Preferred stock 0 - - 0.0% 0.0% 0.0% 55,471 54,497 1.02 1.03 27.7% 27.2% 27.0% 1.01 1.02 40,429 38,315 1.06 1.14 21.4% 19.9% 19.0% 1.04 1.13(7) 100% -4,119 -6,440 -8,322 0.77 0.49 -2.0% -3.2% -4.1% 0.77 0.49 -907 -907 -907 1.00 1.00 -0.4% -0.4% -0.5% 0.99 0.99 88,553 83,583 1.06 1.14 46.7% 43.5% 41.5% 1.05 1.13 doanh nghiệp Việt Nam) Phần - TS Nguyễn Minh Kiều 971122 Common 56,398 148 Stock Retained Earnings 43,636 Corporate finance Accumulated comprehensive loss Treasury stock other Total Shareholders' equity 95,008 Minority Interest Total Equity Minority Equity Gross Total liabilities and equity 13,370 13,671 13,929 0.98 0.96 6.6% 6.7% 6.9% 0.97 0.95 108,378 102,224 97,512 1.05 1.11 53.2% 50.2% 48.4% 1.04 1.10 203,631 203,609 201,549 1.01 1.01 100.0% 100.0% 100.0% 1.00 1.00 Analysis of changes in Assets and Liabilities and Equity 1.1 Asset - Current Assets: In this research, we chose to pick 2020 as our base year As it can be seen from the balance sheet, the Walt Disney Company’s total current assets decreased continuously from 2020 to 2022, from $35,251M in 2020 to $33,657M in 2021 and $29,098M in 2022 This happened due to the drop in most of the current assets’ components such as cash and receivables except for the inventory Because current assets are used to cover short-term liabilities of the company’s operations, the company needs to find new means to finance its activities, such as issuing more shares - Non-current assets: The non-current assets, on the other hand, witnessed a slight increase from 2020 to 2022 To be more specific, the non-current assets grew by about 2% in 2021 and 5% in 2022 The rise in non-current assets can benefit the firm in several ways, such as creating sustainable revenue streams and improving long-term profitability 1.2 Liabilities and Equity - Liabilities: The total current liabilities increased from 2020 to 2021 (from $26,628M to $31,077M) and then slightly decreased in 2022 at $29,073M This change was primarily driven by fluctuations in accounts payable and other accrued liabilities and current portion of borrowings However, the overall proportion of current liabilities to the common-base year decreased in 2022, indicating a reduced short-term debt burden Long-term borrowings and other long-term liabilities showed a declining trend from 2020 to 2022 This suggests a reduction in long-term debt obligations for the company Their proportion of borrowings to the common-base year also decreased in 2022, which reflected the decreased reliance on long-term debt Deferred income tax remained relatively stable over the years, with a slight increase in 2022 at $8,363M The proportion of deferred income tax to the common-base year increased in 2022, indicating a relatively higher tax liability - Equity: The value of common stock and retained earnings witnessed an increase over the years While the rise in common stock indicated potential equity investments in the company, the increase in retained earnings showed profitability and retained profits within the company Their proportion of common stock to the common-base year increased in 2022, suggesting an increase in equity financing and retained profits The accumulated other comprehensive loss decreased over the years and the proportion of accumulated other comprehensive loss to the common-base year decreased significantly in 2022, indicating a positive impact on equity Treasury stock remained constant over the years at $907M, which means no significant changes in the company's stock repurchases The total shareholders' equity increased consistently over the years, primarily driven by increases in common stock and retained earnings The proportion of total shareholders' equity to the common-base year increased in 2022, showing overall growth in equity Minority interest remained relatively stable over the years at more than $13,000M to nearly $14,000M , indicating no significant changes in the ownership interests of minority shareholders The proportion of minority interest to the common-base year decreased in 2022, suggesting a relatively smaller impact from minority shareholders Overall, the company experienced a decrease in its short-term and long-term liabilities, indicating a stronger financial position Additionally, the company's equity grew, primarily driven by increases in common stock and retained earnings These trends suggest improved financial stability and potential for future growth Analysis of structure and changes in structures of Assets and Liabilities and Equity 2.1 Assets - Current assets: Total current assets, as a percentage of total assets, have always been much smaller than the non-current assets, and even going through a gradual decrease in the 3-year period Specially, the cash and cash equivalents account’s contribution to the total assets drop significantly from 8.9% to 5.7% from 2020 to 2022 A decrease in cash and cash equivalents can have various consequences for a company, including reduced liquidity, limited investment opportunities, increased borrowing, reduced flexibility, and shareholder dissatisfaction Therefore, the Walt Disney Company should carefully manage their cash flow to maintain an adequate level of cash and cash equivalents to fund their operations and investments - Non-current assets: Non-current assets, otherwise, the percentage attributable to the growth in total assets increased by approximately 3.2% in years After all these remarks, it can be seen that the size of non-current assets is much larger than the current assets There are several factors for this such as the nature of the industry, business model, and investment decisions made by the company As a matter of fact, fixed assets are illiquid, which will help the company be more profitable However, there would be a higher chance of facing financial distress such as difficulty in paying debts and buying needed assets 2.2 Liabilities and Equity - Liabilities: Current liabilities as a percentage of total liabilities decreased slightly in 2022 compared to 2021 (from 15.3% down to 14.35%) However, they still represent a significant portion of the company's overall liabilities Proportion of Long-term borrowings in total liabilities decreased gradually over the years This indicates a decreasing reliance on long-term debt financing for the company Deferred income tax remained relatively stable as a percentage of total liabilities, indicating a consistent tax liability for the company The proportion of total liabilities decreased from 51.6% in 2020 to 46.8% in 2022, indicating improved financial stability This was primarily driven by a decrease in borrowings and other long-term liabilities - Equity: Common Stock represents a significant portion of the company's equity at around 27% and remained relatively stable over the years Retained earnings as a percentage of total equity increased gradually over the years (from 19% in 2020 to 21.4% in 2022), which shows the company's ability to accumulate profits and retain them within the business The accumulated 5.15 times over the year, or it can be represented that it took Disney 70.87 days to receive their credit sales The receivables turnover ratio fell slightly in 2021 but rose again the following year Disney payment collection efficiency has improved in 2022, with an average collection time of 55.81 days The receivables turnover increased in this year due to the jump in sales revenue of the firm Net working capital turnover measures the relationship between the funds used to finance a company's operations and the revenues a company generates to continue operations and turn a profit In 2020, the net working capital turnover of the firm is 7.58, which implies that the business generates 7.58 dollars in net sales for each dollar of working capital employed It is clear that this ratio jumped in 2021 and 2022 from 7.58 to 26.13 and 308.88 As the main reason for this increase is the decline in the net working capital amount, we can conclude that Disney did not have enough capital to support its sales growth The fixed asset turnover ratio reveals how efficient a company is at generating sales from its existing fixed assets The fixed asset turnover in 2020 is 2.04, which indicates that Disney produced 2.04 dollars in revenues for every dollar invested in fixed assets There is no substantial change in 2021, however there is a little uptick to 2.46 in 2022 The reason for this growth comes from the noticeably jump in sales revenue of the firm Similar to the fixed asset turnover ratio, total asset turnover ratio helps investors understand how effectively companies are using their assets to generate sales For the total asset turnover, this ratio is virtually equal in 2020 and 2021, and increase to 0.41 in 2022 due to the sales growth It can be said that Disney can generate 0.41 dollars in income for every dollar of assets in 2022 Profitability ratio 2020 2021 2022 Profit margin - 4.38% 2.96% 3.8% Return on asset (ROA) - 1.42% 0.98% 1.54% Return on equity (ROE) - 2.94% 1.95% 2.9% Profit margin is a common measure of the degree to which a company or a particular business activity makes money Expressed as a percentage, it represents the portion of a company’s sales revenue that it gets to keep as a profit, after subtracting all of its costs The profit margin is - 4.38% in 2020, suggesting that Disney spends more money than it makes, with 4.38 cents loss on every dollar of sales The reason for this negative figure is the cost for restructuring and impairment charges is considered to be large compared to other years, and the sales revenue failed to cover this expense, resulting in a net loss However, the fact that the profit margin improved significantly in 2021 and 2022 is a healthy indicator for Disney's 13 financial health In 2022, this ratio is 3.8%, which means that for every dollar of sales, the company earned 3.8 cents in profit 1.54% as the company's net income increased The return on equity increased substantially in 2022 to 1.54% as the company's net income increased Return on Asset (ROA) is a financial ratio that indicates how profitable a company is in relation to its total asset Higher ROA suggests a company is more efficient and productive at managing its balance sheet to generate profits In 2020, the corporation lost 1.42 cents on every dollar of assets This implies that Disney did not make optimal use of its assets to generate income This ratio climbed to 0.98% the following year, indicating that the firm is taking strategies to solve the issue and gain 0.98 dollars profit for every dollar of assets The return on equity increased substantially in 2022 to 1.54% as the company's net income increased Return on equity (ROE) is considered a gauge of a corporation's profitability and how efficient it is in generating profits The higher the ROE, the more efficient a company's management is at generating income and growth from its equity financing The return on equity of Disney is -2.94% for the year 2020 which can be expressed that Disney lost 2.94 cents in profit for every dollar in equity This should be considered a warning sign for the ability of the firm to convert its equity financing into profits However, it can be seen that Disney has made an effort to improve its business as this ratio has increased to 1.95% in 2021 Disney is on track to use its capital more efficiently, and increased profits for shareholders In 2022, with each dollar of equity, the company generated 2.9 cents in net income Market value ratio 2020 2021 2022 -1.585 1.097 1.766 PE ratio N/A 158.42 55.37 Price-Sales ratio 3.47 4.66 2.1 Market-to-Book ratio 2.32 3.07 1.6 Earnings per share The earnings per share of Disney grew sharply from the negative ratio of -1.59 to approximately 1.1 in 2021, and continued to increase to 1.77 in 2022 Higher EPS means that the company is profitable enough to pay out more money to its shareholders, as Disney quickly recovered from the negative impacts of the global economy, reaching positive growth levels again in 2021 The PE ratio measures how much investors are willing to pay per dollar of current earnings As EPS in 2020 fell below zero, it led to a negative P/E ratio, meaning that Disney was losing money and affected the investors’ decisions The PE ratio then grew strongly to 158.72, and decreased by two-third in the final year of the period With a P/E ratio over 30, investors typically expect the company to grow or to become profitable in the future 14 The price-to-sales (P/S) ratio is a valuation ratio that compares a company’s stock price to its revenues It is an indicator of the value that financial markets have placed on each dollar of a company’s sales or revenues The price-sales ratio of the company is 3.47 in 2020, which means that investors are willing to pay 3.47 dollars per dollar of sales for a stock of Disney This ratio went up moderately in 2021 to 4.66 due to the increase in the share price at the end of the year 2022 witnessed a significant decline in the stock price but increase in sales per share This resulted in the lower Price-Sales ratio of the firm with 2.1 dollars willing to pay for a dollar of sales for a stock, or we can conclude that the stock of Disney was being undervalued compared to the last two years The price-to-book (P/B) ratio measures the market's valuation of a company relative to its book value In 2020, Disney’s Market-to-Book ratio is 2.32, which illustrates that the market price is valued at 2.32 times its book value It can be concluded that the firm has been successful overall in creating value for its stockholders and the investors are willing to pay more for a share of the company This ratio grew up to 3.07 in 2021 due to the increase in the stock price However, in 2022, the market-to-book ratio dropped by nearly 50% to 1.6 as stock price declined at the end of the year This suggests that investors have become less optimistic regarding future earnings potential of the company IV Cash Flow from Assets Analysis Calculation 1.1 Operating cash flow - Operating cash flow = Earning before interest and taxes + Depreciation - Taxes (All numbers in thousands) 9/29/2022 9/29/2021 Earning before interest and taxes 6,682,000 3,967,000 Add: Depreciation 5,163,000 5,111,000 Less: Taxes 1,732,000 25,000 Operating cash flow 10,113,000 9,053,000 currency in USD 1.2 Net capital expenditure - Net capital expenditure = Ending Net Fixed Assets – Beginning net Fixed Assets + Depreciation = Net PPE (2021) - Net PPE (2020) + Depreciation (All numbers in thousands) 9/29/2022 9/29/2021 Ending Net Fixed Assets 33,596,000 32,624,000 Less: Beg Net Fixed Assets 32,624,000 32,078,000 Add: Depreciation 5,163,000 5,111,000 15 6,135,000 Net Capital Expenditure 5,657,000 currency in USD 1.3 Net working capital (NWC) - NWC = Current assets - Current liabilities → Change in NWC = NWC (2021) - NWC (2020) (All numbers in thousands) 9/29/2022 9/29/2021 9/29/2020 Current Asset 29,098,000 33,657,000 35,251,000 Less: Current Liabilities 29,073,000 31,077,000 26,628,000 25,000 2,580,000 8,623,000 -2,555,000 -6,043,000 NWC Change in Net Working Capital currency in USD 1.4 Cash Flow from Assets: - CFA = OCF - NCE - Change in NWC (All numbers in thousands) 9/29/2022 9/29/2021 Operating cash flows 10,113,000 9,053,000 Less: Net capital spending 6,135,000 5,657,000 Less: Change in net working capital -2,555,000 -6,043,000 Cash flow from assets 6,533,000 5,783,000 currency in USD Analysis of changes in cash flow from assets in 2021 and 2022 THE WALT DISNEY COMPANY (DIS) - CASH FLOW FROM ASSETS (All numbers in thousands) 9/29/2022 9/29/2021 Operating cash flows 10,113,000 9,053,000 Less: Net capital spending 6,135,000 5,657,000 16 Less: Change in net working capital -2,555,000 -6,043,000 Cash flow from assets 6,533,000 5,783,000 currency in USD - THE WALT DISNEY COMPANY (DIS) - CASH FLOW TO CREDITORS AND STOCKHOLDERS Formula: Cash flow to creditors and stockholders = CFC + CFS + CFC = Interest paid - Net new borrowing + CFS = Dividends paid - Net new equity (All numbers in thousands) 9/29/2022 9/29/2021 Cash flow to creditors 4,638,000 5,783,000 Cash flow to stockholders -927,000 -974,000 Cash flow to creditors and stockholders 3,711,000 4,809,000 currency in USD - Operating cash flows: It can be seen that Disney can generate sufficient positive cash flow to maintain and grow its operations in both 2021 and 2022 The company's day-to-day activities of selling its products result in an amount of OCF in 2022 that is higher than in 2021 The company generated cash from just about $9 million to about $10 billion in just a year - Net capital spending: According to the statistics for 2021 and 2022, about $500,000 higher in net capital spending demonstrates the company's faster rate of growth Large net capital spending, on the other hand, can also indicate that Disney is tying up large amounts of their cash in assets, which may make other financial moves more difficult - Change in net working capital: There was an increase in net working capital of $3,488,000 between 2021 and 2022 Even when the net working capital was negative which meant Disney owed more than it had but the significant rise from -$6,043,000 to -$2,555,000 illustrated the company’s liquidity growth Then, it indicated that the company had better financial health in the short term - Cash flow from assets: In 2022, the cash flow from assets was $6,533,000, higher than the cash flow from assets in 2021 which was $5,783,000 The positive cash flow from assets showed that the company made money rather than just spending it - Cash flow to creditors: 17 The amount of cash that Disney paid to creditors decreased slightly from $5,783,000 in 2022 to 4,638,000 in 2021 It could be explained by the decline of interest paid when liabilities diminished and the climb of net new borrowing - Cash flow to stockholders: The negative cash flow to stockholders in both 2021 and 2022 shows that Disney takes in more cash from shareholders than it distributes However, there is a moderated increase in 2022 cash flow compared to 2021, from -$974,000 to -$927,000 V Company Performance Financial performance Disney's financial performance has remained relatively stable over the past three years The company's equity multiplier experienced a decreasing trend (1.6 in 2020, 1.53 in 2021 and 1.45 in 2022) which suggests that the number of assets which are financed through stockholders’ equity has increased throughout the 3-year period Additionally, the figures indicate that the company has been successful in lowering its debt burden and is less dependent on debt financing as well as does not need to use additional cash flows to service debts Disney’s current ratio from 2020 to 2022 has experienced a decreasing trend In 2020, current ratio is approximately 1.3, after that this number has declined to nearly 1.1 in 2021 and then continuing to fall to approximately in 2022 The number is not so high but it is still in the acceptable level that can prove the ability of Disney to meet its short-term obligations Disney's debt to equity ratio has been steadily decreasing since 2020, from 0.6 to 0.45 in 2022 This suggests that Disney has a relatively low level of debt compared to its equity It can be a positive sign for investors as it indicates that the company is less risky and has a stronger financial position Moreover, a low debt to equity ratio also means that the company has more financial flexibility to invest in growth opportunities or return capital to shareholders Operational performance Disney's operational performance has improved over the past three years The company’s revenue and operating income have experienced the same increasing trend over the past years The revenue of Disney went up from nearly $65.4 million in 2020 to approximately $82.7 million in 2022 and the operating income in 2022 rose nearly two fold compared to this number in 2020 In addition, there has been a positive change in the EBIT of Disney In 2020, the company had to suffer from a negative EBIT and this number has been improved significantly to approximately $4 million in the next year and grew to nearly $6.7 million in 2022 This suggests that Disney is becoming more efficient in its operations and management as well as shows the success of Disney in converting revenue to more profit throughout the 3-year period Moreover, according to the Walt Disney Company’s fourth quarter and full year earnings report for fiscal 2022, the increase in EBIT at Disney Parks, Experiences and Products was partially offset by lower operating income at Disney Media and Entertainment Distribution The increase in EBIT indicates that the company’s operating expenses have decreased or its revenue has increased due to higher operating income at Disney Parks, Experiences and Products 18 In 2020, Disney's profit margin was negative (-4.38%) but it has been improved to 2.96% in 2021 and continuing to increase in 2022 to 3.8% This means in every $1 from revenue, there is $0.38 that comes to the profit of the company The figure also suggests that Disney’s performance has changed positively and it has been able to generate profit after suffering from loss in 2020 Summary Over the period from 2020 to 2022, Disney is becoming a more efficient and profitable company The company has been recovering quite well after being affected negatively by the COVID-19 pandemic In 2020, both financial and operational performance indicators were laid in the range that is considered to be not so ideal for a company However, in 2021 and 2022, these figures have been improved and rebounded strongly Over the past three years, Disney has grown revenue in all of its business segments and is successful in generating more and more profit from its business activities C CONCLUSION AND RECOMMENDATION Conclusion In conclusion, The Walt Disney Company has shown positive signs of financial improvement and stability The decrease in short-term and long-term liabilities, coupled with the growth of equity, indicates a stronger financial position for the company The reduction in the proportion of liabilities and the increase in equity further highlight the company's improved financial health These trends suggest that Disney has paid attention to improving its financial situation year by year Despite the negative impact of the COVID-19 pandemic in 2020, the company has been able to rebound strongly Over the past three years, Disney has grown revenue in all of its business segments and has successfully generated more profit from its activities This remarkable financial performance showcases Disney's ability to recover and adapt to challenging circumstances Overall, Disney's financial indicators demonstrate that the company is becoming more efficient and profitable With a focus on reducing liabilities and increasing equity, Disney has achieved a stronger balance sheet and a more stable financial position The company's commitment to improving its financial situation and generating consistent revenue growth across its business segments bodes well for its future success and continued growth in the entertainment industry I II Recommendation Walt Disney, the world-renowned entertainment conglomerate, has been creating beautiful memories for its millions of fans for almost a century Thus, its DIS stock also carries the responsibility of satisfying company shareholders and managing expectations - especially through tough times However, its market-to-book ratio has decreased in recent periods due to a drop in stock price This has illustrated that the investors’ belief in the company has reduced This can be the consequence from Walt Disney’s unstable management issues in the operating years Although having the top-tier content, the company’s success cannot be firmly 19 guaranteed if its leadership is not right to guide the entire company Disney has been infamous for its repeated mistake in succession problem Recently, the management case of Disney has received many critical opinions due to its repeat of past mistakes by holding former CEO Iger to an arbitrary two-year tenure even though he's clearly the best person to be running the company There are several recommendations that can be given to Disney regarding this management challenges: - Develop a Comprehensive Succession Plan: Disney should develop a comprehensive succession plan that outlines the criteria for selecting a new CEO and other top executives The plan should include identifying potential candidates, their strengths, weaknesses, and a timeline for transition - Provide Leadership Training and Development: Disney should invest in leadership training and development programs to equip internal candidates with the skills needed to take over top leadership positions - Consider Both Internal and External Candidates: Disney should consider both internal and external candidates for top leadership positions External candidates bring fresh perspectives and ideas, while internal candidates have a deep understanding of the company culture and operations 20 REFERENCE The Walt Disney Company (DIS) Financial Statement (n.d.) Yahoo Finance Retrieved June 20, 2023, from https://finance.yahoo.com/quote/DIS/financials?p=DIS Unlocking The Magic: Disney's Business Model Canvas (n.d.) DCF.fm Retrieved June 20, 2023, from https://dcf.fm/blogs/blog/dis-business-model-canvas Disney - Leadership, History, Corporate Social Responsibility (n.d.) The Walt Disney Company Retrieved June 20, 2023, from https://thewaltdisneycompany.com/about/#ourbusinesses Kindness, D (n.d.) How Disney Makes Money: Media, Entertainment, Parks, and Experiences Investopedia Retrieved June 20, 2023, from https://www.investopedia.com/how-disneymakes-money-4799164 Pereira, D (2022, May 19) Disney Business Model Business Model Analyst Retrieved June 20, 2023, from https://businessmodelanalyst.com/disney-business-model/ APPENDIX Calculation of Ratio Analysis (All numbers are in thousand) Liquidity ratios Current ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 2020 2021 2022 Current Assets 35,251,000 33,657,000 29,098,000 Current Liabilities 26,628,000 31,077,000 29,073,000 1.324 1.083 1.001 Current Ratio Quick ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 2020 2021 2022 Current Assets 35,251,000 33,657,000 29,098,000 Current Liabilities 26,628,000 31,077,000 29,073,000 Inventory 1,583,000 1,331,000 1,742,000 1.264 1.04 0.941 2020 2021 2022 Cash 17,914,000 15,959,000 11,615,000 Current Liabilities 26,628,000 31,077,000 29,073,000 0.673 0.514 0.4 2021 2022 Quick Ratio 𝐶𝑎𝑠ℎ Cash ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 Cash Ratio NWC to total assets = 𝑁𝑒𝑡 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 2020 NWC Total assets 8,263,000 2,580,000 25,000 201,549,000 203,609,000 203,631,000 NWC to total assets Interval measure = 0.041 0.013 0.0001 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑑𝑎𝑖𝑙𝑦 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡𝑠 Current assets 2020 2021 2022 35,251,000 33,657,000 29.098,000 Average daily operating costs 168750 174682 207649 Interval measure 208.89 192.68 140.13 Financial leverage ratios Total debt ratio = 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 = 𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 2020 2021 2022 58,628,000 54,406,000 48,369,000 Total Assets 201,549,000 203,609,000 203,631,000 Total Equity 97,512,000 102,224,000 108,378,000 0.29 0.27 0.24 Total Debt Total debt ratio Debt-equity ratio = 𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 Equity multiplier = 𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 = 𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 + 𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 = + Debt-equity ratio 2020 2021 2022 Debt-equity ratio 0.6 0.53 0.45 Equity multiplier 1.6 1.53 1.45 Time interest earned ratio = 𝐸𝐵𝐼𝑇 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 2020 2021 2022 EBIT -252,000 3,967,000 6,682,000 Interest 1,491,000 1,406,000 1,397,000 - 0.17 2.82 4.78 Time interest earned ratio Cash coverage ratio = 𝐸𝐵𝐼𝑇 + 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 2020 2021 2022 EBITD 5,093,000 9,078,000 11,845,000 Interest 1,491,000 1,406,000 1,397,000 3.42 6.46 8.48 Cash coverage ratio Asset management ratio Inventory turnover = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 365 Days’ sales in inventory = 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 2020 2021 2022 Cost of Goods sold 61 594 000 63 759 000 79 952 000 Inventory 583 000 331 000 742 000 Inventory Turnover 38.91 47.9 43.6 Days’ sales in inventory 9.38 7.62 8.37 Receivables turnover = 𝑆𝑎𝑙𝑒𝑠 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 365 Days’ sales in receivables = 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 2020 2021 2022 Sales 65 388 000 67 418 000 82 722 000 Accounts Receivables 12 708 000 13 367 000 12 652 000 Receivables Turnover 5.15 5.04 6.54 Days’ sales in receivables 70.87 72.42 55.81 Net working capital turnover = 𝑆𝑎𝑙𝑒𝑠 𝑁𝑒𝑡 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 2020 2021 2022 Sales 65 388 000 67 418 000 82 722 000 Net working capital 623 000 580 000 25 000 7.58 26.13 308.88 Net working capital turnover 𝑆𝑎𝑙𝑒𝑠 Fixed asset turnover = Total asset turnover = 𝐹𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡 2020 2021 2022 Sales 65 388 000 67 418 000 82 722 000 Fixed Asset 32 078 000 32 624 000 33 596 000 Total Asset 201 549 000 203 609 000 203 631 000 Fixed asset turnover 2.04 2.07 2.46 Total asset turnover 0.32 0.33 0.41 Asset management ratio Profit margin = Net income 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑆𝑎𝑙𝑒𝑠 2020 2021 2022 - 864 000 995 000 145 000 Sales 65 388 000 67 418 000 82 722 000 - 4.38% 2.96% 3.8% 2020 2021 2022 Net income -2 864 000 995 000 145 000 Total Assets 201 549 000 203 609 000 203 631 000 - 1.42% 0.98% 1.54% 2020 2021 2022 Net income -2 864 000 995 000 145 000 Total Equity 97 512 000 102 224 000 108 378 000 - 2.94% 1.95% 2.9% 2020 2021 2022 Net income -2,864,000 1,995,000 3,145,000 Shares outstanding 1,807,063 1,818,000 1,781,000 Earnings per share -1.585 1.097 1.766 Profit margin Return on asset = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 Return on asset Return on Equity = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 Return on equity Market value ratio Earnings per share = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 𝑆ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 PE ratio = 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 2020 2021 2022 Price per share 125.4 172.68 97.45 Earnings per share -1.58 1.09 1.76 PE ratio N/A 158.42 55.37 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 Price-Sales ratio = 𝑆𝑎𝑙𝑒𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 2020 2021 2022 Sales 65 388 000 67 418 000 82 722 000 Outstanding shares 807 063 818 000 781 000 Sales per share 36.18 37.08 46.45 Price per share 125.4 172.68 97.45 Price-Sales ratio 3.47 4.66 2.1 Market-to-Book ratio = 𝑀𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 2020 2021 2022 Book Value 97 512 000 102 224 000 108 378 000 Outstanding shares 807 063 818 000 781 000 Book value per share 53.96 56.23 60.85 Market value per share 125.4 172.68 97.45 Market-to-Book ratio 2.32 3.07 1.6