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RATIOANALYSISOFWALTDISNEYCOMPANY.pptxRATIO ANALYSIS OF WALT DISNEY COMPANY
Rajesh Karupakala
New England college
Walt disney
The Walt Disney Company, commonly known as Disney, is an American diversified multinational mass media and entertainment conglomerate headquartered at the Walt Disney Studios complex in Burbank, California.
[Walt Disney Studio]. (2020). Retrieved August 03, 2020, from https://thewaltdisneycompany.com/app/uploads/2020/01/StudioLot_TeamDisney_7-web-1440x959.jpg
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Introduction
The mission of The Walt Disney Company is to entertain, inform and inspire people around the globe through the power of unparalleled storytelling, reflecting the iconic brands, creative minds and innovative technologies that make ours the world’s premier entertainment company.
Revenue and Net Income
2019
Total Revenue Net Income 69570 11054 2018
Total Revenue Net Income 59434 12598 2017
Total Revenue Net Income 55137 8980
Consolidated Income statement
Consolidated Income statement Continued..
Consolidated Balance sheet
Cash flow statement
Ratios analysis
In this ratio analysis we are going to find out eight key aspects or ratios based on balance sheet, income statement, and cash flow statement. Below is the list of ratios we are going to calculate for years 2019 and 2018 of Walt Disney Company.
Working Capital
Current Ratio
Acid-Test Ratio
Debt-Equity Ratio
Price-Earnings (P/E) Ratio
Gross Profit Margin
Return on sales
Net Profit Margin
Inventory Turnover
1) Working capital
Working capital is a key concept in operating a business. It is important to keep a reasonable amount of working capital to ensure that short-term obligations can be paid on time, opportunities for volume expansion can be seized, and unforeseen circumstances can be handled easily.
Working capital is current assets minus current liabilities
For 2019: = $28,124 million - $31,341 million = -3217 million
For 2018: = $16,825 million - $17,860 million = -1035 million
Working capital is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital.
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2) Current Ratio
Current Ratio (CR) measures the ability of the company to meet its Current Liabilities (CL), i.e., Current Assets (CA) gets converted into cash in the operating cycle of the firm and provides the funds needed to pay for CL. The higher the current ratio, the greater the short-term solvency.
Current Ratio = Current Assets / Current Liabilities
For 2019: CR = $28,124 million / $31,341 million = 0.89
For 2018: CR = $16,825 million / $17,860 million = 0.94
A popular rule of thumb is that a company’s current ratio should be at least 2 to 1., which is considered as quite healthy. But in this case CR is 0.89 & 0.94 for years 2019 & 2018 which is not that good indicator.
The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its short-term obligations. It compares a firm's current assets to its current liabilities, and is expressed as follows: The current ratio is an indication of a firm's liquidity.
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3) Acid-Test Ratio
To get a better picture of a company’s ability to meet its short-term obligations, many analysts prefer the acid-test ratio (or quick ratio), defined as follows:
Acid-Test Ratio = Quick Assets / Current Liabilities
Quick assets are defined as cash, marketable securities, accounts receivable, and current notes receivable. These assets typically can be converted into cash much more quickly than inventory or prepaid expenses can. Therefore, inventory and prepaid expenses are excluded from quick assets.
For 2019: ATR = $20,899 million / $31,341 million = 0.66
For 2018: ATR = $13,484 million / $17,860 million = 0.75
Industry average for Acid-Test Ratio is 1 : 1
In finance, the quick ratio, also known as the acid-test ratio is a type of liquidity ratio, which measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately.
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4) Debt-Equity Ratio
The debt-equity ratio measures the relationship between the firm’s resources provided through debt and those provided through ownership. In general, the greater the debt-equity ratio is, the riskier the company is as an investment. Greater debt means larger obligations to be satisfied before the claims of the company’s owners can be met.
Debt-equity ratio = Total liabilities / Total stockholders’ equity
For 2019: DER = = ($8857 million + $38129 million) / $88877 million = 0.53
For 2018: DER = ($3790 million + $17084 million) / $48773 million = 0.42
Industry Standard Average: 1 to 1.5
The debt-to-equity (D/E) ratio is calculated by dividing a company's total liabilities by its shareholder equity. These numbers are available on the balance sheet of a company's financial statements. The ratio is used to evaluate a company's financial leverage.
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5) Price-earnings ratio
The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings.
Price-earnings ratio = Market price per share / Earnings per share
For 2019 : $ 130 / $6.68 = 19.46
For 2018 : $ 108 / $8.40 = 12.85
Thus, common stock was selling for 19 times in 2019 and 13 times in 2018 the firm’s earnings per share.
Some investors use the price-earnings ratio to help determine the appropriate price for a company’s stock.
P/E ratios are used by investors and analysts to determine the relative value of a company's shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time.
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6) Gross profit margin
This ratio measures the relationship between gross profit and sales. This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing.
Gross profit Margin = Gross Profit ÷ Revenue
For 2019: (Revenue - Cost of Goods Sold) / Revenue
= ($69570 million - $42018 million) / $69570 million
= $27552 million / $69570 million = 39.60 %
For 2018: ($59434 million - $32726 million) / $ 59434 million
= $26708 million / $ 59434 million = 44.93 %
As a rule of thumb, a 10% net profit margin is considered average, a 20% margin is considered good, and a 5% margin is low. But you should note that what is considered a good margin varies widely by industry.
Gross profit margin is a metric analysts use to assess a company's financial health by calculating the amount of money left over from product sales after subtracting the cost of goods sold (COGS). Sometimes referred to as the gross margin ratio, gross profit margin is frequently expressed as a percentage of sales.
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7) Return on sales
Return on sales (ROS) is a measure of how efficiently a company turns sales into profits.
Return on Sales = Net Income / Sales
For 2019: ROS = $ 11,054 million / $42,018 million= 26.30%
For 2018: ROS = $ 12,598 million / $32,726 million = 38.49%
ROS is useful when comparing companies in the same line of business and of roughly the same size. Most companies are happy to get a 5-10% return on sales. Obviously, if you're unprofitable and losing money, your bottom line is going to be a negative number.
ROS is only useful when comparing companies in the same line of business and of roughly the same size.
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This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios provide an understanding of the cost and profit structure of a firm.
Net Profit Margin = Net profit / Net sales
For 2019: Net Profit Margin = $11,054 million / $69570 million = 15.89 %
For 2018: Net Profit Margin = $12,598 million / $59434 million = 21.19%
8) Net Profit Margin
Net profit margin is the percentage of revenue left after all expenses have been deducted from sales. The measurement reveals the amount of profit that a business can extract from its total sales.
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Inventory turnover is a ratio showing how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.
Inventory Turnover (Sep. 2019) = Cost of Goods Sold / ((Total Inventories (Sep. 2018) + Total Inventories (Sep. 2019)) / count )
For 2019: 42018 / ((1392 + 1649) / 2 )
42018 / 1520.5 = 27.63
For 2018: 32726 / ((1392 + 1649) / 2 )
32726 / 1520.5 = 21.52
9) Inventory Turnover
It is calculated to see if a business has an excessive inventory in comparison to its sales level.
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