The company I decided to use for our project is Amazon. Their stock ticker is AMZN with a
stock price of $116.33 as of today July 7, 2022 (Yahoo Finance, 2022). The industry they are
classified in would be internet retail. On July 5, 1994, Jeff Bezos founded Amazon from his
garage in Bellevue, Washington (McFadden, 2021). He intended on making it an online
marketplace for books, but it quickly expanded into more. Today you can purchase just about
anything on Amazon as it has become a one-stop shop.
On Amazon’s balance sheet, Amazon Prime memberships, and Amazon Web Services
(AWS) are classified under Unearned Revenue. Unearned revenue is money received by a
company or individual for a service or product that has yet to be provided or delivered. It is
recorded as a liability because it represents a debt owed to the customer (Liberto, 2022). An
example of unearned revenue for Amazon is Amazon Prime as members pay $99 upfront for
the entire year and Amazon takes the cash and puts it on the balance sheet and then amortizes
the $99 of revenue over 12 months of membership (Levy, 2017). In terms of valuation policy
under unearned revenue for Amazon, it states they have performance obligations related to
AWS associated with commitments in customer contracts for future services that have not yet
been recognized in their financial statements which leaves a weighted average remaining life
of long-term contracts of 3.5 years (SEC, 2018). I think this option is ok for Amazon to show
future revenue and growth but can look sketchy for investors because they are looking at the
company’s revenue as a total and not considering the unearned revenue which will show them
inaccurate reports if they are not including the unearned revenue.
Company – The Walt Disney Company
Stock Ticker – DIS
Stock Price - $97.11 (June 7, 2023)
Industry – Mass Media and Entertainment
The company was created in 1929 by Walt Disney. Originally a studio creating animated
cartoons, Disney Brothers Studios becoming successful by the 1950’s and later took the name
of The Walt Disney Company in 1986. With Mickey Mouse as its mascot, Disney has
developed into an entertainment company with parks, films, and products.
Looking at the liabilities on the balance sheet, Disney has increased their debts over the last
three years by 227% (Journal, 2022). One of the main reasons for this large increase in
liabilities is the accusation of Fox (Bryant, 2021). The purchase has created potential risk due
to the limited cash flows from their current revenue outlets due Covid and the decrease of
tourism over the last three years. With an uptick in the population getting out and traveling
once more, the company has the potential for future revenues to increase. The debt-to-equity
value ratios are lower for Disney compared to other companies which limits risk for future
earnings.
Valuation policies –
A Market Multiple-based Approach
Discounted Cash Flow Valuation
Based on their valuation approaches, I feel they the discounted cash flow valuation is a wise
decision as it allows the company to value their investments on it expected future cash flow.
With their large presence film and animation, it is difficult to cost due to the uncertainty
which could lead to potential variances, however the average of productions over time should
level these variances out.
The company that I am using for the project is Nike. The stock ticker for Nike is NKE. The
industry that NIKE is most famous for is its footwear. d They also sell apparel, equipment, and
accessories. The company headquarters is in Beaverton Oregon. Bill Bowerman and Phil
Knight founded the company on January 25, 1964. John Donahue is the current CEO. Nike
currently has over 73,000 employees and assets of over 37.4 billion USD. The item I selected
from the balance sheet that caught my eye is the Notes Payable piece. d From May 31, 2021, to
May 31, 2022, there was a 400% change in this line. This seems to be a huge change in a
year's time. Nike uses two different valuation methods; a market multiple-based approach
and a discounted cash flow (DCF) valuation. DCF is based on a two-stage approach that
discounts the company's expected cash flows using an estimate of the weighted average cost
of capital.
Nike has a great track record of performance in the financial sector, especially over the long
term. Stocks are not undervalued and valuation levels are reasonable. Nike has a clear
overall respectable approach on marketing merchandise. They are a leader on the competitive
side and are always looking to expand their customer base for their merchandise. d d
References:
Bryant, C. (2021, May 19). Disney Stock: Capital Structure Analysis (DIS). Investopedia.
Retrieved July 7, 2022, from https://www.investopedia.com/articles/markets/051116/disney-
stock-capital-structure-analysis-dis.asp
Journal, W. S. (n.d.). Dis | Walt Disney Co. annual balance sheet - WSJ. The Wall Street
Journal. Retrieved July 7, 2022, from https://www.wsj.com/market-
data/quotes/DIS/financials/annual/balance-sheet
Levy, A. (2017). What is Unearned Revenue, and Why Should Amazon Investors Care About
It? Retrieved on July 7, 2022, from: https://www.fool.com/investing/2017/02/09/what-is-
unearned-revenue-and-why-should-amazon-inv.aspx
Liberto, D. (2022). Unearned Revenue. Retrieved on July 7, 2022, from:
https://www.investopedia.com/terms/u/unearnedrevenue.asp#:~:text=Key%20Takeaways-
,Unearned%20revenue%20is%20money%20received%20by%20an%20individual%20or%20
company,debt%20owed%20to%20the%20customer.
McFadden, C. (2021). A Very Brief History of Amazon: The Everything Store. Retrieved on
July 7, 2022, from: https://interestingengineering.com/a-very-brief-history-of-amazon-the-
everything-store
SEC. (2018). Amazon.com, Inc. Retrieved on July 7, 2022, from:
https://www.sec.gov/Archives/edgar/data/1018724/000101872418000108/amzn-
20180630x10q.htm
Yahoo Finance. (2022). Amazon.com, Inc. Retrieved on July 7, 2022, from:
https://finance.yahoo.com/quote/AMZN?p=AMZN
