Walt Disney World Financial Analysis

Income statement

The statement shows that the revenue, gross profit, operating income, and net income improved. This can be attributed to successful strategies such as diversification that are implemented by the company (The Walt Disney Company, 2015).

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Balance sheet

The balance sheet also grew during the period. There was an increase in current assets, total assets, liabilities, and equity balances during the period. The value of debt and equity grew during the period. Further, it can be observed that equity exceeds the amount of debt (The Walt Disney Company, 2015).

Cash flow statement

The net cash flow generated from operating activities improved. It is an indication that the operating segment of the business generates a high amount of cash that can support smoothing running of the business. Further, the company made investments during the period. A high percentage of the investments were made in property, plant, and equipment. Further, the company used cash in financing activities. A significant proportion of the cash was used in common stock repurchases followed by debt repayment and dividend payment. The amount spent on stock repurchase exceeds the amount spent on the purchase of properties, plants, and equipment. Finally, the company had positive values of free cash flow during the period. This represents cash available for investment and other uses (Collier, 2010).

Earnings per share

2011 2012 2013 2014 2015
Basic 2.56 2.56 2.56 2.56 2.56
Diluted 2.52 3.13 3.38 4.26 4.90

The ratio measures the percentage of earnings that is attributed to the shareholders. The diluted and basic earnings per share were high and they improved during the period. This can be attributed to both an increase in net income and a decline in the weighted average number of shares during the period. The company implemented a share repurchase plan using cash. This has led to a decline in the number of shares and cash (Needles, Powers & Crosson, 2010).

Ratio analysis

The table presented below shows a summary of ratios for the company

2011 2012 2013 2014 2015
Profitability
Gross profit margin % 19 21 21 45.9 45.9
Net Margin % 11.76 13.44 13.62 15.37 15.98
Return on Assets % 6.8 7.73 7.86 9.07 9.73
Cash Flow Ratios
Cap-Ex as a % of Sales 8.7 8.95 6.21 6.78 8.13
Free Cash Flow/Sales % 8.4 9.89 14.78 13.25 12.66
Free Cash Flow/Net Income 0.71 0.74 1.08 0.86 0.79
Liquidity
Current Ratio 1.14 1.07 1.21 1.14 1.03
Quick Ratio 0.77 0.77 0.93 0.85 0.75
Leverage and coverage ratios
Interest Coverage 19.49 20.62 28.56 42.65 47.91
Financial Leverage 1.93 1.88 1.79 1.87 1.98
Debt/Equity 0.3 0.28 0.29 0.28 0.29
Efficiency ratios
Receivables Turnover 7.13 7.14 7.01 6.99 7.12
Inventory Turnover 21.81 21.34 23.54 17.26 18.04
Fixed Assets Turnover 2.18 2.05 2.05 2.14 2.16
Asset Turnover 0.58 0.58 0.58 0.59 0.61

Profitability

The profitability ratios of the company improved during the period. This can be attributed to an increase in both the value of sales and net income. It shows that the efficiency in managing sales and the cost of running the business improved during the period.

Cash flow ratios

There was a slight improvement in the cash flow ratios. This is favorable to the business because it shows how the company’s revenue is transformed into cash and income (Brigham & Michael, 2009).

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Liquidity ratios

The current and quick ratios fluctuated during the period. There was a general decline in the value of this ratio with a slight increase in 2013. The ratios show that the company is facing difficulties in meeting current obligations using current assets. The low value of liquidity ratios can partly be attributed to the share repurchase plan that was implemented by the company. This has put upward pressure on the cash balances.

Leverage and coverage ratios

The leverage ratios fluctuated during the period. The value dropped and later increased. This shows that the leverage level of the company increased. This shows that the amount of debt increased during the period. The interest coverage ratio for the company improved during the period. This can be attributed to the increase in profits. It shows that the company has the potential of paying debt and interest costs with ease (Graham, Smart & Meggison, 2010).

Efficiency ratios

The company had a general decline in the efficiency ratios. This shows a decline in asset management and utilization. Low-efficiency ratios are unfavorable to the organization.

Return on equity

2011 2012 2013 2014 2015 Industry
Return on Equity % 12.84 14.73 14.41 16.6 18.73 13.87%

There was a significant increase in the values of return on equity for the company. The values were higher than the industry average. This shows that the company is performing better than the industry. Higher values can be attributed to the high amount of net income that arises from the ability of the company to generate revenue from their diversified operations (Abraham, Glynn, Murphy & Wilkinson, 2010). Thus, with a diversification strategy, the divisions that are not performing well are covered by divisions that are performing extremely well.

SWOT Analysis

Strength

  1. The company has a high level of profitability as a result of a strong brand name and diversification strategy that is employed by the company. The division of the company is quite a profit and each is generating a high of revenue and profit.
  2. The company has a high amount of cash balance as seen in the balance sheet. This allows the company to cope with the ever-changing industry trends and expand its operations. Thus, it allows the company to be flexible in its operations.

Weaknesses

  1. The company experiences a high cost of doing business. For instance, the company spends a lot of money on purchasing broadcasting rights for several events such as sports.
  2. A major flop in any area of the business can result in massive losses to the business. This is based on the fact that the company operates in an extremely unrestrained environment. For instance, the company incurred a loss amounting to about $200 million as a result of poor marketing of John Carter in the year 2012 (The Walt Disney Company, 2015).
  3. Since the company is operating as a conglomerate, it has a high sunk cost. This lowers the future financial ability of the entity. Also, the cost of updating all its facilities continues to escalate. This also makes running the business quite challenging.

Opportunities

  1. A review of financial statements shows that about 25% of the revenue is generated from regions that are outside the United States and Canada (The Walt Disney Company, 2015). This shows that the company has an opportunity to expand the international market ad grow the revenue that is generated from outside these countries.
  2. An increase in research and development costs enables the company to create products that have the opportunity to increase sales.

Threats

  1. The rapid acquisitions that are made by the company can result in lower sales and profits. The acquisitions may also affect the brand name of the entity.
  2. High competition in the industry globally exposes the company to lower sales and profits.

References

Abraham, A., Glynn, J., Murphy, M., & Wilkinson, B. (2010). Accounting for managers. USA: South­-Western Cengage Learning.

Brigham, E., & Michael, J. (2009). Financial management theory and practice. USA: South-Western Cengage Learning.

Collier, P. (2010). Accounting for managers. USA: John Wiley & Sons.

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Graham, J., Smart, S., & Meggison, W. (2010). Corporate finance: linking theory to what companies do. USA: Cengage Learning.

Needles, B., Powers, M., & Crosson, S. (2010). Principles of accounting. USA: South­-Western Cengage Learning.

The Walt Disney Company. (2015). Reports and financial information. Web.

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