Last Updated 07 Jul 2020

Company Financial Analysis

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According to Investopediaxxvii, a bond rating is a grade given to bonds that indicates their credit quality. Private independent rating services such as Standard & Poor's, Moody's and Fitch provide these evaluations of a bond issuer's financial strength, or it's the ability to pay a bond's principal and interest in a timely fashion. As Investopedia further explains, Bond ratings are expressed as letters ranging from 'AAA', which is the highest grade, to 'C' ("junk"), which is the lowest grade. Different rating services use the same letter grades, but use various combinations of upper- and lower-case letters to differentiate themselves.

Annexed to this document is Moody's "At-a-Glance" Financials of The Walt Disney Company. In this document, we find that the rating given to Disney is a Long Term Rating of A2 defined by Moody's as "upper-medium grade", subject to "low credit risk", but that have elements which "present and suggest a susceptibility to impairment over the long term". Moody judges obligations rated A as "upper-medium grade", subject to "low credit risk", but that have elements which "present and suggest a susceptibility to impairment over the long term".

Walt Disney Company Financial Analysis Conclusion

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In general, Disney exhibits substantially greater profitability and has good consistency from year to year. Using the financial leverage ratios we can see how the company utilizes their money from debt. There are three ratios to analyze from the balance sheet. First is Asset to Equity and if we compare it to similar industries, Disney's financial leverage is low at 1.9, meaning it does not have a substantial amount of debt maintained.

Second, the debt-to-assets ratio measures how much of Disney's assets are financed though debt. Disney's ratio is 0.47 which is below 1.0; implying most of Disney's assets are paid for by equity. The third ratio is the debt-to-equity ratio. A ratio over one hints at a riskier venture because it includes financing with higher debt levels and a ratio under one denotes higher financing with equity. Disney's debt-to-equity ratio is 0.38, which suggests that for every dollar Disney gets from shareholders for its assets, Disney gets 38 cents in debt also. Investors do not have worry about creditors going after Disney.

There are also the profitability ratios which consist of net profit margin, return on equity (ROE), and return on assets (ROA). These ratios give investors some insight as to how well a company does at creating profits. The ROE will show how efficiently a company uses its capital. The ROA will show the productivity of its assets. The net profit margin shows how effective a company is at their cost control. It demonstrates how well a company can turn its revenue into profits. Disney's net profit margin is 9.15%, which is a good ratio and falls in range with competitors of the same industry.

Disney's 2009 ROE is 9.8%. Comparing this ROE with other companies in the same industry shows that Disney is in the middle. Some competing companies include New Corp (-13.0%), Time Warner (6.5%), and Viacom (20.5%). Disney's 2009 ROA is 5.24%. Comparing this ROA with other companies such as News Corp (-5.8%), Time Warner (2.8%), and Viacom (7.3%), Disney is at the higher end of its competitors. Disney can service its debt because they are a mature company with a well recognized name who still generates revenue. This factor can lead to external funding by a bank or other source to help in the financing its debt.

Disney's free cash flow for 2009 is 3.3B and has had a net increase in cash balance of (+) 416M in 2009 which has created cash efficiency of their operations and the balance sheet. Even though Disney is in the mature stage of its company life-cycle, it still generates money and positive cash flow allowing reinvesting and paying off debt. Liquidity is one determinant of a company's debt capacity and is an insight as to if an asset can be readily turned into cash or if a liability must be repaid in the near future. Disney's current ratio is 1.33. Disney has a rather good current ratio which means that they do not lack liquidity and can readily reduce its current assets for cash.

Taking the acid test which reduces inventory from the current ratio it yields 1.12. Any ratio over 1.0 means that the company can readily pay off their current liabilities. Disney's working capital is $2,955. Any company that has a positive amount for their working capital is in good shape. The positive value means that Disney can fund their short term liabilities with their assets. Disney also supplies its investors with dividends.

Disney's dividend yield on yahoo finance is .35. The yield ratio tells an investor how much money they could receive per dollar they invest. The higher the ratio, the more money received. Disney's dividend payout is 20% according to yahoo finance. The dividend ratio tells a potential investor how well Disney's revenues support its dividends payouts. Mature companies tend to have higher ratios, which, like Disney, they can afford to pay their investors their current dividend payments.

The price per earnings ratio is 20.8 according to yahoo finance. The high number tells investors that the market has high expectations of the firm's future of financial health. The actual price per book value is 19 yet the stock value is at 36 which could mean that the stock is over valuated, yet after running the DCF valuation of the equity, we arrive at the same share price of 36, meaning that the discounted value of the stock coincides with the market value, therefore reassuring the stocks actual market value. Furthermore, the current ROE is 9.8%, but the forecasted ROE is 12.6%, which also supports the company's current and future strength. Taking into account all the aforementioned data and industry comparisons we conclude that Disney is a strong company which has a solid financial future making it a good and sound investment in the long run.

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