What comes to your mind when you hear the name of the company "Walt Disney"? If the answer is Mickey Mouse, Donald Duck or the Toy Story, then the Walt Disney Company can be sure that they have accomplished their mission. They are known from the smallest kids, whose rooms are filled with Disney movie character toys, to the grown-ups who still have nostalgic memories of cartoons and comic books. The Walt Disney Company ranks first among the most admired companies for quality of their product and service in 2010 (Cendrowski, 2010). So what does this company do that makes them so well know all around the world? There are five sectors in which a company operates: "Media networks, Parks and resorts, Studio entertainment, Consumer products and Interactive Media" (Annual Financial Report, 2009).
Media Networks consist of "domestic broadcast television network, television production and distribution operations, domestic television stations, international and domestic cable networks, domestic broadcast radio networks and stations, and publishing and digital operations"(Annual Financial Report, 2009).The Disney/ABC Television Group is the main area where the company operates. Moreover, the company's media networks include ABC owned television stations, business websites, and radio stations (Fact book, 2009). Media Networks generated the main revenues for the company compared to other sectors in which a company operates. The revenue for media networks for 2009 was 4,175 million dollars (Annual Financial Report).
The Walt Disney Company owns and operates Walt Disney World Resorts and parks in US, have dominant ownership in Paris, Hon Kong, and Tokyo (Annual Fiscal Report, 2009). The company is trying to expand Disney parks and resorts to other countries. In 2009 November 3, after 20 years of trying to get an approval of China government to build a Disneyland - theme park in Shanghai, the company succeeded (Barnes, 2009). According to Barnes, "the company's goal is to create an engine that will drive demand among China's 1.3 billion residents for other Disney products, from video games to Broadway-style shows to DVDs" (Barnes, 2009). The Fact book of the Walt Disney Company gives a very surprising fact that Disneyland in Paris welcomes more visitors than Louvre and the Eiffel tower combined (Fact book, 2009). Even this tells only the amount of visitors in one country, it still provides an overall picture in some way, that Disney parks and resorts are popular.
"The Studio entertainment segment produces and acquires live-action and animated motion pictures, direct-to-video content, musical recordings and live stage plays" (Annual Fiscal Report, 2009). The company is producing films that are shown in movie theatres, for home entertainment and for film markets. The Walt Disney Company expects to distribute around 14 films domestically. Furthermore, the company spends a lot of money on advertising and marketing the films before they are released. They do it in order to build audience's awareness and to increase the intent of a public to see the movie (Annual Fiscal Report, 2009). According to the recent data, "Disney-Pixar's movie Up was the first film to break $ 100 million in 3D box office receipts" (Fact book, 2009). The company is also know for having a Disney music group, which produces and distributes music in compact disks and DVDs, and Disney theatrical group, which "develops, produces and licenses live entertainment events" (Annual Financial Report, 2009).
"The Consumer Products segment engages to design, develop, publish, promote and sell a wide variety of products based on existing and new Disney characters and other Company intellectual property"(Annual Financial Report, 2009). The Company's merchandising licensing operations consists of variety of categories. Probably any kind of item that a person can think of has been already merchandised by the Walt Disney Company. Publishing includes books and magazines, which are translated into different languages and sold worldwide. "The Company owns and operates 231 stores in North America, and 109 stores in Europe" (Annual Financial Report, 2009). According to the Fact book of the Walt Disney Company, the "Disney Consumer Products is the world's largest licensor in terms of global sales" (Fact book, 2009).
The goal of interactive media of Disney is to deliver a "Disney-branded entertainment and lifestyle content across interactive media platforms" (Annual Financial Report, 2009). These interactive media platforms include video games, websites, and online virtual worlds. In 2009 the Disney online website ranked first as the "Community-family & Parenting Site, Family & Lifestyle site, and Kids Toys & Games site" (Fact book, 2009).
In overall, the Walt Disney Company provides a strong argument why it ranks the first for the quality and the goods that they are providing. They have developed a lot, and have succeeded in many operational areas.
Even though the United States is seen as the major country of the company's operations, Disney owns and leases properties all over the world. Since the company operates a worldwide business, it fully experiences the impact of interest rates changes, foreign currency fluctuations, commodity fluctuations and changes in the market value. It strongly defends its copyrights and trademarks, which has a high value and is well recognized. Disney's strategy is to define its most popular brands and expand them throughout the world. The company is required to test goodwill and other indefinite-lived intangible assets on the annual basis. During 2009, the company tested its goodwill and other intangible assets for impairment, and in fact recorded non-cash impairment charges of $279 millions. (Disney Annual Financial Report)
Across the diverse networks, films, parks, entertainment and various products, Disney strives to create content and products responsibility and high ethical standards. For the parks, the highest priority is the safety; for the products - the ability of the families to feel comfortable and satisfied with the goods in their homes, and overall to meet the expectations of the customers of the well-known Disney brand. Disney also makes efforts to be ecologically involved by reducing emissions, electricity, halving the garbage at its parks. It has its own comprehensive environmental plan, stated in the corporate responsibility report. (Treehugger) Disney is a public traded company. The price per share on 18th of April was $35.85. (Yahoo finance)
Since Disney is a huge corporation with many businesses, there is no a single corporation that competes with Disney in all the areas. However there are many individual competitors depending on type of business and location. The biggest competitors to Disneyland & California Adventure Park in Anaheim, CA are Knotts Berry Farm (Anaheim, CA), Universal Studios (CA), Magic Mountain Six Flags- (CA), Sea World - San Diego (CA), while the biggest competitors for Disney World in Orlando (FL) would be Universal Studios & Islands of Adventure - Warner Bros., Sea World (Orlando, FL), Busch Gardens (Tampa, FL), Six Flags (Atlanta, GA). The latter is a distant competitor - 5-6 hours away. The ABC Television Network, Disney Channel, ESPN, ABC Family Channel and the ESPN and Radio Disney networks and other broadcast and cable networks compete for viewers primarily with other television and cable networks, independent television stations and other media, such as DVDs, video games and the internet
Now after half-century successful life The Walt Disney Co. is facing the critical challenge of keeping the attention and dollars of a young generation raised on video games that demands more control over their entertainment than most Disney attractions provide. "Almost everything Disney does today is passive while kids today expect everything to be interactive," said Martin Lindstrom, a brand expert and author who has consulted for Disney. Disney is counting on the Internet, cell phones, digital projectors and other technology to make its parks more appealing to Gen-Y while maintaining the nostalgia that appeals to baby boomers. The other challenge that Disney faces is a growing number of competitors: the company finds itself competing against parks that feature taller, faster and scarier thrill rides. Today however the company also has to compete over its video games, 120 channels of TV and shopping malls, not only theme parks. Another challenge for the company is geographic. It is asking it self how many more many more places in the world can support a massive new multi-day theme park. Analysts say that there is a risk in moving too fast to attract tech-savvy kids at the expense of adults who recall more traditional park offerings with nostalgia. "There is always going to be a challenge to match up technology and gimmicks with good story. They have to be careful not to isolate their entertainment and attractions to boys 8-18" Coan, a former Disney employee said.
Headquarters of Walt Disney Company are situated in Burbank, California, United States. The company and its subsidiaries own and lease properties throughout the world: Burbank, CA & surrounding cities; Glendale, CA & North Hollywood, CA; Los Angeles, CA; New York, NY; Bristol, CT; Emeryville, CA, Hammersmith, England; other places in Europe, Asia, Australia and Latin America. The include parks and resorts, studio entertainments, and media networks.
It is obvious that Walt and Roy Disney were extremely creative in their performance, as they have managed to start a business and keep it profitable. So, what does company do in order to keep the numbers on financial statements high? First of all they always meet and often exceed customers' expectations, as CEOs go over budget or past the deadline in order to reach the best result. Furthermore, from the very first days company have been focusing on new ideas and grander plans, such as expanding parks and resorts (planning on building world class resort in Shanghai, China) where new advanced technologies and other innovations are involved. Moreover, Walt Disney invests in different companies. In early 1990s they bought ABC from Kansas City Star. This deal now turned into networking Disney Channel (the highest domestic rate at 2008), ABC Family and ESPN. Later, they purchased Marvel, the company that specializes on publishing comic books for kids, and made some deals with Pixar Animation Studios (CEO at Pixar Steve Jobs is key advisor at Walt Disney Co).
Walt Disney Co became one of the most well known and quality oriented entertainment and media enterprise in the world. Based on company's increasing market value, its successful ability of allocation of resources, implementation of innovations, different deals, purchases and grand plans for future, it can be guaranteed that company will remain leading in its sector at least for few more decades. Moreover their framework is a business model used by managers all around the world.
Analysis of the Financial Statements
Income Statement
The net income has been decreasing between 2007 and 2008 and from 2008 to 2009. It has changed from $4,687 in 2007 to $4,427 in 2008 to $3,307 in 2009. From 2007 to 2008 revenues for the year increased 7%, or $2.3 billion, to $37.8 billion; net income decreased 6%, or $260 million, to $4.4 billion; and diluted earnings per share increased 1% to $2.28. From 2008 to 2009 revenues for the year decreased 4%, or $1.7 billion, to $36.1 billion; net income decreased 25%, or $1.1 billion, to 3.3 billion; and diluted earnings per share decreased 23% to $1.76.
Balance Sheet
To analyze how the Walt Disney Company was balancing their assets, liabilities and shareholders equity, we need to focus on changes in the consolidated balance sheets of 2009 and 2008. The balance sheet is divided into two parts based on the commonly used accounting equation: ASSETS = LIABILITIES + SHAREHOLDER'S EQUITY. "This means that assets, or the means used to operate the company, are balanced by a company's financial obligations along with the equity investment brought into the company and its retained earnings" (Investopedia.com). Current Assets for the Walt Disney Company include cash and cash equivalents, receivables, inventories, television costs, deferred income taxes and other current assets. Current Assets from 2008 to 2009 increased by 223 millions. The rest of the assets were listed as follows: film and television costs, investments, parks, resorts and other property costs, intangible assets, net, goodwill and other assets. This was a total of 63,117 millions $ in 2009, and 62,497 millions $ in 2008. The Walt Disney Company increased their total assets by 620 million $. According to the Selected Data which is provided in the Annual Report 2009 of the Walt Disney Company, the company has been increasing their total assets since 2005. Back in 2005 it was 53,158 million $, which is now 63,117 millions $ (Annual Financial Report, 2009).
The other part of the balance sheet analyzes the right side of the equation: Liabilities + Shareholder's equity. Liabilities sector consists of current liabilities, borrowings, deferred income taxes, other long term liabilities and money interest. According to the provided data in an Annual Report 2009, the Walt Disney Company decreased their total current liabilities by 2,657 million $ from 2008 to 2009. This is a good sign, because decreasing obligations to pay someone gives more money for a company to use in other operations. However, the Walt Disney Company increased their long-term obligations by 2050 million $. Long-term liabilities give more time for a company to pay. However, having obligations is not a very favorable sign in general.
Shareholder's equity for the Walt Disney Company consist of the common stock that a company issues, treasury stock and retained earnings. The increase in stockholder's equity from 2008 to 2009 was 1,411 billions $. According to the Annual financial report in 2009, the company has been increasing their shareholder's equity since 2005 when it was 26,210 million $ and which is now 33,734 million $.
The best part for the balance sheet is to compute the equation ASSETS = LIABILITIES + STOCKHOLDER'S EQUITY, which has to balance on both sides of the balance sheet.
Statement of Cash Flow
The consolidated Statements for Cash flows of Disney Company show the material changes in the Net Income, which was $4,687 mill. in 2007, decreased to $4,427 mill. in 2008 and eventually to $3,307 mil, in 2009. Since the Statement of Cash Flows begins with Net income results, and then covers the Operating, Financing and Investing activities, the indirect method of Statement of Cash flow is used. The amount of cash used for investing activities has increased from $619 mil. in 2007 to $2,096 mil. in 2009. The amount of cash increased for investments is relatively high. This shows the willingness of the company to invest more during this period. At the same time, cash used in continuing financial activities has decreased from $3,619 mill. in 2007 to $2,552 mill. in 2009. During this period, the company significantly decreased the repurchases of common stock in their financial operations.
Liquidity analysis
In 2008 the current ratio was 1.0, but then it eventually increased to 1.3 in 2009. The current ratio shows a positive change in the company's measure of short-term debt-paying ability. This is a good sign, which shows that the company is able to deal with liabilities and pay them back.
Cash Flow Analysis
Disney generates more Cash Flow from Operating activities than from the net income. The Company has positive Cash at the moment. It has an increase in cash and cash equivalence from ($669mil.) in 2008 to $416 mil. in 2009. This means that the company did a good job in dealing with the cash decrease a year ago and eventually increased it in 2009. The cash in the beginning of the year 2009 was $3,001 mil. and became $3,417 mil. at the end. During last year, the company also decreased its accounts receivable, at the same time decreasing its liabilities (borrowings) by bigger amount. It spent more on inventory in 2009 than a year before, and invested more in land, parks, attractions, projects, buildings and equipment. It invested in parks, resorts and other property $1,753 mil.
Horizontal Analysis
The Horizontal Analysis helps to analyze financial statements and gain insight into year-to-year changes, comparing only two years in both dollar amounts and percentage. According to horizontal analysis, the current assets of the Disney Company increased from 2008 to 2009 by 1.9% ($223 mil.), while total assets by 1 % ($620 mil.). The positive change appeared in the current liabilities account, which decreased by 23%, which is $2,657 mil. While examining such changes and calculating the difference, it is important to consider both dollar amount and percentage to see the real change of each component.
Trend Analysis
Dollar value (mil.)
2009
2008
2007
2006
2005
Net Income
3 307
4 427
4 687
3 374
2 533
Operating Income
5 658
7 402
7 725
5 324
3 811
Trend Analysis (%)
2009
2008
2007
2006
2005
Net Income
130.5
174.7
185.0
133.2
100.0
Operating Income
148.4
194.2
202.7
139.7
100.0
Appendix
Ratios:
Current Ratio:
Current ratio2008 = 11,666/11,591=1.0 (times);
Current ratio2009=11,889/8,934=1.3 (times);
Receivable Turnover:
(2009)= 36,149/((4,854+5,373)/2)=7 (times)
(2008)=37,843/((5,373+5,032)/2)=7.2 (times)
Inventory Turnover:
(2009)= 30,452/((1,271+1,124)/2)=25.4 (times)
(2008)= 30,400/((1,124+641)/2)=34.2 (times)
Days; inventory on hand:
(2009)=365(days)/25.4=14.4 (days)
(2008)= 365 (days)/34.4=10.6 (days)
Profitability Ratios:
profit margin
2009= 3 307/36,149 = 9 %
2008= 4 427/36,149 = 12 %
asset turnover
2009= 36,149 /11 777.5 = 3.07 times
2008= 36,149 /11 490 = 3.15 times
return on asset
2009= 0.28
2008= 0.39
return on equity
2009= 0.1
2008= 0.14
Solvency Ratios
2009 Debt to Equity Ratio times
2008 Debt to Equity Ratio times
2009 Interest coverage ratio 10.6
2008 Interest coverage ratio 11,3
Adequacy of cash flows ratios:
Cash Flow Yield 2009= Net Cash Flows from Operating Activities/ Net Income = 5,064/3,307 = 1,53 times
Cash Flows to Sales 2009 = Net Cash Flows from Operating Activities/ Net Sales = 5,064/36,149 =14%
Cash Flows to Assets 2009 = Net Cash Flows from Operating Activities/ Average Total Assets = 5,064/ ((63,117 + 62,297)/2) = 8.1%
Free cash flow 2009= Net Cash Flows from Operating Activities - Dividends - Net Capital Expenditures = 5,064 - 648 - 1,753 = 2,663 (million $)
Market strength ratios:
Price/Earnings (P/E) ratio 2009 = Market Price per Share/Earnings per Share = 25.93/1.76 = 14.73 times
Dividends yield 2009 = Dividends per Share/Market price per Share = 0.35/25.93 = 1.35%
