RATIO ANALYSIS – WALT DISNEY

 

Question: RATIO ANALYSIS – WALT DISNEY

Background Information

The company is ‘The Walt Disney Company’. As already famous, the company is in the field of making and producing movies and entertainment shows across the world. The company has a multifaceted role in the entertainment world. It is by far, the world’s largest media company. 
Robert A Iger is the chairman and CEO of the company.  The company has several business verticals which have separate leaders and report to the Group CEO. Some of the channels owned and run by the company are Disney Channel, ABC, ESPN. The entertainment units owned and operated by the company are Disneyland, Disney resort, etc (Thewaltdisneycompany, 2016).
Ratios for the calculation (finance.yahoo, 2016)

LIQUIDITY RATIO 

Particulars    2015    2014
Current Ratio = current assets/current liabilities    16,758,000/ 16,334,000    = 1.0259    15,169,000/ 13,292,000    = 1.141
Quick ratio = (Total current assets – stock – prepaid expenses)/current liabilities    13055000/16334000 = 0.799    11740000/13292000 = 0.882
The current ratio for the company indicates how exposed the company is towards discharging its current liabilities. The company has current ratio of above 1 which is good sign. Even though the current ratio of the company has decreased from year 2014 to 2015, but still the ratio is above 1 which is good in terms of accounting rations.
The quick ratio of the company has decreased marginally. The quick ratio is a more stringent measure of liquidity of the company as compared to the current ratio. The quick ratio has decreased for the company. The company can work in the area of improving its liquidity position even though the company has reasonable liquidity for covering its short term liabilities. 

Efficiency Ratio

Particulars    2015    2014
Accounts receivable ratio = Revenue/average accounts receivable    52,465,000/8552500 = 6.134    48,813,000/7885500 = 6.19
Average payable turnover ratio = cost of sales/ Average payable turnover    28,364,000/ 7719500 = 3.67    26,420,000/ 7199000 = 3.669
The accounts receivable ratio of the company indicates that how well the credit policy of the company is working. The more the receivable ratio, the better for the company. In the given case, the accounts receivable ratio for the company is decreasing slightly for the current year which means that as compared to the previous year, the company’s credit policy is not working better for this financial year.
In the case of accounts payable ratio, it indicates how well the company is able to discharge off its obligations. The higher ratio is not good for the company. However, in the given case, the ratio is exactly the same for the two years indicating that the company has been able to maintain the payable ratio. Also, in absolute terms, the ratio is not that high which is a good sign for the company. 

Leverage

Particulars    2015    2014
Debt equity ratio = long term debt / shareholder’s fund    12,773,000/ 44,525,000     = 0.286    12,631,000/ 44,958,000    = 0.280
Debt To Total Capital Ratio = Long term debt/Total capital    12773000/57298000 = 0.222    12631000/ 57589000 = 0.219
The ratio of debt-equity funds as the name suggests indicating that how well the long term financial position of the company is and to what extent does the company depends on its long term finances from the borrowed funds. In the given case, the company is maintaining a reasonable ratio and the increase in the ratio is also marginal which can be ignored.
The debt to total capital ratio of the company indicates the relationship of the outside debt to the total capital employed for the company. The ratio is minimal for the company and indicates the around 78% of the funds of the company are equity owned. The change in the ratio is also negligible. 

Profitability

Particulars    2015    2014
Gross profit ratio = gross profit/ revenue    24,101,000/ 52,465,000 = 0.459            22,393,000/ 48,813,000    =0.458 
Net profit ratio = net profit/revenue    8,382,000/52465000 = 0.159    7,501,000/48813000 = 0.153
The gross profit ratio of the company indicates how well the company is able to generate the profit out of the cost of sales of the company. The gross profit of the company is the same in both the years which indicates that the company has not been able to grow in the current year.
The net profit ratio of the company indicates how well the company is able to generate profits after deducting all of its operating and non-operating expenses from the revenue. The net profit ratio for both the years is the same which is not a good sign for the company as the has not been able to grow.

Conclusion

As per the ratio analysis, almost in all the cases, the ratios of the company in both the years are the same with minute changes. On the positive side, this can be taken as that the company has been able to maintain steady financial health despite stiff competition in the market. On the other hand, it indicates that the company has not been able to grow in the market. Overall, it can be concluded that the company in the current year understudy has grown in terms of absolute values and when compared on year on year basis. However, the ratio of the company suggests that there has been no turnaround improvement in the overall financial health of the company. 

References

Thewaltdisneycompany.com, 2016. The Walt Disney Company. [Online] Available at https://thewaltdisneycompany.com/about/ [Access Date 3rd September 2016]
finance.yahoo.com, 2016. The Walt Disney Company (DIS). [Online] Available at http://finance.yahoo.com/quote/DIS/financials?p=DIS [Access Date 3rd September 2016]

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