Business finance project financial statement analysis the walt disney company

However, the overall proportion of current liabilities to the common-base year decreased in 2022, indicating a reduced short-term debt burden.. Their proportion of common stock to the co

NATIONAL ECONOMICS UNIVERSITY

SCHOOL OF ADVANCED EDUCATIONAL PROGRAMS

BUSINESS FINANCE PROJECT

FINANCIAL STATEMENT ANALYSIS The Walt Disney Company

Lecturer: Prof Taewon Yang

Advanced Finance 63C - Group 2:

Đỗ Phương Anh – 11210339 Ngô Quỳnh Chi – 11211079

ạm Thu Hương – 11217101Ph Nguyễn Thị Thùy Dương – 11211603 Nguyễn Mai Thảo Anh – 11215493 Ngô Phương Linh – 11213213

Nguyễn Thái Châu Anh – 11211030 Trần Khánh Linh – 11213432

Lê Phương Thảo – 11215382 Phạm Thanh Phương – 11214875 Nguyễn Lê Lan Chi – 11219444 Nguyễn Ngọc Quỳnh - 11215091 Trương Mỹ Anh - 11210799 Nguyễn Thị Cẩm Vân – 11216199

Hanoi, 2023

A INTRODUCTION 1

3 Content Sales/Licensing and Other 2

4 Disney Parks, Experiences and Products (DPEP) 2

1 Analysis of changes in Assets and Liabilities and Equity 7

2 Analysis of structure and changes in structures of Assets and Liabilities and Equity 8

IV Cash Flow from Assets Analysis 15

2 Analysis of changes in cash flow from assets in 2021 and 2022 16

A INTRODUCTION

I Overview - Business Model

Overview of business model: The Walt Disney Company (DIS) operates various entertainment businesses such as theme parks, resorts, a cruise line, and broadcast television networks It also produces live events and streams a wide range of film and TV content through its digital streaming services

Competition: Disney faces competition from companies like Paramount Global, Comcast Corp., Sony Group Corp., AT&T Inc., Netflix Inc., Apple Inc., Amazon.com Inc., Six Flags Entertainment Corp., SeaWorld Entertainment Inc., and Hilton Worldwide Holdings Inc

Disney Media and Entertainment Distribution (DMED): This segment includes three components: Linear Networks, Direct-to-Consumer, and Content Sales/Licensing and Other Here is a summary of the financial performance by segment:

1 Linear Network

Disney’s Linear Networks segment operates a long list of properties, including domestic

and international cable networks such as Disney, ESPN, and National Geographic; ABC broadcast television network and eight domestic television stations; and a 50% equity investment in A+E Television Networks

Revenue for this segment was $7.7 billion in Q1 FY 2022, with operating income of

$1.5 billion This segment accounts for approximately 35% of total revenue and 38% of total

operating income

2 Direct-to-Consumer

Disney’s Direct-to-Consumer (DTC) segment is composed of its various streaming

services, including Disney+; Disney+ Hotstar; ESPN+; Hulu; and Star+.

Revenue for this segment was $4.7 billion in Q1 FY 2022, representing a 33.8% increase from the same period the previous year The operating loss for this segment was $593 million, wider than the operating loss of $466 million reported in the year-ago quarter This segment accounts for around 21% of total revenue

3 Content Sales/Licensing and Other

Disney’s Content Sales/Licensing and Other segment sells film and television content

to third-party TV and subscription video-on-demand (VOD) services. The segment also includes the following operations: theatrical distribution; home entertainment distribution, such

as DVD and Blu-ray; music distribution; staging and licensing of live entertainment events on Broadway and around the world; post-production services through Industrial Light & Magic

and Skywalker Sound; and a 30% ownership interest in Tata Sky Ltd., an India-based operator

of a direct-to-home satellite distribution platform

This segment generated revenue of $2.4 billion in Q1 FY 2022, a 42.9% increase from the previous year However, the segment reported an operating loss of $98 million compared to operating income of $188 million in the year-ago quarter This segment accounts for

approximately 11% of total revenue

4 Disney Parks, Experiences and Products (DPEP)

This segment includes theme parks, resorts, and consumer products Disney’s Parks,

Experiences and Products segment is composed of theme parks and resorts in Florida, California, Hawaii, Paris, Hong Kong, and Shanghai It also includes a cruise line and vacation club Revenue comes mainly from selling theme park admissions, food, beverages, various merchandise, resort and vacation stays, and royalties from licensing intellectual properties Revenue for this segment was $7.2 billion in Q1 FY 2022, representing a significant increase of 101.6% from the year-ago quarter The segment reported operating income of $2.5 billion, a significant improvement from the operating loss of $119 million in Q1 FY 2021 This

segment accounts for about 33% of Disney's total revenue and approximately 62% of total

operating income

II Recent news and developments

Walt Disney, in comparison to other rivales, has gained great advantages due to its treasure of intellectual property The company’s enormous collection of characters and shows, which has become people’s precious part of their childhood, makes it easier for the company to take initiatives, put out movies, shows and theme park attractions

Recently, Disney’s utilisation of new visual effect technology in depicting characteristics has been a spotlight of its recent activities with the movies Elemental Besides, thanks to Iger - CEO of Walt Disney’s newly adopted strategy, the company has successfully narrowed its loss due to higher cost in the previous year In fact, Disney’s streaming services have gained many more millions subscriptions thanks to its effective effort, investment and greater focus on quality of content over quantity And later on this year, Disney will increase the price of its ad-free subscription plan All of this should help the company approach its goal

of profitability for Disney+ in the 2024 fiscal year

B FINANCIAL STATEMENT ANALYSIS

I Balance Sheet Analysis

The balance sheet, basically, shows what a firm has It is a convenient means of organising and summarising what a firm owns (its assets), what a firm owes (its liabilities), and

combines common-size and base year analyses - which is also called the standardised balance sheet, not only the trend can be discussed and analysed, the effect of the firm’s overall growth can also be taken into consideration

Balance Sheet

Common-size and Base year 9/29/2022 9/29/2021 9/29/2020 2021 2022 2020 2021 2022 2021 2022 ASSET

Current Assets

Cash And Cash Equivalents 11,615 15,959 17,914 0.89 0.65 8.9% 7.8% 5.7% 0.88 0.64 Receivables, net 12,652 13,367 12,708 1.05 1.00 6.3% 6.6% 6.2% 1.04 0.99 Inventory 1,742 1,331 1,583 0.84 1.10 0.8% 0.7% 0.9% 0.83 1.09 Prepaid Assets 1,890 2,183 2,171 1.01 0.87 1.1% 1.1% 0.9% 1.00 0.86 Other Current Assets 1,199 817 875 0.93 1.37 0.4% 0.4% 0.6% 0.92 1.36

Non-current assets

Net PPE 33,596 32,624 32,078 1.02 1.05 15.9% 16.0% 16.5% 1.01 1.04 Gross PPE 72,952 70,544 67,595 1.04 1.08 33.5% 34.6% 35.8% 1.03 1.07 Accumulated Depreciation 39,356 37,920 35,517 1.07 1.11 -17.6% -18.6% -19.3% 1.06 1.10 Goodwill And Other

Intangible Assets 92,734 95,186 96,862 0.98 0.96 48.1% 46.7% 45.5% 0.97 0.95 Investments And Advances 3,218 3,935 3,903 1.01 0.82 1.9% 1.9% 1.6% 1.00 0.82 Non Current Deferred Assets 35,777 29,549 25,022 1.18 1.43 12.4% 14.5% 17.6% 1.17 1.42 Other Non Current Assets 9,208 8,658 8,433 1.03 1.09 4.2% 4.3% 4.5% 1.02 1.08

Total Non-Current Assets 174,533 169,952 166,298 1.02 1.05 82.5% 83.5%

Total current liabilities 29,073 31,077 26,628 1.17 1.09 14.3% 15.3% 13.2% 1.16 1.08

Borrowings 45,299 48,540 52,917 0.92 0.86 22.2% 23.8% 26.3% 0.91 0.85 Deferred Income Tax 8,363 7,246 7,288 0.99 1.15 4.1% 3.6% 3.6% 0.98 1.14 Other long-term liabilities 12,518 14,522 17,204 0.84 0.73 6.1% 7.1% 8.5% 0.84 0.72

Equity

Common Stock 56,398 55,471 54,497 1.02 1.03 27.7% 27.2% 27.0% 1.01 1.02 Retained Earnings 43,636 40,429 38,315 1.06 1.14 21.4% 19.9% 19.0% 1.04 1.13 Accumulated other

comprehensive loss -4,119 -6,440 -8,322 0.77 0.49 -2.0% -3.2% -4.1% 0.77 0.49 Treasury stock -907 -907 -907 1.00 1.00 -0.4% -0.4% -0.5% 0.99 0.99 Total Shareholders' equity 95,008 88,553 83,583 1.06 1.14 46.7% 43.5% 41.5% 1.05 1.13

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Total Equity Gross

Total liabilities and equity 203,631 203,609 201,549 1.01 1.01 100.0% 100.0% 100.0% 1.00 1.00

- Non-current assets:

The non-current assets, on the other hand, witnessed a slight increase from 2020 to 2022

To be more specific, the non-current assets grew by about 2% in 2021 and 5% in 2022 The rise

in non-current assets can benefit the firm in several ways, such as creating sustainable revenue streams and improving long-term profitability

1.2 Liabilities and Equity

- Liabilities:

The total current liabilities increased from 2020 to 2021 (from $26,628M to $31,077M) and then slightly decreased in 2022 at $29,073M This change was primarily driven by fluctuations in accounts payable and other accrued liabilities and current portion of borrowings However, the overall proportion of current liabilities to the common-base year decreased in

2022, indicating a reduced short-term debt burden

Long-term borrowings and other long-term liabilities showed a declining trend from

2020 to 2022 This suggests a reduction in long-term debt obligations for the company Their proportion of borrowings to the common-base year also decreased in 2022, which reflected the decreased reliance on long-term debt

Deferred income tax remained relatively stable over the years, with a slight increase in

2022 at $8,363M The proportion of deferred income tax to the common-base year increased in

2022, indicating a relatively higher tax liability

- Equity:

The value of common stock and retained earnings witnessed an increase over the years While the rise in common stock indicated potential equity investments in the company, the increase in retained earnings showed profitability and retained profits within the company Their proportion of common stock to the common-base year increased in 2022, suggesting an increase in equity financing and retained profits

The accumulated other comprehensive loss decreased over the years and the proportion

of accumulated other comprehensive loss to the common-base year decreased significantly in

2022, indicating a positive impact on equity

Treasury stock remained constant over the years at $907M, which means no significant changes in the company's stock repurchases

The total shareholders' equity increased consistently over the years, primarily driven by increases in common stock and retained earnings The proportion of total shareholders' equity

to the common-base year increased in 2022, showing overall growth in equity

nearly $14,000M , indicating no significant changes in the ownership interests of minority shareholders The proportion of minority interest to the common-base year decreased in 2022, suggesting a relatively smaller impact from minority shareholders

Overall, the company experienced a decrease in its short-term and long-term liabilities, indicating a stronger financial position Additionally, the company's equity grew, primarily driven by increases in common stock and retained earnings These trends suggest improved financial stability and potential for future growth

2 Analysis of structure and changes in structures of Assets and Liabilities and Equity 2.1 Assets

- Current assets:

Total current assets, as a percentage of total assets, have always been much smaller than the non-current assets, and even going through a gradual decrease in the 3-year period Specially, the cash and cash equivalents account’s contribution to the total assets drop significantly from 8.9% to 5.7% from 2020 to 2022 A decrease in cash and cash equivalents can have various consequences for a company, including reduced liquidity, limited investment opportunities, increased borrowing, reduced flexibility, and shareholder dissatisfaction Therefore, the Walt Disney Company should carefully manage their cash flow to maintain an adequate level of cash and cash equivalents to fund their operations and investments

2.2 Liabilities and Equity

- Liabilities:

Current liabilities as a percentage of total liabilities decreased slightly in 2022 compared

to 2021 (from 15.3% down to 14.35%) However, they still represent a significant portion of the company's overall liabilities Proportion of Long-term borrowings in total liabilities decreased gradually over the years This indicates a decreasing reliance on long-term debt financing for the company Deferred income tax remained relatively stable as a percentage of total liabilities, indicating a consistent tax liability for the company

The proportion of total liabilities decreased from 51.6% in 2020 to 46.8% in 2022, indicating improved financial stability This was primarily driven by a decrease in borrowings and other long-term liabilities

- Equity:

Common Stock represents a significant portion of the company's equity at around 27% and remained relatively stable over the years Retained earnings as a percentage of total equity increased gradually over the years (from 19% in 2020 to 21.4% in 2022), which shows the company's ability to accumulate profits and retain them within the business The accumulated

indicates a reduction in losses from other comprehensive income, which positively impacted the company's equity Treasury stock represents a small portion of the company's equity and remained relatively stable over the years Minority Interest: Minority interest as a percentage

of total equity remained relatively stable over the years This suggests that the ownership interests of minority shareholders did not change significantly

The proportion of total equity increased from 48.4% in 2020 to 53.2% in 2022, primarily driven by increases in common stock and retained earnings This suggests improved financial strength and potential for future growth

Overall, the company experienced a decrease in the proportion of liabilities and an increase in the proportion of equity, indicating improved financial health The decrease in long-term borrowings and other long-term liabilities, along with the increase in retained earnings, contributed to this positive change These trends reflect a stronger balance sheet and suggest a more stable and resilient financial position for the company

II Income Statement Analysis

The income statement focuses on the revenue, expenses, gains, and losses of a company during

a particular period It provides valuable insights into a company’s operations and the efficiency

of its management Here are income statements of Disney company for 3 latest years: 2020,

Other expenses and

loss 453 1 205 2 064 0.69% 1.79% 2.5%

It is obvious that Disney’s revenue experienced a relentless upward trend from 2020 to

2021 with $65 388, $67 418 and $82 722 million correspondingly Interestingly, there was a drastic acceleration with 26,5% growth compared to the base year 2020, however, it is also understandable when the Covid-19 pandemic in 2020 posed a serious threat to all the industries

in the world

It also leads to the exponential uptrend from $43 880 million (2020) to $54 311 million (2022) in cost of revenues although when it comes to the common-size income statement, the proportion of this cost compared to sales has a slight deterioration around 67%

As a consequence, Disney also witnessed an exponential rise in gross profit in both 2 types of income statement with its crown in 2022 ($28 411 million and 34,35%) Total operating expenses tended to decrease from 2020 to 2022 The yearly figure in this period was $23 449 million in 2020, $19 282 million in 2021 and $21 788 million in 2022

As the percentage of sales, the figure still experienced a substantial decline These numbers indicate that the company reduced expenses for their operating activities throughout the 3-year period

In 2020, Disney witnessed net operating loss (-$1 941 million) However, the business was operated more effectively in 2021 and 2022 when net operating income in these two years were $3 005 million and $6 553 million, respectively Net income from continuing operations showed the same trend, negative figure in 2020 and positive figures in 2021 and 2022 Remarkably, the financial indicators showed that Disney had a good performance and

paid attention to improve its financial situation better year by year

III Ratio Analysis

1 Liquidity ratios

NWC to total assets 0.041 0.013 0.0001

The current ratio measures the firm’ ability to pay current obligations that are due within one year It can be seen that from 2020 to 2022, the current ratio has decreased gradually from 1.324 to 1 approximately, due to the decline in the current assets by 17,38% and increase in the current liabilities However, the ratio still remains higher than 1, showing that the company is still operating well

The quick ratio measures a company’s ability to meet its current liabilities with its most liquid current assets (current assets except inventories) Since Disney carries small inventory to speak of, the quick ratios of the business are not much different from the current ratio, with a downward trend from 1.264 to 0.941 in the same period

Other liquidity ratios such as cash ratio, net working capital to total assets and interval measure witnessed the same downward trend over the years

2 Financial leverage ratios

The total debt ratio of Disney has decreased slightly by 17,24% from 0.29 in 2020 to 0.24 in 2022 The ratio remains less than 1 showing good financial health of the company We can define two useful variations on the total debt ratio—the debt-equity ratio and the equity multiplier Disney remained the debt-equity ratio to be lower than 1 as they still managed the company’s debt well They were able to pay off debt urgently and had enough financial capacity

to deal with any liabilities

Another common measure of long-term solvency is the times interest earned (TIE) ratio This ratio measures how well a company has its interest obligations covered, and it is often

stating that Disney has more ability to pay its debts to continue to invest in the business The cash coverage ratio measures the firm’s ability to generate cash from operations, and determines the amount of cash available to pay for a borrower's interest expense With the upward trend in the cash coverage ratio in the period of three years, it indicated that business had more ability to pay off its liabilities with its existing cash

3 Asset management ratio

Days’ sales in inventory 9.38 7.62 8.37

Days’ sales in receivables 70.87 72.42 55.81

Net working capital turnover 7.58 26.13 3 308.88

Inventory turnover is a financial ratio showing how many times a company's inventory was turned over in relation to its cost of goods sold in a given period It is one of the efficiency ratios used to determine how well a company uses its assets Days’ sales in inventory indicates the average time in days that a company takes to turn its inventory, including goods that are a work in progress, into sales In 2020, the inventory turnover of Disney is 38.91 times In a sense, Disney sold off or turnover over the entire inventory 38.91 times, with inventory resting 9.38 days on average before being sold Inventory turnover ratio increased significantly in 2021

to 47.9 times, resulting in a decrease in days' sales in inventory The reason for the increase in inventory turnover is from the rise in cost of goods sold by the company However, it took Disney longer to sell and replace its inventory as a decrease from 47.9 to 43.6 in 2022 It also

took 8.37 days to convert Disney's inventory into sales, which was longer than in 2021

Receivable turnover ratio measures the number of times a company collects its average accounts receivable balance It is a quantification of a company's effectiveness in collecting outstanding balances from clients and managing its line of credit process Days’ sales in receivable indicate how many days it takes for the company to collect payment from the customers In 2020, Disney collected its outstanding credit accounts and reloaned the money