The Walt Disney Company - Term Paper Example

?The Walt Disney Company The Walt Disney Company Overview Walt Disney Company is a diversified multinational mass media corporation found in the United States (Pratt, 2011). It has its headquarters at Walt Disney studio, Burbank in California. Walt Disney is a mass media corporation recognized as the largest media conglomerate globally, due to the expanse of its revenue. Walt and Roy Disney founded the corporation in 1923 as Disney Brothers Cartoon Studio, growing progressively later to become one of the leading foundations in the American animation industry. It later diversified into productions of live film streaming, travel and television networks; changing its name to Walt Disney Company in 1986. The then existing operations of the Walt Disney company were expanded alongside the developing several divisions of publishing, music, theatre, online media and radio. The Walt Disney Company has developed other divisions that help in the marketing of mature contents as opposed to the previously marketed family oriented flagships that forms part of its vast revenue. Walt Disney studio is well recognized for the film products it produces, earning a place and recognition at the Hollywood. The film studio is the largest in America. Other American divisions operated by Walt Disney Company include Disney channel; a cable television network, ABC broadcast Television network, A+E Networks, ESPN, and ABC family. It also owns a number of theatres, merchandising and publishing corporations plus 14 theme parks all over the globe all of which it is licensed to undertake. Since the year 1991, Walt Disney has been a component of Dow Jones Industrial (Schaffer et al 2009). Its early cartoon creation, which is the official mascot of the Disney Company, is known as the Mickey Mouse that has starred in a number of Walt Disney produced films. Walt Disney acquired the ownership of the Marvel entertainment in December 2009 for $4.24 billion, with a deal not transform or affects any of the Marvel Company’s products and characters. In October 2009 after the replacement of Dick cook by Rich Ross, Walt Disney was put under massive restructuring. Ross was determined to increase the Company’s focus on the production of family friendly items36 (Securities Industry Foundation for Economic Education, 1997). The financial nature of the Walt Disney Company has been particularly attractive for an exceedingly long time. It has on the largest revenue base not only in the United States but also all over the world. It has continued to expand its divisions with among the latest acquisition being the ground breaking of Shanghai Disney Resort at a cost of $44.4 billion; expected to be opened in 2015. There are also plans underway to recruit new businesses or characters with exceptional abilities to improve on the Company’s stories and characters. It also announced in October 2012, that the Company intended to purchase Lucasfilm at a cost of $4.05 billion. Federal Trade Commission approved the merger; known as Disney-Lucasfilm in December 4 2012, giving the Company the green light to finalize the deal without the necessity of dealing with antitrust problems. In general, the Company is a five primary segments and units that include the Walt Disney Studios, Media networks, parks and resorts, studio entertainment and Disney consumer products such as clothing, toys and other Disney-owned property merchandise. Walt Disney Company Financial statement between 2009 and 2012 Currency in Millions of US Dollars As of: Oct 02 2010 Oct 01 2011 Sep 29 2012 Revenues TOTAL REVENUES Cost of Goods Sold GROSS PROFIT OPERATING INCOME Interest Expense Interest and Investment Income Other Non-Operating Expenses, Total Other Non-Operating Income (Expenses) Merger & Restructuring Charges Gain (Loss) on Sale of Investments Gain (Loss) on Sale of Assets Other Unusual Items, Total EBT, INCLUDING UNUSUAL ITEMS Income Tax Expense Minority Interest in Earnings Earnings from Continuing Operations NET INCOME 38,063.040 38,063.0 31,337.0 6,726.0 6,726.0 -456.0 47.0 440.0 - -248.0 75.0 43.0 - 6,627.0 2,314.0 -350.0 4,313.0 3,963.0 40,893.0 40,893.0 33,066.0 7,827.0 7,827.0 -435.0 92.0 585.0 - -55.0 - 75.0 -46.0 8,043.0 2,785.0 -451.0 5,258.0 4,807.0 42,278.0 42,278.0 33,294.0 8,984.0 8,984.0 -472.0 103.0 603.0 -24.0 -100.0 184.0 - -42.0 9,260.0 3,087.0 -491.0 6,173.0 5,682.0 NET INCOME TO COMMON INCLUDING EXTRA ITEMS 3,963.0 4,807.0 5,682.0 NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 3,963.0 4,807.0 5,682.0 Walt Disney Company’s Vulnerability to Current Financial Threats The company has established an exceptionally strong financial base that has existed for an exceedingly long time (Schaffer, Agusti, and Earle, 2009). However, despite this strong financial framework, the business environment may introduce financial challenges that any business corporation might find difficult to do. First DIS has a strong brand identity that has helped the company to build a strong global presence. The marketing strategy and ability of the company is remarkably good possibly the reason why Walt Disney company has continued to dominate the market characterized by high competition. The first challenge that the company has to deal with is maintaining the financial stability that it has been able to consolidate over time. The presence of economic challenges like recession, global competition, and high interest rates make the company vulnerable due to the high operating expenses complicated by increased cost of restructuring and impairment. Secondly, the external factors have threatened the revenue of the company. For instance, there has been the growing prevalence of people depending more on at-home and television viewing. As a result, ticket sales have gone down due to the reduction in the rate at which people attend movies. In addition, the number of distribution channels has increased immensely with subscription-based and cable services that have escalated the rate of competition for those who participate in motion picture industry. Walt Disney Company experienced a dramatic fall in the revenue collection. However, the company has tried to respond to these changes efficientlyby shifting the focus of movie studios to marketing, licensing, distribution, and the arrangement of merchandise from the previously dominant focus on the content and quality of the shows. The emergence of the digital technology has also contributed to the reduction of Disney’s revenue collection (Tieck, 2010). The company’s dominance on the production of the animated films has been given a lot of competition most especially by the emergence of pixar and Dream Works, which are recognized to produce excellent animations. These digital devices have seen the production of successful animated blockbusters, potentially growing to become serious competitors to Disney. Another factor that makes Disney vulnerable to recession, high interest rates, and high competition is its tradition and culture. The company has continued to stick to the tradition and cultures upon which it was founded with only a handful of changes and transformation made. This is complicated by the fact that the advent of technology has introduced a number changes in as far as mass communication is concerned. While other corporations were modifying and transforming to both technological and cultural changes, Disney remained reluctant to respond to these changes. Although the introduction of new leadership was motivated to bring changes into the corporation, not much have been achieved in terms of response to changes. The environmental changes are extremely influential in determining an entity’s response to financial threats. Therefore, Disney remains vulnerable to challenges presented by external economic factors like high competition, economic recession and high interest rates that may make it difficult to secure loans or pay back the loans (Schaffer et al 2009). Disney’s Financial Performance Financial performance of the Disney Company has been strong for many decades. Its financial strategic plans have led to increased market cap with a slightly higher income growth of up to +18.20% and the sales growth of +3.40 % in the last 12 months. This is an indication that despite the market challenges like high competition and financial recessions the company has been able to maintain a steady growth. It demonstrates stronger financial structures and good strategic plans that have helped in keeping at par with demands and requirements of the market. The last 12months have seen the company stabilizes to a net profit margin being at t 14.60% with the equity ratio of 0.36 (Securities Industry Foundation for Economic Education, 1997). This is indicative of strong financial tools that help the Company to survive even at the face of damaging economic conditions. The projections are the Company must be able to integrate factors of technology in a transformative way to respond to the daily technological advancements, complimented with a strong cultural framework that puts into consideration the essence of change and consumer preferences. That way, the company is able to stabilize more or improve its financial conditions. It is also abundantly clear that the company has put into place plans of expansions of its division. Good profits would be necessary to achieve full blown expansion and structural development efficient f-or putting up with pressures from competition and other financial uncertainties. Its financial background and current position are strong enough that if enhanced the Company would be able to compete favorably and achieve higher profit margins caused by increased or improved revenue collection. Stock Price Analysis The current dividend rate and yield, 0.75 and 1.54 respectively indicate that the Company’s stock price is not doing badly. It demonstrates a steady exchange that is able to sustain the operation demands of the company. The average day’s low of 48.55 is a gain not a serious sign that the company is not doing well. Shareholding has been remarkably strong despite the initial crit0icisms on its share options. It used to give intense options on its shares in the contract agreements. The availability of many options attracted a large number of people who were interested in being shareholders at the Walt Disney Company. The business press criticized the Company but which later abated because the Company kept its financial performance exceptionally strong. The Disney Company integrated a stock exchange option plan in 1990 that saw the increase of the stock repurchase program for a tax-friendly payment of the Company executives. This laid the foundation of top stock performance that has existedwith expectation of further improvements. If all the risk factors are adequately mitigated, the stock performance of the company is expected to deliver positive results in the future that do not only satisfy the company itself and the executives but the shareholders. Large option plan for shares must also be re-examined to take care of the recession risks and financial problems. A number of investors would be withdrawn into the Company, which will help it increase its revenue as it responds to the market demands. However, the Company should establish a balanced framework of financial and strategic controls in order to give attention to both long term strategic actions and short term financial outcomes to aid the process of decision making while considering the levels of market risks (Tieck, 2010). Appendix Income statement evaluation Annual Income Statement Data Actual in M $ Estimates in M $ Fiscal Period September 2010 2011 2012 2013 2014 2015 Sales 38 063 40 893 42 278 44 867 47 544 51 059 Operating income (EBITDA) 8 600 10 282 11 951 12 314 13 459 14 861 Operating profit (EBIT) 6 887 8 441 9 964 10 608 11 596 13 175 Pre-Tax Profit (EBT) - 8 043 9 260 - - - Net income 3 963 4 807 5 682 6 179 6 735 7 515 EPS ( $) 2,07 2,52 3,13 3,41 3,85 4,45 Dividend per Share ( $) 0,35 0,40 0,60 0,58 0,74 0,80 Yield 0,72% 0,82% 1,23% 1,18% 1,53% 1,64% Announcement Date 11/11/2010 08:43pm 11/10/2011 09:17pm 11/08/2012 09:15pm - - - Finances Leverages Actuals in M $ Estimates in M $ Fiscal Period September 2010 2011 2012 2013 2014 2015 Debt 9 758 10 792 10 924 9 265 9 851 8 730 Finance - - - - - - Operating income (EBITDA) 8 600 10 282 11 951 12 314 13 459 14 861 Leverage (Debt/EBITDA) 1,13x 1,05x 0,91x 0,75x 0,73x 0,59x Capital Expenditure 2 110 3 559 3 784 2 905 2 975 3 009 Book Value Per Share (BVPS) 20,9 $ 21,2 $ 22,1 $ 24,1 $ 26,0 $ 31,1 $ Cash Flow per Share 3,43 $ 3,66 $ 4,38 $ 5,06 $ 5,49 $ 6,64 $ Announcement Date 11/11/2010 08:43pm 11/10/2011 09:17pm 11/08/2012 09:15pm - - - Balance Sheet Analysis Other Related Graphical Analyses Financial Ratios Size 2013e 2014e Capitalization 86 249 M$ - Company Value 95 514 M$ 96 100 M$ Valuation 2013e 2014e PER (Price / EPS) 14,3x 12,7x Capitalization / Revenue 1,92x 1,81x EV / Revenue 2,13x 2,02x EV / EBITDA 7,76x 7,14x Yield (DPS / Price) 1,18% 1,53% Profitability 2013e 2014e Operating Margin (EBIT / Sales) 23,6% 24,4% operating laverage (Delta EBIT / Delta Sales) 1,05x 1,56x Net Margin (Net Profit / Revenue) 13,8% 14,2% ROA (Net Profit / Asset) 11,2% 10,6% ROE (Net Profit / Equities) 16,7% 15,1% Rate of Dividend 16,9% 19,3% Balance Sheet Analysis 2013e 2014e CAPEX / Sales   6,48% 6,26% Cash Flow / Sales (Taux d'autofinancement) 20,0% 20,5% Capital Intensity (Assets / Sales) 1,23x 1,34x Financial Leverage (Net Debt / EBITDA) 0,75x 0,73x Price Earning Ratio EPS & Dividend References Griffin, S. (2000). Tinker Belles and evil queens: The Walt Disney Company from the inside out. New York, NY [u.a.: New York Univ. Press. Pratt, J. (2011). Financial accounting in an economic context. Hoboken, NJ: Wiley. Schaffer, R., Agusti, F., & Earle, B. (2009). International business law and its environment. Mason, OH: South-Western Cengage Learning. Securities Industry Foundation for Economic Education. (1997). Learning from the market: Integrating the stock market game across the curriculum. New York: Economics America. Tieck, S. (2010). Walt Disney. Edina, Minn: ABDO Pub. Co. Read More