The Walt Disney Annual Reports - Essay Example

Annual Report Introduction The Annual Report of any big multinational or international firm or corporation is indeed the most crucial document awaited by the stock market and the stockholders. It is to the stockholders what the Bible is to a Christian, something that can either bestow trust or influence enough to change one’s perception. Traditionally, annual reports that are submitted by corporations usually include their income statement, balance sheet, statement of retained earnings and a statement of cash flows. These are, however, are preceded by a textual message for the readers from the Chairman. The Chairman outlines the activities and financial conditions of the firm in the previous year followed by his/her discussion on hopes and future plans for the firm. In this part of the annual report, the Chairman attempts to explain why the company’s operations resulted in the results mentioned and why it chooses to advance with new projects or policies. In a nutshell, the statement or report is mainly a promise or explanation for company activities by the Chairman and its Board of Directors to the stockholders. However, the questions are: Why do they need the reports? What do the stockholders do with them? And more importantly, what do they do to deserve an explanation? To answer these questions, one has to firstly understand the concept of stockholder’s equity. When an individual goes to the market and buys stocks, he/she basically buys ownership! A corporation is basically a public-owned enterprise. By declaring itself a corporation, the company or enterprise is selling itself to the public. This is done by the company to essentially generate more money and finances. When it becomes a corporation, the company is actually giving the stockholders a right or privilege to vote for the Board of Directors. The elected Board of Directors is then responsible to make decisions about the company and see where and how the company can maximize the profits. The stockholders then gain from the profits. The stockholders do not directly earn the profit but are given dividends instead. These dividends are paid annually, every year except when the company is going in loss to an extent that it even fails to pay back the liabilities it has borrowed. At such times, the liabilities are preferred and paid first and the remaining is given as dividends to the stockholders. To further understand the relationship between the company and the stockholders, Walt Disney Corporation will be used as a case for analysis and descriptive explanation. But, before proceeding to the analysis of the Chairman’s statement let us first mention and understand what an individual stockholder learns and gains from the statements. It would be better if one is able to understand the analysis that the stockholder would develop. An attempt at this task would follow shortly. Let us first, however, discuss the later part of the annual report that contains the different reports, statistics and figures. As mentioned above, the later part consists of the income statement, balance sheet, statement of retained earnings and a statement of cash flows. a. Income Statement The income statement is basically a description of the firm’s income. It states the sales of the company and then mentions everything that affects the revenues generated from the sales. These include the different costs, taxes, interest rates and eventual share of dividends resulting and lastly, the retained earnings and the net income. At the end of the income statement is mentioned the earnings per share. It is this amount that the individual stockholder is awarded as dividends. The total money that the stockholder gets is the number of stocks he owns multiplied with the earning per share mentioned in the income statement. b. Balance Sheet The balance sheet basically mentions the share of the company’s total entities. It represents the assets, liabilities and equity of the company. According to the general accounting principle, the assets must equate the sum of the liabilities and the equity. This makes perfect sense for it is only logical to see the money coming in as equity and the liabilities being used up to own assets. The balance sheet also gives vital information that is required to calculate ratios that analyze the report. c. Statement of Retained Earnings The company basically needs money to tend to its financial demands and requirements. For this purpose, it is most likely to retain some money. It is this money that is mentioned in the statement here. The retained earnings report explains how much money the company has decided to retain rather than pay off as dividends. d. Statement of Cash Flows Lastly, the statement of cash flows is a description of the cash flowing in and out of the company. It highlights the transactions that brought more money or cash and those transactions that reduced the cash. It also mentions the investments made by the company as well as the company’s financial activities and endeavors. What the stockholder looks for: i. Current Ratio Now, the analysis or gain of the report would be discussed. The first and foremost ratio or ‘unit’ the stockholder would look for is the current ratio. The current ratio is a comparison of the company’s assets and its liabilities. This basically informs the stockholder about the company’s level of dependency on liabilities. If the ratio is small, that means the company is too dependent on liabilities. If, however, the ratio is too large, that signifies that the company is not using its assets properly and the inventory or un-used assets can lose their value due to depreciation etc. ii. Inventory Turnover Secondly, the annual report also includes the inventory turnover, which gives information on the amount or proportion of sales that was related to or of inventory. As mentioned earlier, it is better to have less yet sufficient amount of inventory. By computing the day sales outstanding, which is the ratio between the receivables and the daily sales, one is able to assess how soon the payment is made. iii. Fixed Asset Turnover After that, the fixed asset turnover ratio is measured. It is the ratio of sales and the fixed assets. The ratio depicts how efficiently the firm is able to use its fixed assets which might include its building and machinery. iv. Total Asset Turnover The total asset turnover measures the absolute total of all the firm’s assets. It is basically the ratio of sales with the total assets. v. Company Debts After the determination of the above ratios, the stockholder then assesses the company’s debt finances including the affect of the interest rate that has to be paid to the creditor. The ratios used for this calculation are the times-interest earned ratio and the earnings before interest and tax coverage ratio. vi. Profit Margin on Sales What the stockholder would be most interested in, is the profit margin on sales and the basic earning power of the firm. Both of these are known as the profitability ratios and are there to determine the ‘health’ of the firm. The Walt Disney Report Now, if we look at the annual report of the year 2009 of Walt Disney Company, this is what is learnt. First and foremost, the company makes huge profits. As shown in the income statement of the annual report, the net income is positive and this shows that the revenues were more than the costs covered. Due to economic recession, the company had to face some hard blows such as having to reduce its earnings per share by 20% (from $2.28 to $1.82), and eventually, a decline in revenue by 4% (amounting to $36.1 billion). However, the company made some intelligent investments even during this turbulent and risky period. It acquired Marvel Entertainment and earned the rights to distribute films of Dreamworks production. It also signed an agreement with the Chinese government and is now building a Disney theme park in the country. Quality, Not Quantity The recommendation, therefore, is to uphold quality without compromise on it, no matter how daring and challenging the circumstances may be. This is what makes Disney stand confident among all other companies. The company’s highly innovative research and development department is working at its best to cut its cost of production on animation and still earn more revenue. Also, the theme park in China, one of the most influential economies of the world with a huge population of 1.3 billion people, is a promising endeavour. Bibliography: The Walt Disney Annual Report of 2009, Retrieved from:http://amedia.disney.go.com/investorrelations/annual_reports/WDC-10kwrap-2009.pdf The Walt Disney Annual Report of 2008, Retrieved from: http://amedia.disney.go.com/investorrelations/annual_reports/WDC-AR-2008.pdf Read More