The Walt Disney Company is a worldwide company dealing with entertainment and having operations in media networks, studio entertainment, parks and resorts, consumer products and interactive products. According to the company's annual report, Disney had 199000 employees by September 2017. The company plans to open a theme park in Brazil which will increase its current obtained from the sale of admission to a theme park, food, beverages, accommodation, cruise and other vacation packages and renting vacation club properties. It is critical to determine the financial structure of the company, the funding that should be secured for the expansion and the financing of the new business.
Capital Structure of Disney Company
Disney Company has a capital structure that includes borrowing and common stock. By September 2017, the company had a total debt of $26091 where $16000 million is due in five years, Leases, Un-capitalized annual rental of $580 million and common stock of 1,503,675,479 shares. The total shareholder equity was 45.15 billion. According to the wall street Journal (2018), the total debt to equity of the company is 61.22 and the total debt to total capital is 37.97. The total debt to the total asset is 26.40 and long-term debt to equity is 46.28. Long-term debt to total capital is 28.7 and the long-term debt to assets is 0.20.
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Funding of the New Business
Disney should use a portfolio of debt and equity to finance the new business venture. Equity financing can be used to finance the assets of the startup as well as its operating activities. This will help to reduce the financial burden in the form of interest payable to debt holders. The profitability of the new business can be lower than the prevailing interest rates making it more preferable to invest most of the activities using equity and retained earnings from the company (Rahman, 2015) . The company can use short-term debt to finance current assets that can easily be turned to cash for example receivables and inventories. Long-term debt should not be used at the initial stages to finance long-term assets for example construction activities and purchasing land.
Financing
The use of debt and equity to finance new operations in Brazil can be ideal for the company as it gives it an opportunity to enter into the new market and continue with its operations without having to worry about cash constraints. Debt financing, for example, ensures that the company has control of the startup. Disney will only be obliged to pay interest and the principal amount to the lenders without having to engage them in the management of the business. The new business, therefore, remains under the control of the company and any profits will not be shared with the lenders. The use of debt financing can be appropriate for driving aggressive growth in the startup especially if the interest rates are low. The interest paid by the company for any external debt is also deducted for tax purposes (Rahman, 2015) . This shows that debt financing covers the business income of a company against taxes, therefore, reducing the tax liabilities. Using debt financing boost the credit rating of the company which will be useful in future loan applications and also gives the company an opportunity to benefit from competitive insurance rates.
Equity financing for the startup offers a source of funding apart from loans from financial institutions and banks. The funds will be used for start-up costs and the cash flows generated from operations will be used to grow the startup and diversify its operations (Rahman, 2015) . There are also potential advantages of taking this approach as investors are more likely to take a long-term approach and do not expect immediate returns. Similarly, financing the new business using equity will confer legitimacy by tapping into the network of the investors.
References
DIS Financial Statements - Walt Disney Co. - Wall Street Journal. (2018). Retrieved from https://quotes.wsj.com/DIS/financials
Investor Relations - Stock Information, Events, Reports, Financial Information, Shareholder Information - The Walt Disney Company. (2018). Retrieved from https://www.thewaltdisneycompany.com/investor-relations/
Rahman, N. (2015). Corporate Finance . North Ryde: McGraw-Hill Australia.
