Financial Calculations:
Working capital:
Walt Disney working capital for the last quarter ending January 2 nd 2021 was 8,328,000 showing that the company has adequate working capital to meet its short term and long term needs. The figure shows that the company is in good financial health and able to continue operating and meeting its near term needs.
Current ratio:
The company’s current ratio for the quarter ending January 2021 was 1.31 and indication that its current liabilities are high and can affect its ability to operate if they all fall due. However, based on the current situation where companies are facing financial difficulties occasioned by the Covid-19, the company’s current liabilities might have increased to meet the distressing market condition. Walt Disney can continue operating as long as ensures that the current assets are more than the liabilities. However, it should strive to improve the ratio to about 2 or to average the industry standards.
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Debt ratio:
Walt Disney debt ratio for the quarter ending January 2021 was 62% an indication that the company finances 62% of its operations with debt. WD can benefit from the low cost of acquiring debt to enhance its operations and acquire new assets that will contribute to additional revenues. The debt ratio is sustainable and the company can continue operating with no problems of financial issues.
Earnings per share:
The company’s EPS for the quarter ending January 2021 was -98% an indication that the company’s net profit for the period was low or negative based on the shares outstanding. The ratio shows that the company made negative returns for each share an indication of low corporate value. The company had low profits relative to the share price. The company’s profitability on an absolute basis was negative for the quarter probably because of the adverse effects of the pandemic.
Total asset turnover ratio:
WD total assets turnover ratio for the quarter ending January 2021 was 0.3. The value of the company’s revenues or sales against its assets was 30% meaning that the company was not efficient in generating sales from the assets. The company should strive to increase the asset turnover by increasing its sales in the current market and new markets. However, it should base its decisions on past trends and the prevailing conditions like the effects of Covid-19 on its revenues.
Financial leverage:
[Write the result of the calculation and what it says about the company’s health.]
Net profit margin:
WD’s net profit margin for the quarter ending January 2021 was -8.15% meaning that the after tax profits for the period was negative. The company’s results for the quarter were negative due to reduced revenues from the adverse effects of the pandemic. It is advisable to check on the trend lf the profit margin to establish how the company has been performing and understand if current situation is as a result of the pandemic.
Return on assets:
WD’s return o assets for the quarter ending January 2021 was -2.45% meaning that the company was not efficient in using its assets to generate income. The cash used to purchase the assets was not appropriately used to generate income or profits. The results shows that the company did not generate adequate revenues to cover for the expenses and taxes and leave adequate profits. It is critical to understand past performance and trend to understand how WD performed and determine the cause of reduced income. One probable cause is the current pandemic which has reduced the total revenues.
Return on equity:
The return equity for the quarter was -5.89% meaning that WD was not efficient in generating profits from the invested capital/shareholders equity. The company’s profits from each dollar of equity were -5.89% an indication that the total revenues were inadequate to cover the total expenses, interest and taxes.
Working Capital Management:
[In one paragraph, explain the impact of working capital management on the business’s operations. Provide examples to support your claims.]
Wall Disney was efficient in its working capital management meaning that it was liquid to cater for its cash needs. The company ensures that its current asses are adequate to cater for the short term liabilities when they fall due. The company has adequate cash flows to meets its near term obligations or goals. WD effectively manages its inventory, accounts receivables, payables and cash. Working capital management enables WD to pay for its current liabilities when they fall due and avoid any cash distress.
Bond Investment:
A corporate bond is a debt security that allows a company to get cash by selling the bond to investors. The firm pays a pre-determined interest until the expiry or maturity of the bond when an entity returns the initial investment. Investors rely on the ability of a company to repay the original investment plus the agreed periodic interests. A business that invests in high quality bonds is guarantee of reliable income in the form of pre-agreed interests and the initial amount after expiry or maturity of the bond. Ethically, bonds are ideal investments since they guarantee investors high returns while holding a company accountable for the debt. Similarly, it promotes efficient running of a company and prudence to enhance its rating. For example an investor can buy $1,000 par or face value bonds at a flat rate of 8% per annum with a maturity period of 10 years. The company will pay the investor $80 as interest each year and $1,000 at the end of the ten years. In total the investor will receive $1,800 after the maturity of the bond.
Capital Equipment:
Companies invest in capital equipment to raise revenues and profits from their operations. Capital equipment enable a company to produce products or offer services thus generate revenues. Capital equipment reduce a company’s risk since it has its equipment and will not be subjected to creditors while increasing its net book work and ability to access more credit based on the value. Ethically, a company should have its capital equipment to enable it operate and generate profits for the investors A company with capital equipment worth $10,000 will have a larger asset base than one with $1,000 and can access more credit and increase its revenues. For example, a manufacturer can have capital equipment which enables it to produce goods for resale thus boosting its revenues.
Capital Lease:
Capital lease is an arrangement where a lesser finances leased assets and transfer the rights of ownership to a lessee. Once the two parties enter into a capital lease, the lessee records the item leased as a fixed asset in their books and will continue paying for the agreed amount till the end of the lease period where they will own the equipment. Capital lease enables a lessee to own the property without paying the entire amount and use it to generate revenues before paying for the total cost.
Financial Evaluation
Financing:
[In one paragraph, explainhow a business finances its operations and expansion.]
A business can finance its business operations using debt capital or lease financing. An entity can acqure debt from financial institutions and use the amount to finance its operations like buying assets, equipment or inventory. The debt will be attached on the company’s asset and the company will pay interest rates and agreed principal until they complete the loaned amount. Capital financing involves buying assets and equipment from cash obtained from shareholders. Lease financing on the other hand involve an arrangement where a lessee obtains an equipment through a lease agreement and continues using it to generate revenue. The best financing option is debt financing since its is cheaper and allows companies to benefit from tax reliefs on the interests paid.
Bond Investment:
Bond investments are appropriate for companies with good rating and which can raise more capital at a low interest rate. The bonds allows such company to access cheap debt to finance their operations and repay interest until the maturity of a bond where they pay the principle amount. Bond financing is ideal for companies with a good reputation and those regarded as profitable since investors want companies that can guarantee their investment and the interest.
Capital Equipment:
Capital equipment are appropriate for manufacturing and service companies that need equipments to produce products for resale. For example, a manufacturer needs capital equipment in the form of production line and machinery that enables them to produce and package goods in readiness for sale.
Capital Lease:
[In one paragraph, write your assessment on the appropriateness of a capital lease purchase as an investment option for the business’s financial health, using your financial analysis and other financial information to support your claims.]
Capital lease is an appropriate investment option for a company with inadequate cash to obtain a capital item in cash. For example, a manufacturer might be in need of a capital item for its production line and does not want t tie too much of its capital in the item thus it might decide to lease the same and pay smaller periodic amounts and have adequate cash for its working capital needs.
Short-Term Financing:
Short term financing is an arrangement that allows a company to obtain short term debt for its operations. For example, a company y might be in need of cash for its working capital needs like buying stock and paying its creditors. It can opt for short term financing since it is easier to obtain and the company can easily raise the agreed amount to pay for the debt.
Future Financial Considerations:
Financial managers must consider a company’s future financial considerations to adequately plan for debt financing or short term financing. WD current situation implies that it will need to acquire additional funds from debt to finance its working capital needs if its revenues continue to decline. The company might opt to use its reserves to finance its near cash needs or obtain short term financing. However, if revenues improve, it can continue operating without any challenges.
Financial Recommendation(s)
WD should issue a corporate bond to finance its activities and reduce the adverse effects arising from the Covid-19 pandemic. A corporate bond enables it to access cheaper debt and continue paying for the interest using the revenues generated from normal operations until the bond matures when it should pay the initial investment. The company should also strategize on how to improve its revenues to boost its profitability and cash flows.
