Financial ratio analysis is one of the best methods to identify and evaluate organizational internal strengths and weaknesses. Currently, investors and shareholders focus on business’ financial rations and deriving comparisons to the industrial averages. Financial and strategic analysis for the Walt Disney Company provides with an in-depth strengths and weaknesses analysis of business operations.
Brand Reputation: The business brand has been in the market for more than nine decades in the United States and is globally recognized especially due to its Walt Disney Studios that produce movies, Disney Park resorts, and Disney Channel. Globally, the business is considered the main source of family entertainment and in 2012, it was pronounced the 13th most precious product globally. The business enjoys possession of the best media brands, which are known for high quality contents: Lucasfilm, Marvel, Touchstone, Pixar, and ESPN.
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Very Strong Financial Position: The business has a cash excess. Furthermore, it generates a healthy cash surplus due to its actions, which affords it considerable while adjusting to the ever-changing needs and preferences of the customers and expansion of its operations. In the past years, the business absorbed some pop culture considered to be the most important and profitable brands into its activities. Through its strong financial position, the business purchased Pixar at $7.4 billion in 2006, in 2009, it spent more than $4.6 billion purchasing Marvel Entertainment, and in 2012, the business purchased Lucasfilm at $4 billion. Currently, Walt Disney Company owns and operates most of the highly lucrative film features through such purchases and attainment of full licensing and marketing rights.
Loyal Customer: The business boasts of its customer loyalty. Through value alignment, Walt Disney strengthens relationship with the customers, which also improves its corporate social responsibility. Magical moments in the business create memories which are of essence to organizational brand allowing Cast Members to take their routine roles like package delivery. The business also awards “Guest of the Hour” certificate to customers besides organizing an impromptu hula-hoop party for customers. In Walt Disney, the Guests associate with the Cast Members in friendly manner to demonstrate organizational commitment to meeting the needs of the customers.
Global Expansion: Without any doubt, the business has very great cable network covering a wider geographical area. Walt Disney operates in the ABC Family, Disney Channels Worldwide, and ESPN that is sporting entertainment company operating in more than 60 countries and available in four international languages. The Disney Channel Worldwide is a cable channel responsible for the Disney Cinema, Disney Junior, and Radio Disney. There are more than hundred channels available in about 34 languages in 163 countries. Currently, the business has 123 million subscribers across the globe. Such huge extent and influence of the network offers the business competitive edge. Moreover, the business has numbers of subscribers giving it a wide margin responsible to generation of high revenue.
Acquisition of Pixar: The strongest side of Walt Disney is its competency in acquisition. In 2006, the business acquired Pixar Animation Studios and in 2009 and 2012, Walt Disney Company acquired the Marvel Entertainment and Lucasfilm respectively. Acquisition of both Pixar and Marvel has proved to be very successful about the growth in revenue and profit. The business also expects Lucasfilm to be successful considering the recent purchase of all its rights including the Star Wars. Walt Disney is not the only business that enjoys strong acquisition capability but also the competitors.
Good Customer Service: the business is committed to providing the best customer experience in all the areas. It has a planned, purposeful, and consistent level of service. The business understands that employees are critical to its success, which ensures their dedication to making customers feel special. Moreover, the employees are trained on how to deal with customers professionally and create a good relationship that makes them come again.
High Cost of Operations: Since live sport events drive the level of viewership and ad revenues, the business invests numerous resources to purchase broadcasting rights for sports. Recently, the business used about $24 billion to extend its agreement with National Basketball Association (NBA) for another 9 years. Although movie theatres are struggling for maintenance of attendance growth, the business finds itself operation in turbulent environments. In 2012, Walt Disney lost $200 million in the ill-feted and poorly marketed John Carter.
Large Research and Development Cost: To remain highly competitive and innovative in the consumer products and animation series to the loyal customers, the business has spent huge resources on research and development. Walt Disney mainly splurges on the professional expertise, which involves vast time and money to deliver the required results.
Constant Need for Innovation: The entertainment industry is continuously changing with new businesses entering the industry. Besides, the needs and preferences of the customers are also changing; therefore, it is important that Walt Disney invest in innovative practices to remain relevant in the market and maintain its current competitive advantage. Such innovations increase organizational expenses, which in turn affects profitability and performance.
Expensive Prices: Disney boasts of having a strong acquisition power; however, the prices of already established businesses that it acquires are costly. Continued acquisition may affect its operations in the long run especially if the businesses are not yielding the projected revenues.
Long Wait Times : in most cases, patience is a virtue required especially when customers are going to watch highly waited video. The business has poor planning which increases waiting time for the queuing customers. This may lead to loss of customers and brand loyalty.
Financial Ration Analysis
|Disney||Comcast||Time Warner||21 st Century Fox||Viacom||Industry|
|Debt To Equity||47.42||113.17||100.2||138.72||275.91||41.14|
|Net Profit Margin||16.98||11.25||13.35||11.99||11.20||23.13|
Based on the business’ financial stability, its current ratio is important as it indicates organizational ability to meet short-term objectives. It involves division of the current assets with current liabilities; therefore, the current ratio shows the number of times the total assets would pay off the liabilities. A healthy current ratio needs needs to be above 1.5 to support company’s share price. Walt Disney has a current ratio below 1 (.86) relative to industrial ratio of 1.42 suggesting that it may struggle paying off the debts and other liabilities. This makes it at risk of investment as its share may become less attractive to the investors and with the fear of bankruptcy, it may push the price of shares down.
Quick ratio reflects organizational short-term liability as it involves measuring business’ capacity of meeting some its short-term roles through efficient utilization of its liquid assets. Therefore, it involves division of the current assets by the current liabilities. Before diving, it is important to less the inventories from the current assets. Ideally, quick ratio needs to be 1:1; however, the industrial ratio is 1.01. Walt Disney has a quick ratio of lower than 1 (.8) indicating that it relies a lot on the inventories or other assets to pay for its short-term liabilities.
Debt to Equity
Debt/equity ratio is division of the total liabilities by total equity. Walt Disney has a debt/ratio of 47.42, which is higher than industrial 41.14. 47.42 means that liabilities are 47.42% of the stakeholders equity; therefore, the creditors contribute 47.42 cent for every dollar that the stakeholders provide for financing the assets. Although the value is higher than that of the industry, the ratio is less than 1 indicating that stakeholders provided more assets than those contributed by the creditors.
Net Profit Margin
Net profit margin ratio signifies the part of the revenue translating to net profit. It is calculated by dividing the net profit by revenue then finding the percentage. Net profit margin indicates how efficient the business is and how it controls its costs. Walt Disney has a net profit margin of 16.98%, which seems to low. Low margin means that the business is ineffective in converting the revenues into the actual profit. For instance, a net profit margin of 16.98% shows that in each $1 sale donates about 17 cents to the organizational profit.
Return of Assets (ROA)
RAO is one of the profitability ratios expressed as percentage. ROA is determined through division of the net income by average total assets then finding the percentage. It shows the number of dollars earned that result from each dollar of the assets that the company controls. Walt Disney has a ROA of 10.31 higher than that of the industry, 8.66. It is common that the higher the ROA, the better since the business earn more money from its assets. Therefore, the business is making more profits, which is above the industrial average.
Return on Equity (ROE)
ROE indicates business’ efficiency as it determines the extent of profit generation given the resources provided by the stakeholders. ROE is calculated by dividing the net income by average shareholder’s equity then converting to percentage. It shows the amount of dollar earnings that result from each dollar equity. Walt Disney has a ROE of 20.63, which is higher than industrial average, 13.11. This means that shareholders earned their investment within the business; hence, with such higher ratio, it means that Walt Disney is efficient in the management while using its equity base and better return to the business investors.