Disney Case Study

BUS 400

Disney Case Study

When evaluating the financial performance of Disney Co., liquidity ratios are an important factor. The current ratio of Disney Co. was 1.11 in 2014 (from Figure 1) which was a good ratio indicating a fairly strong liquidity position. Overall, the industry performed well in regards to the current ratio, as the market median of 1.90 outperformed Disney.  Other top competitors, such as 21st Century Fox with 2.39, also had good current ratios.  

In terms of efficiency ratios, according to Figure 2, the inventory turnover of Disney Co was 34.95 which was much higher than all of its major competitors. This high inventory turnover ratio could indicate that a company is quickly replenishing cash and has a lower risk of becoming stuck with obsolete inventory. However, it is not always better to have a high inventory turnover because it may indicate a company is running out of items too frequently or making ineffective purchases, and therefore, losing sales to competitors. Nonetheless, Disney Co. had sales of 48.81 billion in 2014 was a revenue leader in the industry, only inferior to Comcast (From Figure 3).

As we analyze the leverage ratios of Disney Co, the debt to equity ratio was 0.33, lower than the market median of 0.54 (from Figure 1). This was a favorable ratio number because in general, the lower the ratio, the lower the risk. DIsney Co, greatly outperformed most of its competitors from the perspective of debt to equity ratio.

As for the profitability ratios, ROA of Disney Co was 9.67% and ROE was 17.98%. Both figures were far higher than the market median and outperformed most of Disney’s competitors except for 21st Century Fox (from Figure 4). These ratios were generally favorable because it meant there were high returns on the investment in assets and shareholder’s equity. If we break down ROE, we can conduct a DuPont analysis. Net profit margin of Disney Co was 16.11%, much higher than market median (from Figure 4). Total asset turnover was 0.6, which is slightly over the market median of 0.54. However, Disney still outperformed all major competitors (from Figure 2). The equity multiplier was 0.26% (from Figure 1), lower than the market median. These were positive ratio results for the company because the sources of high ROE were high net profit margin and efficient total asset asset turnover, rather than high equity multiplier. This means the company managed itself very well and the risk level remained in control.

When we compare the domestic performance of Disney with its oversea performance, according to Figure 5.1 and Figure 5.2, the revenue and operating income generated by United States and Canada occupied 75.3% and 73.7% respectively. Europe took 13.3% of the total revenue, which is the highest amount internationally. Europe’s total revenue was much higher than the 8% from Asian Pacific and 3% from Latin America & Other Regions. Europe accounted for 12.2% of operating income while Asian Pacific took 10.3%. The operating margin for Europe was 24% while that of Asian Pacific was 34%. We can assume that the cost of good sold in Asian Pacific was much lower than the Europe which is reasonable because the Asian Pacific area is renowned for its cheaper resources and labor.