Financial Analysis of Walt Disney Company: Corporate Finance Project

This project report provides a comprehensive financial analysis of The Walt Disney Company. It begins with an overview of Disney's business operations within the mass media and entertainment industry. The report then delves into an Economic Value Added (EVA) analysis, evaluating Disney's fin...Read More

Running Head: Corporate Finance Assignment
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Project Report: Corporate Finance Assignment

Corporate Finance Assignment
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Contents
Introduction.......................................................................................................................3
Company overview...........................................................................................................3
EVA analysis....................................................................................................................3
TSR analysis.....................................................................................................................4
Valuation analysis.............................................................................................................5
Net asset value..............................................................................................................5
Comparable ratios.........................................................................................................5
Conclusion........................................................................................................................6
References.........................................................................................................................7

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Company overview:
Walt Disney is an American diversified multinational company which operates its
operations under mass media and entertainment industry. It is the largest independent media
organization in terms of the revenue generation. The main products of the company are cable
television, publishing, video games, films, music, radio, web portals, amusement park and
broadcasting (Home, 2018). Company also offers the services of licensing in the American
market and at international market.
EVA analysis:
Eva analysis is a measurement of financial performance of a company which is based
on the residual wealth and it is calculated through deducting the cost of capital from the total
operating profit, taxes are also adjusted in the calculations on the basis of cash (Kaplan and
Atkinson, 2015). In case of Walt Disney co, it has been found that the below are the
economic value added of the company of last few years:
Calculation of Economic Value Added
Particulars 2018 2017 2016 2015 2014
Operating profit
Amount in USD
'million 11400 13171 14202 13775 14804
Less:
Tax @ 35% 3990 4610 4971 4821 5181
Net Operating Profit
After Tax (A) 7410 8561 9231 8954 9623
WACC (B) 2.88% 2.88% 2.88% 2.88% 2.88%
Invested Capital (C ) 52,832 45,004 47,323 48,655 48,178
D= BXC 1521.56 1296.12 1362.90 1401.26 1387.53
Economic Value
Added (A-D) 5888.44 7265.03 7868.40 7552.49 8235.07
(Yahoo Finance, 2018)
It explains that the economic value added level of the business has been lowered in
the year of 2018. However, the economic value added figures of the company lead to the
conclusion that the performance of the company is quite great because of the internal

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management of the business. These strategies and management process would help the
business to manage overall position in the marketplace.
TSR analysis:
Total shareholder return indicates the total return of a stock that is expected from the
stockholders and the investors; it includes the capital gain amount plus the dividend per share
of the stockholders. Total shareholder return is basically the internal rate of return of total
cash flows of an investors’ holding period (Ward, 2012). It defines the total amount which
should be returned to the investors of the company. In case of Walt Disney, the total
shareholder return of the comapny has been calculated along with the competitor, Viacom
Inc, in order to measure the industry performance of the company.
The total shareholder return of Walt Disney explains that the performance of the
company in terms of management of stock price and the total gain is quite better. It has
always offered the positive return to the shareholder. The calculation of Walt Disney is as
follows:
Calculation of Total Share holder return (Walt Disney)
Particulars 2018 2017 2016 2015 2014
Market price of shares 112.87 107.52 106.80 105.75 92.78
Capital Gain or loss 5.35 0.72 1.05 12.97
Dividend Per Share 0.84 0.78 0.71 0.66 1.15
TSR 6.19 1.5 1.76 13.63
TSR % 5.48% 1.40% 1.65% 12.89%
(Yahoo Finance, 2018)
Further, the total shareholder return of Viacom Inc has been calculated and it has been
found that the TSR % of the company was quite better in the industry in last few years. But in
the year of 2018, the return of the stockholders has been negative. It leads to the conclusion
that the TSR performance of Walt Disney is better and thus, Walt Disney is a good choice for
the long term investment and better returns.
Calculation of Total Share holder return (Viacom Inc)
Particulars 2018 2017 2016 2015 2014
Market price of shares 33.7 38.41 33.98 32.57 30.84
Capital Gain or loss -4.71 4.43 1.41 1.73
Dividend Per Share 0.84 0.78 0.71 0.66 1.15
TSR -3.87 5.21 2.12 2.39
TSR % -11.48% 13.56% 6.24% 7.34%

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(Yahoo finance, 2018)
Valuation analysis:
Valuation analysis is an approach which is used by the stakeholders of the business to
recognize the fair value of a stock in order to compare it with the actual market value of the
stock hence, the better decisions could be taken (Horngren, 2009). In order to identify the fair
value of Walt Disney’s stock price, the net asset value and multiple valuation approach have
been applied.
Net asset value:
Net asset value is a valuation approach defines the fair value of the stock on the basis
of the total available resources of the company. Here, in case of Walt Disney, it has been
found that the intrinsic value of the company should be $ 35.99 whereas the market value of
the company’s stock is $ 112.87 (Yahoo finance, 2018). It describes that the stock price of
the company is overvalued in the market and thus the stockholders should sell the stock in
current scenario to generate better returns.
Asset based valuation model
Total Assets 98,598
Total liabilities 44,643
Outstanding shares 1499
Intrinsic value = (Total assets - total
liabilities) / outstanding shares 35.99
Market value 112.87
Overvalued
(Yahoo finance, 2018)
Comparable ratios:
Further, the study has been done on PE valuation model and EBITDA model in order
to recognize the market performance of the business. PE ratio of competitor an EPS of the
company has been taken into concern to measure the fair value of the stock (Moles, Parrino
and Kidwekk, 2011). On the basis of the study, stock price of the company is overvalued in
the market and thus the stockholders should sell the stock in current scenario to generate
better returns.
P/E Valuation Model

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2018 2017 2016
PE ratio of Viacom Inc 8.08 7.80 9.64
Earnings per share 8.40 5.73 5.76
Per share value of value of
equity 67.88 44.71 55.54
Market stock price of Walt
Disney 112.87 107.52 106.80
Overvalued Overvalued Overvalued
EV/EBITDA model:
Further, EV/EBITDA model of the company has been measured and it has been found
that the Stock price of the company is overvalued in the market (Madura, 2014). The actual
price of the stock is quite lower than the market price. It expresses that this time is the right
time for the stockholder to sell the stock.
EV/EBITDA Valuation Model
2018 2017 2016
EV/EBITDA of Viacom Inc 122.78 144.97 169.33
EBITDA 11,793 10,993 11,675
Per share value of value of equity 96.05 75.83 68.95
Market stock price of Walt
Disney 112.87 107.52 106.80
Overvalued Overvalued Overvalued
Comparison table:
Comparison Table
Disney
Ltd
Viacom
Inc
PE ratio 13.44 8.08
EV EBITDA
ratio 6.40 122.78
It depicts that the PE worth of Disney is better whereas the EV/EBITDA level of
Viacom inc is better in the industry.
Conclusion:

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To conclude, currently, it is the right time for the shareholders of the company to sell
the stock and generate good return from the market. After a period of time, the stock price of
the company would be lowered because of the overvalued stock price in the market.