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Walt Disney Company’s leverage ratios
Leverage ratios
The Walt Disney Company’s leverage ratios show a positive trend since the recession, which took place in the 2009 fiscal year. The debt to equity ratio took a 10% dip in 2009 due to the recession, but has increased roughly 5 percentage points since 2009. The 5% growth in the past 4 years is a positive trend since it means that The Walt Disney Company is getting more financial leverage and has a higher percentage of equity. Therefore, The Walt Disney Company is very safe in the debt to equity category. Similarly, the Interest Coverage ratio dipped in 2009 due to the recession, but has nearly doubled since 2009. Currently, Disney has the income to pay off 25 times the amount of interest expense that it incurred this past financial year. This is an excellent sign that The Walt Disney Company has no problems regarding interest payments.
Cash flow ratios
In the last 5 years, the cash flow adequacy numbers for The Walt Disney Company have been on a generally upward trend over the past 5 years. For the most part, cash flows to assets and cash flows to sales have steadily grown in the last 5 years, and have all now surpassed their pre-recession levels. While the cash flow yield has decreased slightly over the last three years, this is not data to worry about. Most of the decline is attributable to Disney paying off a large amount of the costs associated with building more theme parks and paying off payments on new cruise ships. Furthermore, the cash flow yield ratio has remained well above 100%, meaning that the company is generating a lot of income through their operating processes. The cash flow yield is very important for Disney since most of its revenues and income are brought in through the operations of its many resorts and theme parks. The increases of cash flow to sales and cash flows to assets further back up this positive trend, as Disney’s cash flows are totaling to more and more of its revenues and total assets, meaning the company is using its cash at a fast rate to help generate revenues and profits.
EPS
The price/earnings per share ratio is the more definitive measure of The Walt Disney Company’s stock compared to its competitors. The Walt Disney Company has maintained the most consistent growth of the three main competitors. Time Warner suffered non cash impairments due to the necessity to use higher discount rates for customers, which accounted for roughly 2/3 from of the decline in the fair value of their cable franchising rights. New Corporation experienced a similar impairment in 2009 of $113 million of which was attributed to the company’s “ability to hold its investment until recover and the investment’s financial strength and specific prospects.” All things considered, The Walt Disney Company maintains the industry standard with regards to the price/earnings ratio with a more consistent and predictable growth, with decreases in the price/earnings ratios coming only from 2010-2011. Overall, The Walt Disney Company the safest investment of the three.
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