Fall 21 Dr.

Songur FIN 311

(40pts): 12. DIS Ratio Analysis

Using the provided Excel sheet (in D2L) show the income statements, balance sheets,
and cash flow statements, calculate the financial ratios for Walt Disney Co and one of
its Competitor/Peer. You must calculate the financial ratios for five full years (2018,
2017, 2016, 2015, and 2014) for Walt Disney Co. and a competitor/peer firm. Show
how you calculated the ratios for both companies. Tax rate is 20%.

Results:

Disney Ratios 2014-09 2015-09 2016-09 2017-09 2018-09

Liquidity % Change
Current Ratio 1.14 1.03 1.01 0.81 0.94 -0.17
Quick Ratio 1.02 0.93 0.92 0.74 0.86 -0.16
Asset Management
Inventory Turnover 31.01 33.40 40.02 40.16 42.70 0.38
Day`s Sales Outstanding 55.54 52.96 55.49 53.05 50.78 -0.09
Fixed Assets Turnover 2.25 2.08 2.03 1.94 2.01 -0.11
Total Assets Turnover 0.58 0.59 0.60 0.58 0.60 0.04
Debt/Capital Management Ratios
Debt-to-Capital Ratio 24.8% 28.0% 31.8% 38.0% 30.0% 0.21
Times Interest Earned (TIE) 39.25 49.90 40.56 27.36 21.76 -0.45
Profitability Ratios
Operating Margin 23.6% 25.2% 25.8% 25.2% 25.0% 0.06
Profit Margin 15.4% 16.0% 16.9% 16.3% 21.2% 0.38
Basic Earning Power 13.7% 15.0% 15.6% 14.5% 15.0% 0.10
ROA 8.9% 9.5% 10.2% 9.4% 12.8% 0.43
ROE 16.7% 18.8% 21.7% 21.7% 25.8% 0.55
ROIC 15.4% 17.1% 18.1% 16.7% 17.0% 0.10
Market Value Ratios
P/E 20.88 20.84 16.21 17.32 16.88 -0.19
M/B 3.48 3.92 3.52 3.76 4.36 0.25

Viacom Ratios 2014-09 2015-09 2016-09 2017-09 2018-09

Liquidity % Change
Current Ratio 1.77 1.33 1.21 1.23 1.55 -0.13
Quick Ratio 1.57 1.12 1.00 1.00 1.30 -0.17
Asset Management
Inventory Turnover 17.91 16.29 16.88 14.80 14.43 -0.19
Day`s Sales Outstanding 79.04 81.19 77.22 79.27 81.73 0.03
Fixed Assets Turnover 13.26 13.57 14.01 13.40 13.56 0.02
Total Assets Turnover 0.58 0.60 0.60 0.55 0.56 -0.03
Debt/Capital Management Ratios
Debt-to-Capital Ratio 69.6% 77.4% 77.6% 73.6% 64.8% -0.07
Times Interest Earned (TIE) 8.20
Profitability Ratios
Operating Margin 27.8% 29.6% 23.5% 20.2% 18.8% -0.33
Profit Margin 17.4% 17.3% 14.5% 11.5% 14.1% -0.19
Basic Earning Power 16.1% 17.7% 14.0% 11.2% 10.5% -0.35
ROA 10.1% 10.3% 8.7% 6.4% 7.9% -0.21
ROE 46.1% 64.3% 54.3% 33.6% 31.1% -0.33
ROIC 18.0% 19.8% 15.7% 12.5% 11.6% -0.35
Market Value Ratios
P/E 17.26 13.44 10.84 11.71 7.68 -0.55
M/B 7.96 8.64 5.89 3.94 2.39 -0.70

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Fall 21 Dr. Songur FIN 311

1. Explain your findings for each ratio (Current, Quick, ROA, ROE, TIE, and
others).

Current Ratio
o Disney’s current ratio is declining (-17%).
Calculation: Total Current Assets/Total Current Liabilities
o Viacom’s current ratio is declining (-13%).
Calculation: Total Current Assets/Total Current Liabilities

Quick Ratio
o Disney’s quick ratio is declining (-16%).
Calculation: (Total Current Assets – Inventories)/Total Current Liabilities
o Viacom’s quick ratio is declining (-17%).
Calculation: (Total Current Assets – Inventories)/Total Current Liabilities

Inventory Turnover
o Disney’s inventory turnover is rising (38%).
Calculations: Revenue (Sales)/Inventories
o Viacom’s inventory turnover is declining (-19%).
Calculations: Revenue (Sales)/Inventories

Day’s Sales Outstanding

o Disney’s day’s sales outstanding ratio is declining (-9%).
Calculations: Receivables/(Revenue/365)
o Viacom’s day’s sales outstanding ratio is rising (3%).
Calculations: Receivables/(Revenue/365)

Fixed Assets Turnover

o Disney’s fixed assets turnover is declining (-11%).
Calculations: Revenue/Net Property, Plant and Equipment
o Viacom’s fixed assets turnover is rising (2%).
Calculations: Revenue/Net Property, Plant and Equipment

Total Assets Turnover

o Disney’s total assets turnover is rising (4%).
Calculations: Revenue/Total Assets
o Viacom’s total assets turnover is declining (-3%).
Calculations: Revenue/Total Assets

Debt-to-Capital Ratio
o Disney’s debt-to-capital ratio is rising (21%).

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Fall 21 Dr. Songur FIN 311

Calculations: (Short-term debt + Long-term debt)/(Short-term debt + Long-

term debt + Total Stockholders’ Equity)
o Viacom’s debt-to-capital ratio is declining (-7%).
Calculations: (Short-term debt + Long-term debt)/(Short-term debt + Long-
term debt + Total Stockholders’ Equity)

Times Interest Earned (TIE)

o Disney’s times interest earned ratio is declining (-45%).
Calculations: Operating Income (EBIT)/Interest Expense
o Viacom’s times interest earned ratio is not available.
Calculations: Operating Income (EBIT)/Interest Expense

Operating Margin
o Disney’s operating margin is rising (6%).
Calculations: Operating Income (EBIT)/Revenue
o Viacom’s operating margin is declining (-33%).
Calculations: Operating Income (EBIT)/Revenue

Profit Margin
o Disney’s profit margin is rising (38%).
Calculations: Net Income/Revenue
o Viacom’s profit margin is declining (-19%).
Calculations: Net Income/Revenue

Basic Earning Power

o Disney’s basic earning power is rising (10%).
Calculations: Operating Income (EBIT)/Total Assets
o Viacom’s basic earning power is declining (-35%).
Calculations: Operating Income (EBIT)/Total Assets

Return on Assets (ROA)

o Disney’s return on assets is rising (43%).
Calculations: Net Income/Total Assets
o Viacom’s return on assets is declining (-21%).
Calculations: Net Income/Total Assets

Return on Equity (ROE)

o Disney’s return on equity is rising (55%).
Calculations: Net Income/Total Stockholders’ Equity
o Viacom’s return on equity is declining (-33%).
Calculations: Net Income/Total Stockholders’ Equity

Return on Invested Capital (ROIC)

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Fall 21 Dr. Songur FIN 311

o Disney’s return on invested capital is rising (10%).

Calculations: (Operating Income * 0.80)/(Short-term debt + Long-term debt
+ Total Stockholders’ Equity)
o Viacom’s return on invested capital is declining (-35%).
Calculations: (Operating Income * 0.80)/(Short-term debt + Long-term debt
+ Total Stockholders’ Equity)

Price-to-Earnings (P/E) Ratio

o Disney’s price-to-earnings ratio is declining (-19%).
Calculations: Price per Share/(Net Income/Number of Shares Outstanding)
o Viacom’s price-to-earnings ratio is declining (-55%).
Calculations: Price per Share/(Net Income/Number of Shares Outstanding)

Market-to-Book (M/B) Ratio

o Disney’s market-to-book ratio is rising (25%).
Calculations: Price per Share/(Total Stockholders’ Equity/Number of
Shares Outstanding)
o Viacom’s market-to-book ratio is declining (-70%).
Calculations: Price per Share/(Total Stockholders’ Equity/Number of
Shares Outstanding)

2. Explain your findings for category of ratios (Liquidity, Debt, Asset

Management and others).

Liquidity
o Disney’s overall liquidity ratios struggled from 2014 to 2017, but a
sudden improvement in overall liquidity is seen from 2017 to 2018; there
will likely be no sudden liquidity problems in the near future.
o Viacom’s overall liquidity ratios are worsening, which may lead to
liquidity problems in the present and in the future.

Asset Management
o Disney’s overall asset management ratios are improving, especially in
inventory turnover and total assets turnover, as seen throughout the
past 5 years. Although there is a slight decline in performance amongst
the day’s sales outstanding ratios and the fixed assets turnover ratios.
Moreover, Disney may need to focus on the day’s sales and fixed assets
turnover rates portion of their overall asset management.
o Viacom’s overall asset management ratios are revealing low levels of
improvement and high levels of depreciation, especially in areas
pertaining to the company’s inventory and total assets turnover rates.

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Fall 21 Dr. Songur FIN 311

Debt/Capital Management Ratios

o Disney’s overall debt/capital management ratios are worsening amongst
the times interest earned ratios; Disney may need to re-evaluate how
they meet their debt obligations based on their current income. However,
the debt-to-capital ratios are showing promising levels of improvement.
o Viacom’s overall debt/capital management ratios are depreciating
amongst the debt-to-capital ratios, yet reveal no trends past 2014 for
times interest earned.

Profitability Ratios
o Disney’s overall profitability ratios are growing at high, consistent rates.
Every single ratio within the profitibility category of Disney’s financial
analysis has shown positive growth and a promising future for
profitability.
o Viacom’s overall profitability ratios are deteriorating at a high, consistent
rates throughout the various, derived ratios. Viacom has revealed quite
the opposite performance as Disney in this category, which means that
Viacom is struggling with achieving advancements in profitability.

Market Value Ratios

o Disney’s overall market value ratios are demonstrating a decline in P/E
ratio values, which is good being that Disney had brought its P/E ratio
down to an attractive value. Whereas Disney’s M/B ratio values are
continuing to rise, which may lead to having an overly undervalued
stock.
o Viacom’s overall market value ratios are depreciating at a quick and high
rate. This company is experiencing a decline in P/E ratio values that has
dropped too far for investor attractiveness, as well as a decline in M/B
ratio values, which may be an overall benefit for Viacom.

3. Which of the ratios may indicate problems? For these, explain the potential
problems.

The current ratio and quick ratios are both declining for Disney and Viacom,
which indicates that the two firms may not be able to pay off their current
liabilities in the short term or may have just enough to keep up with liabilities.

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Fall 21 Dr. Songur FIN 311

The Times Interest Earned (TIE) ratio is declining at a concerningly high rate for
Disney and indicates that the firm is likely experiencing difficulty with meeting
its debt obligations and expectations based on its current income.

The P/E ratio is quickly declining for Viacom and indicates that the firm’s
[potential] investors may not expect higher growth from the company compared
to the overall market (average range from 13-15; Viacom at 7.68 in 2018).

The operating margin and profit margin ratios are both declining for Viacom,
which indicates that the firm may not be consistently growing its profits or
overall revenue. The company is beginning to struggle with earning enough
money from business operations to pay for all of the associated costs and
liabilities in maintaining the business.

The basic earning power ratio is declining for Viacom, which indicates that the
firm may not be effectively using its assets to generate income.

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