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The Finance Assignment

The Finance Assignment. Disney in the Crisis Years. 1993 Loss: Francs 5.2 billion Debt: Francs 12.04 billion Equity: Francs 1.5 billion Debt/Equity: 7.93. Disney 1994. Restructuring Plan Issues new shares Waived royalties/management fees for 5 years (Fr 450 million yearly savings)

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The Finance Assignment

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  1. The Finance Assignment

  2. Disney in the Crisis Years • 1993 • Loss: Francs 5.2 billion • Debt: Francs 12.04 billion • Equity: Francs 1.5 billion • Debt/Equity: 7.93

  3. Disney 1994 • Restructuring Plan • Issues new shares • Waived royalties/management fees for 5 years (Fr 450 million yearly savings) • After 5 years fees cut in half • No interest payments for 1.5 years • No principal repayment until 2002

  4. Disney 2000 • 2000: • Sales: Euro 958 million • Net Income: Euro 38 million • Debt: Euro 1.5 billion • Equity: Euro 1.2 billion • Earning/share: 0.04 • (EPS = Net income/number of shares)

  5. Disney Studios • Construction Costs: Euro 610 million • Financed by: Euro 381m loan Euro 230m new shares

  6. Hong Kong Disneyland Construction Costs: x million US$ Financed by: Loans ? New shares ?Investments? • How Much? • By Whom?

  7. Financial analysis tools • Rule of thumb • Past performance • Industry norm

  8. Important ratios • Liquidity ratios • Profitability ratios • Solvency ratios • Cash flow adequacy ratios • Market strength ratios

  9. Current assets Current liabilities Net sales Average accounts receivable Liquidity ratios (1) Current ratio: Measure of short-term debt-paying ability Receivable turnover: Measure of the effectiveness of company’s credit policies

  10. Cost of goods sold Average inventory Liquidity ratios (2) Inventory turnover: Measure of the relative size of inventory

  11. Net income Net sales Net sales Average total assets Profitability ratios (1) Profit margin: Measure of net income produced by each dollar of sales Asset turnover: Measure of how efficiently assets are used to produce sales

  12. Net income Average total assets Net income Average stockholders’ equity Profitability ratios (2) Return on assets: Measure of overall earning power or profitability Return on equity: Measure of profitability of stockholders’ investments

  13. Total liabilities Stockholders’ equity Long term solvency ratios Debt to equity ratio: Measure of the company’s capital structure and leverage

  14. Price of stock Earnings per share (EPS) Net income Number of common shares outstanding EPS = Market strength ratios P/E ratio: Measure of the investor’s confidence in the company

  15. The Finance Assignment • Part One: How to do it? • Create an overview, from 2003-2006 : • Calculate the core ratios • Discuss in report format, the trends you see and compare the ratios with ‘rules of thumb and industry norms’ • Then you must: • make a conclusion on how you believe the investment will impact the mother company, based on the above analysis

  16. The Finance Assignment Example: Current ratio. Measures… Trends… Industry norm… Rule of thumb… Conclusion… => advice

  17. The Finance Assignment Example: Profit margin. Measures… Trends… Rule of thumb… Industry norm… Conclusion… Advice…

  18. The Finance Assignment Example: P/E ratio. Measures… Trends… Rule of thumb… Industry norm… Conclusion… Advice…

  19. The Finance Assignment How to do it? • Do not merely answer the questions • Discuss in report format, the questions posed in a clear and logical format • Then you must: • summarize your findings and together with your research from part one, make a conclusion and give advice to the Board

  20. The Finance Assignment Part Three • Based on your overall assessment: • EXPANSION CURRENTLY ‘Fair, Feasible and Realistic’??Why / why not? HOW TO IMPROVE? • Your Advice will be sent to the Disney Head Office

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