Review the most recent audited financial statements of a publicly traded company

Question

Review the most recent audited financial statements of a publicly traded company - Year ended December 31, 2017. Tell what you learned about the company. Tell how the company performed. Based on the information in the statements and other information about the company, how would you assess their financial condition and financial future?

For example:

The publicly traded company I chose is the Walt Disney Company (DIS). I chose this company for one of two reasons, one I love Disney and was able to travel there early this year and second is because I thought it would be extremely interesting to see their financial statements and compare them to years past.

One thing interesting I found out was that Disney was made public back in 1957 and sold their first shares for only $13.88. It now sells for $110.87. In December of 2017 it sold for $108.05 and in December of 2016, it was $101.79.

Their performance level this year has declined when it comes to their gross profit and total revenues have decreased. In the year ending of 2017 their gross profit was $24,946,000 and in 2016 it was $25,741,000. Their net income has also dropped from $9.3 million in 2016 to $8.9 million in 2017.  

As for their future, this could have been a tough year for multiple reasons, however, I do believe that Disney will continue to flourish in their upcoming years and that in years to come we will see a gradual rise in upcoming years like we have seen in the past.

https://finance.yahoo.com/quote/DIS/

Explanation / Answer

What you learned about the company:

The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide. The company’s Media Networks segment operates cable programming services under the brand ESPN, Disney, and Freeform; broadcast businesses, which include the ABC TV Network and eight owned television stations; radio businesses consisting of the ESPN Radio network; and the Radio Disney network. It also produces and sells original live-action and animated television programming to first-run syndication and other television markets, as well as subscription video on demand services and in home entertainment formats, such as DVD, Blu-Ray, and electric home video license. Its Parks and Resorts segment owns and operates the Walt Disney World Resort in Florida and the Disneyland Resort in California. This segment also operates Disney Resort & Spa in Hawaii, Disney Vacation Club, Disney Cruise Line, and Adventures by Disney; and manages Disneyland Paris, Hong Kong Disneyland Resort, and Shanghai Disney Resort, as well as licenses its intellectual property to a third party for the operations of the Tokyo Disney Resort in Japan. The company’s Studio Entertainment segment produces and acquires live-action and animated motion pictures for distribution in the theatrical, home entertainment, and television markets primarily under the Walt Disney Pictures, Pixar, Marvel, Lucasfilm, and Touchstone banners. This segment also produces stage plays and musical recordings; licenses and produces live entertainment events; and provides visual and audio effects, and other post-production services. Its Consumer Products & Interactive Media segment licenses its trade names, characters, and visual and literary properties; develops and publishes mobile games; and sells its products through The Disney Store, shopDisney.com, and shop.Marvel.com, as well as directly to retailers. The company was founded in 1923 and is based in Burbank, California.

Tell how the company performed

Revenues for fiscal 2017 decreased 1%, or $0.5 billion, to $55.1 billion; net income attributable to Disney decreased 4%, or $0.4 billion, to $9.0 billion; and diluted earnings per share attributable to Disney (EPS) decreased 1%, or $0.04 to $5.69. The EPS decrease in fiscal 2017 was due to lower segment operating income at Media Networks, Studio Entertainment and Consumer Products & Interactive Media and higher net interest expense. These decreases were partially offset by a decrease in weighted average shares outstanding as a result of our share repurchase program, higher operating income at Parks and Resorts and a decrease in the effective tax rate. In addition, net income attributable to Disney reflected an approximate 1 percentage point decline due to the movement of the U.S. dollar against major currencies including the impact of our hedging program (FX Impact).

Disney’s portfolio already includes Pixar, Marvel, Lucasfilm, and its own studio, which should help it compete against the likes of Netflix when it launches its new standalone streaming service in late 2019. Coupled with ABC, ESPN, and its other cable networks, Disney will do just fine in the new entertainment age because live sports aren’t dying anytime soon—they are just changing.

Performance of Media Networks segment

The increase in affiliate fees was due to an increase of 7% from higher contractual rates, partially offset by a decrease of 3% from subscribers.
The decrease in advertising revenues was due to decreases of $192 million at Broadcasting, from $4,058 million to $3,866 million and $188 million at Cable Networks, from $4,451 million to $4,263 million. The decrease at Broadcasting was due to decreases of 8% from lower network impressions and 1% from the absence of the Emmy Awards show, partially offset by an increase of 6% from higher network rates. The decrease at Cable Networks was due to decreases of 6% from lower impressions and 1% from other advertising, partially offset by an increase of 3% from higher rates. The decrease in impressions at Cable Networks and Broadcasting was due to lower average viewership.

Performance of Parks and Resorts segment

Parks and Resorts revenues increased 8%, or $1,441 million, to $18.4 billion due to increases of $871 million at our international operations and $570 million at their domestic operations. Revenues at our domestic operations were unfavorably impacted by Hurricane Irma and Hurricane Matthew during the current year.
Revenue growth of 32% at their international operations was due to increases of 27% from higher volumes and 4% from higher average guest spending, partially offset by a decrease of 1% from an unfavorable FX Impact. Higher volumes were due to a full year of operations at Shanghai Disney Resort and higher attendance and occupied room nights at Disneyland Paris. Higher average guest spending was driven by an increase at Disneyland Paris and higher average ticket prices at Hong Kong Disneyland Resort, partially offset by lower average ticket prices at Shanghai Disney Resort. The increase at Disneyland Paris was primarily due to increases in food and beverage spending, average ticket prices and average daily hotel room rates.
Revenue growth of 4% at their domestic operations was primarily due to an increase of 3% from higher average guest spending due to an increase in average ticket prices for admissions to our theme parks and for sailings at our cruise line, as well as higher food and beverage spending and average hotel room rates. Domestic volumes were comparable to the prior year as increased attendance at Walt Disney World Resort was largely offset by lower occupied room nights at Walt Disney World.

Performance of Studio Entertainment segments:

The decrease in theatrical distribution revenue was primarily due to the comparison of Star Wars: The Force Awakens and two Pixar titles in release in the prior year compared to Rogue One: A Star Wars Story and one Pixar title in release in the current year. These decreases were partially offset by the performance of Beauty and the Beast and two Marvel titles in the current year compared to The Jungle Book and one Marvel title in the prior year. Other significant titles in the current year included Moana and Pirates of the Caribbean: Dead Men Tell No Tales, while the prior year included Zootopia and Alice Through the Looking Glass.

Lower home entertainment revenue was due to a decrease of 16% from a decline in unit sales driven by lower sales of Star Wars Classic titles and the performance of Rogue One: A Star Wars Story in the current year compared to the strong performance of Star Wars: The Force Awakens in the prior year. The current year also included the release of one Pixar title, compared to two Pixar titles in the prior year. These decreases were partially offset by the success of Moana, Beauty and the Beast and Guardians of the Galaxy Vol. 2 in the current year compared to Zootopia, Captain America: Civil War and The Jungle Book, respectively, in the prior year.
TV/SVOD distribution and other revenue was flat as increases of 5% from TV/SVOD distribution, 1% from stage plays and 1% from Lucasfilm’s special effects business were offset by a decrease of 7% from lower revenue share with the Consumer Products & Interactive Media segment. The increase in TV/SVOD distribution revenue was due to international growth and higher domestic rates, partially offset by a decrease due to a domestic sale of Star Wars Classic titles in the prior year. Higher stage play revenue was driven by new productions opening in the current year, while higher revenue from Lucasfilm’s special effects business was driven by more projects in the current year. Lower revenue share with the Consumer Products & Interactive Media segment was due to the stronger performance of merchandise based on Star Wars: The Force Awakens and Frozen in the prior year, partially offset by Cars merchandise in the current year.

How would you assess their financial condition and future:

Cash used in financing activities was $9.0 billion in fiscal 2017 compared to $7.2 billion in fiscal 2016. The net use of cash in the current year was due to $9.4 billion of common stock repurchases and $2.4 billion in dividends, partially offset by net borrowings of $3.7 billion. The increase in cash used in financing activities compared to fiscal 2016 was due to higher common stock repurchases ($9.4 billion in fiscal 2017 compared to $7.5 billion in fiscal 2016).
Cash used in financing activities was $7.2 billion in fiscal 2016 compared to $5.8 billion in fiscal 2015. The net use of cash in fiscal 2016 was due to $7.5 billion of common stock repurchases and $2.3 billion in dividends, partially offset by net borrowings of $2.9 billion. The increase in cash used in financing activities in fiscal 2016 compared to fiscal 2015 was due to higher common stock repurchases ($7.5 billion in fiscal 2016 compared to $6.1 billion in fiscal 2015).

Moreover, Looking at Disney’s most recent $19,595.0M liabilities, the company has not been able to meet these commitments with a current assets level of $15,889.0M, leading to a 0.81x current account ratio. which is under the appropriate industry ratio of 3x. With a debt-to-equity ratio of 54.80%, DIS can be considered as an above-average leveraged company. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments.Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. For DIS, the ratio of 35.06x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes DIS financial sound.

Future performance:

But a stock is only good if the company is expected to grow, which Disney looks poised to do. The current Estimates are calling for the company’s quarterly earnings to surge by over 29% to reach $2.04 per share up $0.04 over the last 30 days. Meanwhile, Disney’s full-year earnings are projected touch $7.12 per share up $0.19 over the last 60 days representing a nearly 25% expansion.

The company is also expected to see its quarterly revenues climb by 11.03% to hit $15.81billion, while its full-year revenues are projected to pop by 8.17% to reach $59.64 billion. Both of which mark small increases over the last couple of weeks and would be rather impressive for a company of its size and age. Moreover, During its fiscal first quarter, Disney DIS announced plans to acquire key TV and entertainment assets from 21st Century Fox Inc. FOXA in a $52.4 billion deal. The proposed acquisition includes Fox’s 20th Century Fox film division and TV studio, as well as its international and cable TV businesses. The deal would give Disney even more material to mine for its forthcoming streaming service, making it that much more of a competitor in the increasingly crowded space.

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