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Walt Disney Company

The Walt Disney Company is the world’s leading company in the entertainment industry, and was founded by Walt Disney in 1923. This company is among ten most valuable brands in the world. In 2009 fiscal year, its revenue was approximately $36.1 billion.
Since its inception, The Walt Disney Company and its structures have remained true to the guiding principle - to create exceptionally high-quality products in the field of entertainment, using the wealth experience gained over many years of successful work.

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The Walt Disney Company is represented in 172 countries by 1,300 radio and television stations that broadcast in 53 languages. The company is also one of the biggest licensors in the world, and the largest publisher of children’s books. In Europe and Latin America, the company tops the list of video distributors. Consequently, the Walt Disney Company is the leading company in the entertainment industry. This market has a very big potential, since people will always desire the entertainment.

For eight decades, The Walt Disney Company has succeeded in establishing the reputation of the company number one in the field of family entertainment. Having started as a tiny studio animated films in the 1920s, today, the company has grown to a scale of one of the largest corporations in the world. Moreover, it continues to delight millions of families around the world.

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Currently, The Walt Disney Studio is the foundation based on which the Disney’s building is erected. The world-famous animated and feature films became its basis. As stated by Disney – Bringing Culture and Human Values to People, n.d.:
The Walt Disney Studios is involved in distribution of works by Walt Disney Pictures, Walt Disney Animation Studios, Pixar Animation Studios, Touchstone Pictures and Hollywood Pictures. Disney Theatrical Productions is among the largest production centers of Broadway. It includes Disney Live Family Entertainment and Disney on Ice responsible for ice shows. Disney Music Group releases music in different genres and soundtracks.

History of Disney consumer products began in 1929, with the proposal to place the image of Mickey Mouse on the covers of children albums for painting. Since then, the division significantly increased the range of products under the brand Disney. It includes clothing and toys, home furnishings and house wares, books and magazines, food and beverages, stationery, electronics as well as interactive games. Additionally, the Disney Publishing Worldwide is the world’s largest publisher of children’s literature.

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Disney Media Networks comprise a vast number of cable and broadcast television, radio, Internet and publishing companies. Disney-ABC Television Group, which includes Disney Channel, ESPN Inc. the largest international sports media network, as well as Walt Disney Internet Group are among the key.

It should be noted that total sales of units that combine cable TV increased by 9%, $3.46 billion in 2012, while operating income increased by 15%, $1.72 billion, due to good results of sports channel ESPN.
The company’s division of resorts and parks increased its revenue by 14%, $3.3 billion in 2012, and operating profit increased by 73%, to $383 million.

The Walt Disney Studios increased its total sales by 13% to $1.34 billion, while its operating profit increased to $118 million in 2012, compared with a loss of $83 million a year earlier.
At the same time, total sales of the Disney’s TV business was reduced by 2%, $1.5 billion, while operating profit reduced by 40 % to $138 million, due to the lower ratings of TV channel ABC. The bulk of total sales came from the Media Network division, which includes cable and broadcast television channels, including the Disney Channel. In 2012, total sales from this segment increased by 9% to $4.7 billion.
That is why it should be noted that the most potential and important markets are cable TV Resorts and Parks, and Media networks. These divisions are developing quite rapidly.
Additionally, the overall financial analysis of the Walt Disney Company should be provided.
Table 1
The Walt Disney Company’s Indicators of Financial Analysis

 

2012

2011

2010

2009

2008

Turnover Ratios

Inventory turnover

27.51

25.64

26.40

28.44

33.67

Receivables turnover

6.46

6.61

6.58

7.45

7.04

Payables turnover

9.15

9.00

8.63

9.03

8.69

Working capital turnover

47.19

24.50

31.07

12.23

504.57

Liquidity Ratios

Current ratio

1.07

1.14

1.11

1.33

1.01

Quick ratio

0.77

0.77

0.77

0.93

0.72

Cash ratio

0.26

0.26

0.25

0.38

0.26

Profitability Ratios

Return on Sales

 

 

 

 

 

Operating profit margin

20.73%

18.89%

16.96%

14.40%

19.57%

Net profit margin

13.44%

11.76%

10.41%

9.15%

11.70%

Return on Investment

 

 

 

 

 

Return on equity (ROE)

14.29%

12.86%

10.56%

9.80%

13.70%

Return on assets (ROA)

7.59%

6.66%

5.73%

5.24%

7.08%

Debt and Solvency Ratios

Debt to equity

0.37

0.38

0.34

0.38

0.46

Debt to capital

0.27

0.28

0.25

0.28

0.32

Interest coverage

20.62

19.49

15.53

10.62

11.40

 

According to the Walt Disney Company’s 2012 annual report, the company’s total sales increased from $36.149 million in 2009 to $42.27 million in 2012.

Financial analysis requires usage of financial statements, for example, income statements and balance sheets. Financial analysts perform an analysis of financial statements of an enterprise and provide recommendations for improving the current situation. However, there is no single approach to determine such category as “financial analysis”. Some economists support an opinion that financial analysis is an analysis of company’s financial state; however, other economists accent on a dynamic approach to determining this category.

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It would be reasonable to provide a clear definition from economic dictionary. According to the Business definition for financial analysis (n.d.):
Financial analysis use and transformation of financial data into a form that can be used to monitor and evaluate the firm's financial position, to plan future financing, and to designate the size of the firm and its rate of growth. Financial analysis includes the use of financial statement analysis and funds-flow-adequacy ratio.
Also, financial analysis can be defined as “the analysis of the financial statement of a company” (Business definition for financial analysis, n.d.).
The first group of ratios is the ratio of profitability. This group includes rate of return on net sales, rate of return on total assets, and rate of return on common stockholder’s equity. According to the data provided in Table 1, the company’s ratios are increasing, since such ratio as return of assets increased from 5.24% in 2009 to 7.59% in 2012. Also, the company’s return on equity increased from 9.80% in 2009 to 14.29% in 2012. For this reason, the company’s effectiveness and profitability are improving and, that is why, the company is developing.

The current ratio describes the company’s ability to repay its own debts. This ratio shows the level of coating total current liabilities by total current assets. According to data provided in Table 1, the company’s current ratio increased from 1.01 in 2008 to 1.11 in 2010, and 1.07 in 2012. It means that company’s liquidity has increased, and the Walt Disney Company is able to pay its debts.
The next indicator is the acid-test ratio, and it measures the company’s liquidity. It is well-known that cash is an absolutely liquid asset, and the company does not need to sell accounts receivable or merchandise inventories for repaying debts. This indicator is calculated by dividing such high-liquid assets as cash, short-term investments, and accounts receivable over total current liabilities.
As we can see from the data provided in Table 1, the company’s acid-test ratio was remained practically unchanged during the analyzed period, since the value of this indicator was the same in 2008 and 2012. Accordingly, it can be concluded that the company’s liquidity is good and responds to normative values of analyzed ratios.

According to the data provided in Table 1, we can conclude that the company’s profitability ratios are increasing, while liquidity ratios are at the same level. That is why the company’s effectiveness is higher than its stability.
As it is known, such popular indicator as an inventory turnover ratio shows a period, over which firm’s inventory is sold and replaced. The main rule is that all indicators of turnover must increase. According to the data provided in Table 1, the company’s inventory turnover decreased from 33.67 in 2008 to 27.51 in 2012. It means that the current situation is deteriorating, and the company’s activity is not developing.

Additionally, the company’s solvency can be estimated by using the leverage ratios. Therefore, the next very important indicator of financial stability of any company is the debt ratio. This indicator is determined by dividing total liabilities over total assets, and it shows the percentage of total liabilities in the structure of liabilities.

Therefore, the Walt Disney’s financial stability has a little bit improved since debt ratio decreased from 0.28 in 2008 to 0.27 in 2012. It means that the company’s debts are 27% of total assets. Despite the fact that this ratio improved, the company’s financial stability and solvency cannot be considered as quite high.

Additionally, it should be mentioned that marketing budget of the company depends on its orientation on the target. Using this method, the company must understand exactly what it wants. Since 2011, the Walt Disney Company holds the seventh position in the report of the top 100 national advertisers with a budget of more than $2 billion on advertising. Advertising expenses in 2012, 2011, and 2010 were $2.5 billion, $ 2.8 billion, and $2.6 billion, respectively. The company follows the traditional canons, putting in TV more than two- thirds of advertising budget.
In fact, there was consumer research study in 1988. This research have showed the strength results, since such attribute as “magic” was defined as a major attribute of Walt Disney Company by 34% of responders. It is clearly that this company means more for its clients than simply sum of parks, television shows, clubs, books, or movies. This company is much more than simply a sum of its parts. It can be said that the seamless synergies of the Walt Disney Company really are its magic with its different kinds of business. “Its products are more ‘Disney’ than they are products” (Kirkman).
Synergy is a very important part of the company’s success and development of different corporate strategies. However, Disney distinguishes itself by its fundamental understanding and usage of this concept throughout its diversification efforts. During its history, the Walt Disney Company has created and realized a great corporate strategy that has encouraged its impressive success, and eventually has created great value.

As it is known, once Walt Disney has said that, “It all started with a mouse”. Studying the history of Walt Disney, somebody can suppose that Disney’s success is based on some great competitive advantage. However, Walt Disney shows by his own understanding that it is not true. We cannot overestimate Disney’s importance and leadership characteristics, which are indicated by his employee’s mantra of “what would Walt do?”. All employees of Walt Disney Company have an understanding that Disney has the great, unique, and “magical” products. However, the major source of Disney’s success is not the products themselves, but rather the connection and interrelation between these “magical” products.

It should be noted that diversification is one of the key parts of Disney’s success. Walt Disney firstly began the diversification very early, since Walt’s first cartoon was created in 1928. Then, one year later, Disney created and licensed a pencil tablet. In 1932, the Disney’s product - the Mickey Mouse Club, which was a great instrument of selling company’s goods, had at least 1 million members. During the Second World War, Walt Disney produced films for education and trainings. In addition, the company has understood that cartoons without music cannot be sold as full movies. Therefore, the company decided to diversify into music. This was made in 1949. In addition, Walt Disney took into his account such great invention as television.

Therefore, once Walt has said “It is obvious that television... will make a tremendous impact on the world of entertainment and motion pictures”. Therefore, it can be said that the great Disney’s achievement Disneyland is the result of his impressive and intuitive understanding of interconnections between new branches and industries. It is quite hard, since some connections between industries can be obvious, but eventually they can lose their actuality. For example, amusement parks are not very popular today. According to the National Amusement Park Historical Association, “Amusement Park Industry History”, (1999):
As the 1950's dawned, television, urban decay, desegregation, and suburban growth began to take a heavy toll on the aging, urban amusement park. The industry was again in distress as the public turned elsewhere for entertainment. What was needed was a new concept and that new concept was Disneyland. When Disneyland first opened in 1955, many people were skeptical that an amusement park without any of the traditional attractions would succeed. But Disneyland was different. Instead of a midway, Disneyland offered five distinct themed areas, providing "guests" with the fantasy of travel to different lands and times. Disneyland was an immediate success, and as a result, the theme park era was born.

Walt Disney’s achievements were not simply result of invention of Mickey Mouse; rather these achievements were a consequence of the good mechanism of synergy between different kinds of company’s business. As it is known, Porter has proposed three testes for determining if shareholder value is the consequence of diversification. Disneyland is the best example of reflecting Porter’s philosophy of the attributes of the successful diversification strategies:
1) The attractiveness test: the industry of amusement park, at this time, is not very attractive. There are high barriers for new businesses. The level of fixed cost is quite significant. Suppliers and buyers do not have much power for impact on the market. Buyers are not organized. Indeed, there are many different forms of entertainment, but there is nothing matching the park’s theme.
2) The cost-of-entry test: probably, it is the weakest component of the Walt Disney Company and its project Disneyland. This project had very high fixed costs, as well as company should fight with public scepticism. However, the company has understood that the project’s fixed costs would be lower than expected income.
3) The better-off test: Disney’s efforts to diversification have stimulated the “magic” of Disney. The television shows were advertised by hard-goods, which were advertised by movies, which were advertised by television. Disneyland has become the best instrument to earn money on the advertisement potential of these media.
Disney has created the impressive mechanism of advertisement, when there was no need to pay for advertising of its own products. Disneyland is the ideal instrument of advertising, when it advertises itself. As it is known, the nickname of Disneyland is “The Magic Kingdom”. Disneyland has become the first Disney’s project, when Disney’s ideas of the synergy between different kinds of business were combined.
This long-term diversification has created the long success and shareholder value. In most cases, the Walt Disney Company represents itself as a corporation, which aware the importance of diversification and the real essence of synergy between different kinds of business.
There was a very important incident in the life of company, which created the future great company’s success. This incident is the loss of popularity “Oswald, the lucky Rabbit”. Disney retained hard control of all constituent elements of his business. Furthermore, he decided to strengthen this control. Therefore, Disney took into control all operations within Disneyland, and created very hard rules for his employees. In addition, Walt Disney wanted to have a full control not only over operations inside the company, but over facilities that supplied Disneyland. Walt Disney and his company made significant efforts to buy all Disneyland’s equity as soon as possible. “The company brought back its agreement with RKO to distribute films in-house when it was financially capable” (Kirkman, 2001). The next continued successes were a consequence of company’s philosophy that “money was no substitute for imagination” (The Walt Disney Company: Corporate Strategy. Michael Porter, 1988.).

It should be also noted that the most important reason of Disney’s early success is the innovative leadership of Walt Disney. Michael Eisner became manager in 1984 after company’s financial and image deterioration. Eisner has made this company his own company. In addition, he changed the company’s name from the Walt Disney Production to The Walt Disney Company, with new management and new corporative goals. The consistent leadership is one of the most important keys of company’s success. Southwest and Wal-Mart had a similar success. Of course, employees, customers, and common people have understood that Walt Disney is an incarnation the company. “Disney was suffering without a leader that typified the Disney spirit” (Kirkman, 2001). Eisner knew that he faced with quite big challenge. This challenge was the following: he must continue the phenomenal Walt Disney’s success. In order to follow this goal, he decided that it would be easier to create success in his own company, than to make this success into someone else’s company.

To create this success, Eisner decided to provide the following initiatives: 1) Euro Disneyland; 2) The Disney Store; 3) Purchase of Disney’s first broadcasting outlet (KHJ-TV); 4) Increasing the number of released film, from 2 in 1984 to 15-18 yearly. The company increased its own market share from 3% to 14% in 1987. It was a consequence of hard cost control and good management. The Disney Store is an important instrument of “bringing a slice of Disney magic [to] every community” (The Walt Disney Company: Corporate Strategy. Michael Porter, 1988).

These concrete initiatives were very important for further company’s success. The new CEO made a great contribution to Disney’s development, thanking his ability to focus the organization. Eisner’s has made a very important strategic step. This step was followed with changing of company’s name from “Walt Disney Production” to “The Walt Disney Company”. Certainly, previous name means that the company produces some goods or products and does not provide any services. With the changing of name to “The Walt Disney Company”, Eisner opens new doors for company’s activity. After these changes, the company was able to do what it wants. The company’s possibilities have become unlimited. Then Eisner decided to create three different units of business, which allow better focusing on the connection between its business, and saving the control that has been quite important for the company’s success.

Disney is an example of a company that understands proper diversification. Walt Disney’s intuitive comprehension of synergy, ‘magic’ in his lexicon, is the driving force behind the company’s continued success. While imperfect in the present day, Disney’s creative use of diversification ultimately has the potential of creating a vast amount of shareholder value through propagating this ‘magic’ in society in ways previously unimagined.

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