STEP ONE: Evaluation
(Samples to use as a guide)
Sample Core Business Activity Statement (Using Disney)
The Walt Disney Company is a diversified worldwide entertainment company. It operates in the US, Canada, Europe, Asia Pacific, Latin America, and other countries. Together with its subsidiaries and affiliates, the Walt Disney Company acquired a dominant market position in which it operates in five business segments: media networks, parks and resorts, studio entertainment, consumer products and interactive media (Business Insights, 2019).
Sample SWOT Analysis (Using Disney)
History:
The Walt Disney Co. was founded by Walt Disney and Roy O. Disney in Los Angeles,
CA, in 1923 (Business Insights, 2019). The company listed on the NYSE on November 12, 1957 (Business Insider, 2013). It is now ranked as the 53rd largest company in the world by the market value of 152.1 billion US dollars (Statista, 2018).
SWOT Analysis:
Strength: The company has a strong brand portfolio. It has built a collection of some of the world’s best media brands, including Disney, ESPN, Freeform, Pixar, Marvel, Lucasfilm and Touchstone that provide enormous opportunities for the company to continue to create high-quality content .
Opportunity: The global broadcasting and cable TV market has been growing dramatically and will continue to grow strongly through to the end of the forecast period in 2020.
Weakness: Walt Disney ‘s current ratio was 0.8 at the end of FY2017. A lower current ratio than the competitors indicates weaker liquidity position of the company and its inability in meeting short term obligations than its peers.
Threat: The company operates in highly competitive markets. Each of its 3 business segments competes with big competitors around the globe.
(The Walt Disney Company SWOT Analysis, 2019)
Current situation and future plans:
Here we explain how Disney is able to execute its strategic plan informed by the SWOT analysis above.
Maintain strength: On March 20, 2019, Walt Disney Company closed its $71.3 billion acquisition of 21st Century Fox assets, and now become an entertainment colossus the size of which the world has never seen. Disney’s plans to use Fox content to forcefully move into streaming could slow the growth of Netflix and force smaller studios to merge as they scramble to compete (NY Times, 2019).
Improve weakness: Walt Disney distributes home entertainment releases directly under each of its motion picture banners in the domestic market and both directly and through independent distribution companies in international markets. Its latest streaming services, Disney+, would enable the company to drive growth in the subscriber base and generate higher revenues in the future (Business Insights, 2019).
Capture opportunity: Walt Disney distributes programming through its network-branded websites and licenses programming for distribution through online video distributors. It also has an equity interest of approximately 30% in Hulu. Disney + will be lunched later this year which will provide it an opportunity to expand its market share and revenues in the coming years (Business Insights, 2019).
Defend threat: The company is focusing on creating products and services with expanding array of choices facilitated by technological development to meet the changing preferences of the broad consumer market. For example, visitors can choose different kinds of foods from different region around the globe at Disney world (Walt Disney Co., 2019).
References
Barnes, B. (2019, March 20). Disney Moves From Behemoth to Colossus With Closing of Fox Deal. Retrieved from https://www.nytimes.com/2019/03/20/business/media/walt-disney-21st- century-fox-deal.html.
Business Insights. (2019). The Walt Disney Co. Retrieved from https://bi-gale- com.jwupvdz.idm.oclc.org/global/company/302512?u=prov43712#
Staista. (2018). Walt Disney Company. Retrieved from https://www-statista- com.jwupvdz.idm.oclc.org/study/20840/walt-disney-company-statista-dossier/
Taylor, B. (2013, November 17). Disney Reminds Us Of A Time When Anyone Could Invest Early And Really Make A Lot Of Money. Retrieved from https://www.businessinsider.com/disneys- shareholders-happiest-on-earth-2013-11.
The Walt Disney Company SWOT Analysis. (2019). Walt Disney Company SWOT Analysis, 1–8. Retrieved from http://search.ebscohost.com.jwupvdz.idm.oclc.org/login.aspx?direct=true&db=buh&AN=138263 485&site=bsi-live
Walt Disney Co. (2019, September 24). News. Retrieved from https://www.thewaltdisneycompany.com/news/.
Evaluation (Using Jet Blue)
Short Term Liquidity
The quick ratio is a way to view liquidity. One way a business owner can improve their quick ratio is to put more of their net profits into cash, cash equivalents and marketable securities. A higher quick ratio indicates that a borrower will be able to make principal and expense payments even if the business encounters unexpected expenses or revenue reduces (What Is Quick Ratio? n.d.).
Table 1:1 Quick Ratio (in millions)
Company
Cash
Marketable Securities
Accounts Receivables
Quick Ratio
JetBlue
$959
$369
$231
.59
Delta
$2,882
$0
$2,854
.28
Industry
.61
Based on these finding below JetBlue is doing better thank Delta and is tracing closer to the industry standard whereas Delta is running at less than half the industry average.
Capital Structure and Solvency
The capital structure of a company is a combination of debt and equity used by a company to finance its overall operations and growth. (Tuovila, 2020) The total debt to equity ratio equals all long-term debt plus all short-term debt, divided by stockholders’ equity. This ratio is a measure the company’s ability to generate sufficient cash to repay long term obligations (Easton et al., 3-20). The higher a company’s total debt to equity ratio, the riskier investment a stockholder is making.
Table 2.1: Total Debt to Equity Ratio (in millions)
Company
Long Term Debt
Short Term Debt
Stockholders’ Equity
Total Debt to Equity Ratio
JetBlue
$1,990
$2,663
$4,799
.97
Delta
$8,873
$2,287
$15,358
.73
Industry
.71
Table 2.2: Operating vs. Non-Operating Return
Company
ROE
RNOA
Non-Operating Return
JetBlue
12.1%
10.4%
1.7%
Delta
31.0%
22.5%
8.5%
Industry
18.3%
Table 2.3: Debt to Assets Ratio (in millions)
Company
Total Assets
Debt to Assets
EBIT
Interest Expense
JetBlue
$11,918
39.0
$833
65
Delta
$64,532
17.3
$6,499
301
Table 2.4: EBITDA Coverage Ratio (in millions)
Company
Depreciation + Amortization
EBIT
Interest Expense
EBITDA Coverage Ratio
JetBlue
$525
$833
$65
20.9
Delta
$2,581
$6,499
$301
30.2
Table 2.5: Liabilities to Equity Ratio (in millions)
Company
Total Liabilities
Stockholders’ Equity
Liabilities to Equity Ratio
JetBlue
$7,119
$4,799
1.5%
Delta
$49,174
$15,358
3.2%
Asset Utilization
Asset utilization is the way the company calculates the total revenue earned for every dollar of assets the company owns. A way to measure this is by using the Net Operating Asset Turnover formula (NOAT). The formula is sales divided by average net operating asset; Sales/Average Net Operating Asset. To have an optimal ratio would mean that the company is being efficient with each dollar of assets held for example for every $1 of asset it generates $1 of revenue. A high ratio is a good indication that the company is having a better use of its assets. JetBlue has a NOAT of 0.81 and Delta’s is 1.03. This indicates Delta has a higher return on assets than JetBlue.
Table 3.1: Net Operating Asset Turnover (in millions)
Company
Sales
Average NOA
NOAT
JetBlue
$8,094
$10,001.5
0.81
Delta
$47,007
$45,429.5
1.03
Profitability
A company uses profitability ratios to determines its business ability to produce a return on its investments. To do so we can use the profit margin, return on net operating assets (RNOA) and return on equity (ROE) formulas. Profit margin ratio measures the amount of net income earned with each dollar of sales generated by comparing the net income and net sales, Net Income/Net Sales. Return on Net Operating Asset formula is Revenue/Average NOA. Return on Equity formula is Net Income/ Shareholders Equity. As we can see from the asset utilization ratio and the profitability ratios, Delta is using it assets more successfully than JetBlue.
Table 4.1: Profit Margin, RNOA and ROE
Company
NOPAT
Profit Margin
RNOA
ROE
JetBlue
602,360
7.02%
10.4%
12.1%
Delta
5,095,860
9.6%
22.5%
31.0%
Industry
7%
12.1%