Disney, a media company was founded on October 16, 1923 and since then the company has remained a world leader in providing multiple and high quality brands of family entertainment services. Disney has its customers located in different countries around the world even though it has its headquarter in Burbank, California. In order to maintain a positive reputation in the media industry, Disney strives to abide by its core values which include creativity, truth, innovation, optimism, decency, and quality. According to Nielson (2014), Disney is recognized as one of the companies that offers persuasive and proficient entertainment to customers. For example, through its entertainment services, Disney has been able to bring together guests, customers, and audiences in the recent past. As Latif (2014) explains, Disney aspires to maximize its cash flows and earnings, and to use the revenue earned to develop additional business ventures that can help it in maximizing shareholders’ value. This paper discusses major accounting issues for Disney including the company’s financial performance, financial ratio analysis, and stock performance. The company’s accounting information will be reviewed while paying close attention to management issues.
According to Nielson (2014), since Disney has been in the media industry for quite a long time, it faces stiff competition from other entertainment companies such as Time Warner Inc, Twenty-First Century Fox, and Comcast Corp. When Disney’s performance in the media industry is analyzed against that of its competitors, it is clear that the company still has a strong competition power. According to Disney’s annual report for the year 2014, Disney stands at the right position in the media industry because it mainly focuses in customers’ needs and offers high quality services. For this reason, customers tend to prefer services offered by Disney to those of its competitors. Additionally, the fact that Disney offers quality media network that offer services similar to those offered by independent television stations can be another reason why the company stands at a better position in the media industry than Time Warner Inc, Twenty-First Century Fox, and Comcast Corp (Nielson, 2014).
The first accounting issue that will be discussed in this paper is Disney’s financial performance. Little financial information for Disney for the year 2015 is available and therefore, financial analysis of the company will focus on 2014 annual report. According to Bloomberg (2015), Disney earned revenue of 48.8 billion United States Dollars in the year 2014. This reflects an increase in revenue of 3.8 billion United States Dollars from revenue of 45 billion United States dollars realized in the year 2013. According to Morningstar, 2015, Disney’s net income in 2014 was 7.5 billion. This indicates that the company was able to gain much profit from the sale of its products and services to customers. The total assets of Disney stood at 84.186 billion United States Dollars in 2014, a value that is extremely higher that the assets owned by the company three years ago. This is an indication that the company has been able to grow significantly within a period of three years. According to Bloomberg (2015), Disney recorded the largest increase in total liabilities in 2014 from the year 2011. When Disney’s financial performance in the year 2014 is compared to those of its major competitors, it is evident that Disney can still compete well in the media industry.
The second accounting issue to be discussed is Disney’s financial ratio analysis including profitability ratios and liquidity ratios. In 2014, Disney’s current ratio stood at 114 percent, a clear indication that the company can use its assets to take care of its liabilities. By September 2014, the company’s quick ratio stood at 102 percent. Even though Disney’s current ratio and quick ratio have been fluctuating over the past two year, the two ratios have remained high putting the company at the right competitive position in the market. However, in the year 2014, Disney managed to put lower amount of inventory than its major competitors in the media industry. In the year 2014, Disney mainly focused on owner’s equity for takeovers and acquisitions because the company’s high debt to equity ratio (Nasdaq, 2015).
Normally, inventory turnover is used to measure operational efficiency of a company with reference to sales. Looking at Disney’s inventory turnover for the year 2014, there is clear evidence that the company’s inventory turnover was higher than those of competitors and it can therefore be concluded that Disney was very strong in sales. The fact that Disney attracts more customers that its competitors as earlier mentioned is enough proof that the company is capable of using its assets to generate high revenue. The high inventory turnover is attributed to the company’s ability to use its assets to generate revenue. It is therefore anticipated that Disney’s inventory turnover will remain high if the company’s management strives to utilize its assets effectively by ensuring that sales remain high year in year out (Nasdaq, 2015).
Disney recorded high Earnings per Share in the year 2014, an indication that the company remained profitable for the better part of the year, even through the amount of profit earned must have been very little. As Nasdaq (2015) explains, Disney’s net profit margin in 2014 was 15 percent, one percent higher than that of 2013. This proved that the company recorded high levels of earnings in the same year. According to Latif (2014), the amount of money that a company’s shareholders need for future development is determined by its price portion. Disney had a high price portion the year 2014, indicating that its shareholders will have to invest huge amounts of income to facilitate future developments.
Furthermore, Disney recorded a high Return on Assets in the year 2014, meaning that the company’s management has been working hard to ensure that assets are effectively utilized to earn revenue. Since Disney’s return on equity was slightly lower than those of its major competitors in the year 2014, it is clear that the company generates little profit from the actual amount of money invested by shareholders. Additionally, in the same year, Disney recorded a high interest coverage ratio due to high revenues (Latif, 2014). This indicates that the company can pay its debts effectively over and over again.
The third accounting issue about Disney that is addressed in this paper is the company’s stock performance in the year 2014. Disney’s stock value in the year 2014 received a sharp boot of approximately 2.1 billion United States Dollars. This is according to the company’s annual report released in January 2015. Disney’s earnings per share by the end of the year 2014 stood at 107 United States Dollars. The stable growth in stock by Disney in 2014 was attributed to the company’s large investments in real-world entertainment and cable channels (Wu, 2014).
In the year 2014, Disney managed to purchase stock of close to 4 billion United States Dollars due to its high financial strength. When compared to its competitors, Disney’s stock performance in 2014 was lower than its major competitors. This is likely to drive investors away and this presents a major challenge to the company (Bylund, 2015). Disney’s management has been very keen on keeping the company’s performance high, and it can still do more to ensure that Disney performs better than its competitors in the media industry.
Even though Disney’s financial records indicate that the company has been performing well in quite a number of areas, comprehensive auditing is required to help ascertain that the information presented in company’s books are true and accurate. The auditor who will be involved in the audit must have a Masters Degree in Accounting or any equivalent. In addition, he or she must have 5 years working experience either as an internal auditor or as an external auditor. The potential candidate must also possess strong Information Technology Skills and analytical skills.
Personally, I agree with majority of information provided in Disney’s financial records. Based on Disney’s financial information, it is true that the company can compete favorably with its major competitors in the media industry. However, there is lack of clear information about the financial indicators that Disney should focus on suppose it wants to make any investments in the media industry in order to perform better than its competitors. Apart from verifying the accuracy of Disney’s financial data, the auditor should also reveal major financial indicators that the company needs to focus on for successful future investments, as well as possible investment recommendations that it should consider.