FIN 320 Project Two Financial Analysis Report Financial Analysis and Financial Evaluation 1.Financial Analysis A.Financial Calculations Calculate accurate financial formulas to figure out the business's current financial health. Specifically, calculate the ratios listed below using theRatios Most Recent Fiscal Quarter (Qtr)andRatios Same Fiscal Quarter 1 Year Agoworksheets in the Project Two Financial Formulas workbook (linked in the What to Submit section of the Project Two Guidelines and Rubric). **Please note all numbers below are in thousands per the DIS financial statements** i.Working capital In 2022, the working capital was 718000 while in 2021 it was 6553000. The company's working capital had an increase to this year, which shows that they have more money readily available to meet their expenses. ii.Current ratio In 2022, the current ratio was 1.023384575, while in 2021 it was 1.239047167. Since this had a decrease this year, it does show a lower ability to generate cash flow. However, since the pandemic, I do not think a decline at this time is something to worry about. Last year and the year prior were extremely abnormal years. iii.Debt ratio In 2022, the debt ratio was 0.216392093, while in 2021 it was 0.215912294. These numbers are very similar showing that the company's total debt as a percentage of its total assets has not changed and the company is not over extending itself. iv.Earnings per share In 2022, the earnings per share was 0.843346435, while in 2021 it was 1.765861875. The EPS decreased, which is a sign that the value of its shares is lower this year. Rising interest rates and other macroeconomic factors can affect the EPS. This is certainly something to monitor going forward, but it is not yet something to be overly concerned about. v.Price/earnings ratio The price earnings ratio was 56.90285714 in 2022, while in 2021 it was 78.15315315. As with the EPS, the Price / earnings ratio has decreased as well. This downward trend is something we need to monitor, but not something to be overly concerned over at this time. Financially, as you can see from the working capital the company itself is in a good position. 1
vi.Total asset turnover ratio The total asset turnover ratio was 0.105373541 in 2022, while in 2021 it was 0.107896806. Not much of a shift in this number year over year. This ratio measures how well we utilize our assets to generate revenue/sales. We are staying steady here. vii.Financial leverage Financial leverage came in at 2.206205405 in 2022, while it was at 2.331319676 in 2021. Here is a number that we like to see on a downward trend. This implies that our borrowed money to make investments has worked in our favor. We borrow money in order to build capital and invest in our business. When this number decreases, it means that we have more equity then debt. viii.Net profit margin Net profit margin came in at 0.06984747 in 2022, while it was at 0.144140428 in 2021. This helps to see if we are making enough profit from our sales. We are making less money per dollar than last year, however as previously mentioned, we are coming back after a unusual high year. Last year sales and revenues were up high as places opened back up from being closed due to the pandemic. ix.Return on assets Return on assets came in at 0.007360075 for 2022, while in 2021 it was at 0.015552292. The ROA has declined slightly, meaning that we are making less per dollar, or spending more money this year over last year. Again, comparing to last year, which was a high year opening after the pandemic, is not the best year for comparison at this time. x.Return on equity Return on equity was at 0.015232432 in 2022, and 0.010583231 in 2021. Our ROE has increased which means that we are converting the shareholders equity into profits. The ROE helps display how efficiently we generate profits. B.Working Capital Management Working capital management is important as it views the short-term assets and liabilities. It shows that a company operates efficiently. It gives the data that we can afford our day- to-day operating expenses as well as properly handle our assets. C.Financing Businesses can finance their operations and expansions in many different ways. A few ways they can do so are to choose to re-invest their net earnings; they can obtain corporate bonds, debt capital, and use equity capital. 2
D.Short-Term Financing A few short-term options that a company has for financing could be trade credit, commercial bank loans, commercial paper (similar to bonds, except the time period is only up to 270 days, and the interest is only paid at maturity.) , and they can also look into secured loans. For Disney, I think the best option if short-term financing was needed would be to look into a commercial bank loan as their finances are inline and doing well, they could get a good rate, and have the least amount of additional expenses added on. E.Bond Investment Corporate bonds are one way for a company to get the capital it needs quickly by investors. The investors will get interest payments for a period until the bond reaches maturity, and then they will get their original investment back as well. The interest paid on the bonds can be a variable or a fixed rate. This is one way for a corporation to finance its debt. Bonds are different then stocks, as the investors are loaning money to the corporation and are not receiving a share of ownership. F.Capital Equipment Investing in capital equipment can be great if new machinery, vehicles, or buildings are needed. If the machines are not up to par, they could slow down production. Therefore, purchasing new machines could speed up production and increase output, which in turn can increase revenue. However, it is a large debt added to the financial statements and this can tighten cash flow and affect the debt ratios. The company could consider leasing equipment to lower the risks and hard impact on the cash flow. G.Building If the room is needed for the company, purchasing a new building can be a good idea. It could produce output and that can help revenue. However, this would be a large purchase and increase debt substantially. There is also the constant repairs and maintenance, as well as electric and heat, that will need to be added to the consistent bills that would be needed. 2.Financial Evaluation A.Bond Investment With an initial investment of $30,000,000, after the 10 years of annual cash flow, we could have the potential of $56,842,107. Bringing in $2,526,316 each year, and on the 10thyear we would also get the principal returned at $31,578,947 for a total that year of $34,105,263. This means we would profit $2,684,210 per year for each of the 10 years. B.Capital Equipment This seems to be the best option for the company, while there is no salvage value, we would still get $60,000,000 at the end of 15 years. However, it is a $25,000,000 initial investment. The annual cash flow would be $4,000,000.This means we would profit $2,333,333.33 per year for 15 years. Based off of a 15 year term, totaling up all 15 years at $4,000,000 each. 3
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