Corporate Finance (FIN440)

Report

Taskin Shakib
Lecturer
Department of Accounting and Finance
North South University
Course: FIN440
Section: 10
Faculty Initial : Tks
Submitted on: 24th November , 2023

Prepared by Group 6:

Redwan Malik Siam 2131366630

Mohammad Abrar Hossain 2131258630

Shitab Zubab 2131610630

Nushaiba Hossain 2132230030

1
 Table of Content

Letter of Transmittal.................................................................................................................... 3
Executive Summary.....................................................................................................................4
Olympic Industries Limited.........................................................................................................4
Company Overview................................................................................................................. 4
Ratio Analysis.......................................................................................................................... 5
Unlevered Beta...................................................................................................................... 20
Sustainable Growth Rate (SGR) and Internal Growth Rate (IGR)...................................21
Sustainable Growth Rate:................................................................................................ 21
Internal Growth Rate:.......................................................................................................22
Weighted Average Cost of Capital (WACC).......................................................................... 23
Enterprise Value.....................................................................................................................25
THE WALT DISNEY COMPANY................................................................................................. 26
Company Overview............................................................................................................... 26
Unlevered Beta...................................................................................................................... 27
Enterprise Value.....................................................................................................................28
SGR and IGR for Walt Disney............................................................................................... 29
Proforma Income Statement..................................................................................................30
Pro Forma Balance Sheet..................................................................................................... 31
Intrinsic Valuation...................................................................................................................35
Investment Decision (Buy or Sell)..........................................................................................37
Explanation............................................................................................................................ 38
Appendix.................................................................................................................................... 39

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 Letter of Transmittal

November 24, 2023

Taskin Shakib (Tks)
Lecturer, Department of Accounting and Finance
North South University

Subject: Submission of group project for FIN 440

Dear Sir,
With immense joy, we deliver to you our report about Olympic Industries Limited and The Walt
Disney Company. We have made every effort to include all relevant information and
explanations in order to make this report comprehensive and informative. We learned a great deal
of knowledge and experience working on this project.
We want to express our gratitude for providing us with this platform to present our work. Your
lectures and explanations truly helped us finish our work.

Yours Sincerely,

Redwan Malik Siam - 2131366630

Mohammad Abrar Hossain - 2131258630
Shitab Zubab - 2131610630
Nushaiba Hossain - 2132230030

3
 Executive Summary

In this report, we included the financial information of Olympic Industries Limited and The Walt
Disney Company. We have done a Ratio Analysis for Olympic Industries Limited based on 2022
along with the Internal Growth Rate, Sustainable Growth Rate, Unlevered Beta, Weighted
Average cost of capital, and Enterprise Value. For The Walt Disney Company, we calculated the
Enterprise value, intrinsic value, unlevered beta and a forecasted financial statement from 2022
to 2026. To conclude the report, we provided our evaluation regarding our findings.

Olympic Industries Limited

Company Overview

Olympic Industries Limited is a dynamic company that dominates the consumer products sector.
It was founded in 1979 and is headquartered in Dhaka, Bangladesh. The company is well-known
for its commitment to quality and innovation. Its diverse portfolio comprises food and beverage
products like biscuits, cookies, candies, and dairy products, in addition to batteries.

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 Ratio Analysis

Profitability Ratios:

Gross Profit Margin

(Gross Profit/Revenue)*100
A financial indicator called gross profit margin indicates how much money a business generates
after deducting its cost of goods sold (COGS) from its revenue. It is given as a proportion of the
total revenue.

Year Gross Profit Revenue Gross Profit Ratio

2022 4,920,364,744 21,438,817,722 22.95%

For organizations, the gross profit margin is a crucial indicator since it indicates the efficiency
with which revenue is converted into profit. A corporation may make a lot of money from sales
if it has a high gross profit margin. This may be the result of several things, including having an
effective production process, selling high-margin items, and having a great brand. We can see
that in 2022, Olympic generated 22.95% gross profit from its revenue. If this ratio is good or not
depends on the industry benchmark, its competitors and its past performance.

Operating Profit Margin

(Profit from Operations/Revenue)*100

Operating profit margin, sometimes referred to as operating margin, is a profitability ratio that
assesses how much money a business makes from its core activities following the deducting of
all operating costs, including R&D, cost of goods sold, and selling, general, and administrative
(SG&A) expenses.

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 Year Operating Profit Revenue Operating Margin

2022 1,553,129,905 21,438,817,722 7.24%

For 2022, the Operating Profit generated by Olympic from its revenue is 7.24%. Businesses
should pay close attention to operational profit margin as it indicates how well they are
controlling operating costs and turning income into profit. Even after deducting all of its running
expenses, a business with a high operational profit margin might still make a sizable profit from
sales. If this number is a healthy position for Olympic or not depends on a lot of external factors.

Net Profit Margin

(Net Profit/Revenue)*100
The profitability ratio known as net profit margin, or net margin, indicates how much profit a
business makes from its entire revenue after deducting all costs, such as taxes, interest, and
operational expenditures.

Year Net Profit Revenue Net Profit Margin

2022 1,205,153,261 21,438,817,722 5.62%

In 2022, Olympic generated 5.62% net profit from its revenue. The most reliable indicator of a
company's profitability is its net profit margin. It includes all of the costs incurred by the
business, such as taxes, interest, and operational costs. Even after deducting all of its costs, a
firm with a high net profit margin can still make a sizable profit on its sales.

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Return on Assets (ROA)

[{Interest(1-Tax Rate)+Net Profit}/Total Assets]*100

Return on assets, or ROA, is a financial statistic that assesses how well a business uses its
resources to create a profit. Net income is divided by total assets to arrive at this figure.

Year Interest Net Profit Total Assets Tax Rate ROA

2022 115,781,747 1,205,153,261 14,426,960,894 0.225 0.0898

In 2022, Olympic generated 9.16% profit from its assets which might be interpreted as a
reasonable amount yet it depends on other external factors. Because it demonstrates how
successfully a business is managing its assets to create profit, return on assets (ROA) is a crucial
indicator for investors. A high return on assets (ROA) is a sign of a company's productivity and
efficiency. Conversely, a low return on assets (ROA) suggests that a corporation could not be
making the most of its resources or that it might be too indebted.

Return on Equity (ROE)

(Net Profit/Shareholder’s Equity)*100

A financial statistic called return on equity (ROE) gauges how well a business uses the equity of
its owners to produce profits. Net income is divided by shareholders' equity to arrive at this
figure.

Year Net Profit Shareholder’s Equity ROE

2022 1,205,153,261 9,364,732,683 12.87%

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In 2022, Olympic generated 12.87% net profit from its shareholder’s equity which could mean it
generated beyond a reasonable amount of profit yet it depends on external factors for how
favourable this is for the company. Because it demonstrates how successfully a business is
managing its shareholders' money to create profit, return on equity (ROE) is a crucial indicator
for investors. A corporation that uses its shareholders' money effectively and profitably is one
that has a high return on equity (ROE). However, a poor return on equity (ROE) suggests that a
firm could not be making the most use of the stock held by its shareholders or that it might be too
indebted.

Total Asset Turnover (TAT)

Revenue/Total Asset
A financial ratio called total asset turnover assesses how well a business uses its assets to
produce income. Net sales are divided by total assets to arrive at this figure.

Year Revenue Total Asset TAT

2022 21,438,817,722 14,426,960,894 1.4860

In 2022, Olympic generated BDT 1.4860 of revenue for each unit BDT of assets it owns. Higher
total asset turnover ratios are generally regarded as preferable since they show that the business
is making better use of its resources to produce income. A lower ratio might mean that the
business is not making the best use of its assets or that it has a large number of non-generating
assets. The efficiency of several businesses within the same industry may be compared using
total asset turnover. Additionally, it may be used to monitor a company's performance over time
to determine if it is increasing or decreasing.

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DuPont Identity:

ROE= Net Profit Margin*Total Asset Turnover*EquityMultiplier

Equity Multiplier= Total Asset/Total Equity

Profit margin, asset turnover, and equity multiplier are the three main components of return on
equity (ROE), as broken down by the DuPont Identity framework for financial ratio analysis. It
is an effective instrument for comprehending the elements that influence a business's profitability
and pinpointing areas in which the enterprise may enhance its operations. Because it illustrates
how each of these three factors affects a company's return on equity, the DuPont Identity is
helpful.

Year Net Profit Margin Total Asset Turnover Equity Multiplier ROE

2022 5.62% 148.60% 154.06% 13%

Olympic's ROE is driven by its high asset turnover and equity multiplier. Despite having a slim
profit margin, the corporation manages to earn a high return on equity by taking on debt and
leveraging its assets efficiently.

Leverage ratios:

Operating Leverage

Degree of Operating Leverage (DOL) = % change in EBIT / % change in Sales

Operating leverage measures the sensitivity of a company's operating income, also known as
earnings before interest and taxes (EBIT), to changes in its sales or revenue. It helps businesses
and investors understand how changes in sales volumes affect a company's profitability. Gaining

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operating leverage means using fixed assets to their maximum capacity. If a company has
operating leverage, that means they have economies of scale.

Degree of Operating Leverage (DOL) of Olympic:

Year EBIT of 2021 EBIT of Sales Sales Degree of Operating

2022 Of 2021 Of 2022 Leverage

2022 2,807,111,88 1,720,013,35 18,032,599,1 21,438,817,7 -2.05

0 8 44 22

Olympic's operating income (EBIT) is extremely sensitive to changes in sales volume, as

indicated by its degree of operational leverage (DOL) of -2.05. More specifically, the operating
income (EBIT) of the company is anticipated to decline by 2.05% for every 1% decline in sales.
Additionally, it shows that the company's cost structure has excessive fixed costs compared to
variable costs. Furthermore, a negative operating leverage implies that the company's
profitability is declining more quickly than its sales.

Financial Leverage

Financial Leverage (Debt-to-Equity Ratio) = Total Liabilities / Shareholder’s Equity

Financial leverage reveals the extent to which a company depends on borrowing as well as how
it generates revenue through debt or borrowing. It can be used to evaluate the risks and possible
returns related to the capital structure of a business. Financial leverage can be computed in a
number of ways, but the debt-to-equity ratio is one of the most widely used formulas.

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Financial Leverage of Olympic:

Year Total Liabilities Shareholder’s Equity Financial Leverage

(Debt-to-Equity
Ratio)

2022 5,062,228,211 9,364,732,683 0.54

A financial leverage of 0.54 means that for every 1 Taka of equity in the Olympic company, there
is 0.54 Taka of debt. It is relatively low and indicates that Olympic depends more on equity
financing than debt financing. This can be called a conservative approach to capital structure, as
the company is not heavily dependent on debt.

Degree of Financial Leverage:

Degree of Financial Leverage (DFL) = % change in Net Income / % change in EBIT

A company's Degree of Financial Leverage helps in determining the right amount of debt to
include in its capital structure. It shows how well the company is using its debt and how much
sales it can increase without having to take additional debt.

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Degree of Financial Leverage (DFL) of Olympic:

Year Net Income Net Income EBIT EBIT Degree of Financial

of 2021 Of 2022 Of 2021 Of 2022 Leverage

2022 2,037,363,20 1,205,153,26 2,807,111,88 1,720,013,35 1.055

2 1 0 8

A Degree of Financial Leverage (DFL) of 1.055 means that for every 1% change in Earnings
Before Interest and Taxes (EBIT), the company's Net Income will change by approximately
1.055%. Moreover, A DFL of 1.055 indicates that the company's Net income is moderately
sensitive to changes in its EBIT.

Cash Conversion Cycle

Cash Conversion Cycle = Inventory Days + Receivables Days - Payable Days

The cash conversion cycle (CCC) is a financial metric that assesses how efficiently a company
manages its cash flow during its operational cycle. A shorter CCC implies more efficient cash
management. Olympic’s Cash Conversion Cycle is 43.9 days.

CCC Inv Days Rec Days Pay Days

43.9 days 48.65 days 7.20 days 11.95 days

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Efficiency Ratios:

Inventory Turnover

Inventory Turnover = Cost of Sales / Average Inventory

Inventory turnover is a financial metric that measures how quickly a company's inventory is sold
and replaced within a specific time period, typically a year. A higher turnover ratio indicates that
inventory is selling quickly, which can be a positive sign of efficient operations. In this case,
inventory turnover for Olympic is 7.4 times, which is a high enough number.

Inventory Turnover Cost of Sales Average Inventory

7.40 times 16518452978 2231363674

Inventory Days

Inventory Days = 360 / Inventory turnover

Inventory turnover in days, also known as "days' sales of inventory" or DSI, is a financial metric
that calculates the average number of days it takes for a company to sell its entire inventory. A
lower value suggests faster inventory turnover and more efficient inventory management. For
Olympic, it is 48.65 days.

Inventory Days Days Inventory Turnover

48.65 days 360 7.40 times

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Receivables Turnover

Receivables Turnover = Credit Sales / Average Receivables

Receivables turnover is a financial metric that measures how quickly a company collects
payments from its customers. A higher turnover ratio indicates faster collection of accounts
receivable, which can be a positive sign of effective credit and collection management. For
Olympic receivables, turnover is 49.98.

Receivables Turnover Credit Sales Average Receivables

49.98 times 21,438,817,722 428,963,686

Receivables Days

Receivables Days = 360 / Receivables Turnover

Receivables turnover in days is a financial metric that calculates the average number of days it
takes for a company to collect payments from its customers. A lower value indicates faster
collections and more efficient accounts receivable management and in this case it is 7.2 days
which is efficient.

Receivables Days Days Receivables Turnover

7.20 days 360 49.98 times

Payable Turnover

Payable Turnover = Purchase / Average Payables

Payables turnover measures how quickly a company pays its suppliers. A higher turnover means
that a company is paying its suppliers more quickly and vice versa. Here Olympic has a payables
turnover of 30.12 days, which is considered a standard practice by businesses.

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 Payables Turnover Purchase Average Payables

30.12 times 17,084,180,139 567,238,144.5

Payable Days

Payable Days = 360 / Payables Turnover

Payables turnover in days, is a financial metric that calculates the average number of days it
takes for a company to pay its suppliers. A higher DPO suggests a longer time to pay suppliers,
which can be an advantage for a company in managing its cash flow. For the Olympic, it takes
them 11.95 days to pay off their suppliers.

Payable Days Days Payable Turnover

11.95 days 360 30.12 times

Liquidity Ratios:

Current Ratio
Current Asset = Current Asset / Current Liability.
Current Ratio measures a firm’s ability to pay off its short term debts/ obligations using its
current assets.

Year Current Assets Current Liability Current Ratio

2022 9,113,003,070 4,615,747,884 1.97:1

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As we can see, the current ratio of Olympic is 1.97:1 in 2022. This means that Olympic has
$1.97 worth of current assets for every $1 of current liability or short term debts. Thus, it might
be said that they might be able to pay off their short term liabilities easily using their current
assets. However, whether it is a good ratio to have depends on the type of concentration of its
current assets and how the industry works.

Quick Ratio
Quick Ratio= (Current Asset - Inventory) / Current Liability
Quick Ratio calculates the firm’s ability to pay off all its short term debts using just its liquid
short term assets.

Year Current Assets (except Current Liability Quick ratio

Inventory)

2022 6,598,775,821 4,615,747,884 1.42:1

Olympic’s Quick (Acid) test ratio is 1.42:1 in 2022, this shows that for every $1 of current
liability, Olympic has $1.42 worth of liquid current assets. This also shows that inventory counts
for almost a quarter of its total current assets, thus they are a bit dependent on inventory,
however they have enough liquid assets to operate smoothly.

Cash Ratio
Cash Ratio= Cash / Current Liability
Cash Ratio measures the firm’s ability to pay all its current liabilities using just its cash balance.

Year Cash & Cash Equivalents Current Liability Cash Ratio

2022 594,503,667 4,615,747,884 0.13:1

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Olympic’s Cash ratio is 0.13:1, this indicates the company’s ability to pay off their current
liabilities using just its cash and cash equivalents, the value is very low in first viewing.
However, we need to know the industry standards and benchmarks to decide whether the ratio is
in a proper position or improvement is needed.

NWC To Total Asset

NWC To Total Asset= Working Capital / Total Asset
NWC To Total Asset is an indicator of the short term liquidity and financial strength of the
business and indicates its ability to finance short term obligations.

Year Total Assets Net Working Capital NWC To Total Assets

2022 14,426,960,894 4,497,255,186 31%

NWC to Total Asset indicates the liquidity strength of a company, a value of 31% can be said to
be barely good enough for a company to operate under. However, the standards, benchmarks and
past ratio results will be needed to have a better comparison of the data.

Interval Measure
Interval Measure= Current Asset / Average Daily Operating Costs
Interval Measure calculates how many days the company can finance its operating costs using its
current assets.

Year Current Assets Operating Costs Interval Measure

2022 9,113,003,070 3,367,234,839 987.83 days

Olympic’s Interval Measure in 2022 is 987.83 days, which is a very good value as it seems, as
the company will be able to finance its operating expenses for more than 2 and a half years.

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Price–earnings ratio:

Price to earnings ratio = Price per share / Earnings per share

The price-to-earnings ratio (P/E ratio) is a ratio that relates a company’s current share price to its
earnings per share. It gives a better sense of the value of the company. The P/E ratio reflects how
much money investors pay for the share of the company and also shows how much money it will
take to recover their investment. Higher P/E shows that investors have more faith in the
company. Hence, they are paying more. On the other hand, higher P/E could also mean that a
company’s stock is overvalued or investors are expecting a high growth rate in the future.

P/E ratio of Olympic:

Year Price per share Earnings per share Price to earnings ratio
(P/E ratio)

2022 124.05 6.03 20.57

Olympic’s P/E ratio of 20.57 means investors are willing to pay 20.57 Taka for every 1 Taka of
earnings per share that the company generates. It also indicates that investors have faith in
Olympic and they expect it’s earnings to grow in future. A P/E ratio of 20.57 can be considered
as moderate.

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Earnings per share (EPS):

Earnings per share = Earnings available for common shareholders / Common share Outstanding

In a given period, EPS represents how much earnings the firm generated against each share. It
can help investors to gain an idea of the firm’s financial performance. Also, EPS is the portion of
a company’s net income that is allocated to each outstanding common share.

EPS of Olympic:

Year Earnings available for Common share Earnings per share

common shareholders Outstanding (EPS)

2022 1,205,631,483 199,938,886 6.03

An EPS of 6.03 indicates that Olympic is earning 6.03 Taka in profit for each outstanding share
of its common stock. This is a measure of the company's profitability on a per-share basis.

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 Unlevered Beta

Beta is a measure that helps investors and other users understand the risk that a company has
compared to the risk involved in the whole company. In other words, beta represents a systematic
risk of a specific company.

There are two types of beta - Levered beta (it measures the exposure to systematic risk of a
company that has debts) and Unlevered beta (it is the beta of a company without any debt).

According to Investing.com, the (levered) beta of Olympic Industries Limited is 0.377.

Also, the average tax rate that Olympic Industries has is 22.5%.

Its Debt/Equity ratio = 5,062,228,211/9,364,732,683

= 0.54

So, Olympic’s Unlevered Beta is

Olympic’s Unlevered Beta is 0.266

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 Sustainable Growth Rate (SGR) and Internal Growth Rate (IGR)

Sustainable Growth Rate:

In this context, SGR stands for Sustainable Growth Rate, albeit it can mean many different
things. It's a financial indicator that shows how fast a business can expand without needing to
obtain outside capital.

SGR = ROE* Retention Rate/ 1-(ROE*Retention Rate)

Retention Rate = 1 - Dividend Payout Ratio

Dividend Payout Ratio = (Dividend/Net Income)*100

A company's ability to create profit from its shareholders' stock is gauged by its return on equity
(ROE). The percentage of earnings retained by the business following shareholder dividend
payments is known as the retention ratio. A corporation can develop quicker without needing to
obtain outside investment if its SGR is higher. This is typically viewed as positive as it indicates
that the business can produce enough revenue from its activities to support its expansion.

Year Dividend paid Net Income Dividend Payout Retention Rate

2021 983,390,250 2,037,363,202 0.483 0.517

2022 1,193,668,238 1,205,153,261 0.990 0.0095

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 Year Retention Rate ROE SGR

2021 0.517 0.22 0.00237

2022 0.0095 0.13 0.00123

Internal Growth Rate:

The acronym for internal growth rate is IGR. It is a financial indicator that assesses how quickly
an organization may expand using money it generates internally.

IGR = ROA* Retention Rate/ 1-(ROA*Retention Rate)

IGR is a valuable indicator for businesses as it indicates the rate at which they may expand
without needing to get outside finance. An organization with a high internal growth rate (IGR)
may produce a significant amount of cash from its own activities and is consequently less
dependent on outside funding. There are several reasons why this might be advantageous,
including:
● Lowering the capital cost
● Keeping command of the business
● Mitigating monetary risk

Year Retention Rate ROA IGR

2021 0.517 0.148 0.08269

2022 0.0095 0.0898 0.00086

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 Weighted Average Cost of Capital (WACC)

Weighted Average Cost of Capital (WACC) is a method to calculate the average cost of financing
a company’s operations. Moreover, it represents the average rate of return that a company has to
pay to its investors (both debt and equity holders).

WACC = Rd × (1 - T) × Wd + We × Re

Where,
Rd = Cost of Debt
T = Tax rate
Wd = Weight of Debt
We = Weight of Equity
Re = Cost of Equity

Weighted Average Cost of Capital of Olympic:

According to the Annual report - 2022, Olympic’s -

Cost of Debt (Rd) = 8%

Applicable Tax rate (T) = 22.50%
Total Asset = 14,426,960,894
Total Equity = 9,364,732,683
Total Debt = 5,062,228,211

So, Weight of Debt, Wd = Total Debt / Total Asset

= 5,062,228,211 / 14,426,960,894
= 0.35
= 35%

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And, Weight of Equity, We = Total Equity / Total Asset
= 9,364,732,683 / 14,426,960,894
= 0.65
= 65%

Calculating Cost of Equity:

The Market return in Bangladesh is currently 27.49%

And Risk-Free Rate (Rf) = 9.12 %
And according to investment.com, Olympic’s Beta (𝛃) = 0.377
So, Risk Premium (Rm) = Market return - Risk-Free Rate
= 27.49% - 9.12 %
= 18.37%
So, Cost of Equity = Rf + (Rm × 𝛃)
= 9.12 % + (18.37% × 0.377)
= 16.05%

Calculating WACC:

WACC = Rd × (1 - T) × Wd + We × Re
= 8% × (1- 0.225) × 0.35 + 0.65 × 16.05%
= 2.17 + 10.4325
= 12.60%
Therefore, the Weighted Average Cost of Capital (WACC) of Olympic in 2022 is 12.60%. It
means that, on average, Olympic is incurring a cost of 12.60% for the capital it uses to fund its
operations and investments.

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 Enterprise Value

Market Cap:

Market Cap = Shares Outstanding x Market Share Price

Market capitalization, or market cap, is a financial metric that represents the total value of a
publicly traded company's outstanding shares of stock. Market cap is used to gauge a company's
size and is a key indicator of its relative value in the stock market. Olympic has a market cap of
taka 31,090,496,770.

Market Cap Market Share Price Shares Outstanding

31,090,496,770 155.5 199,938,886

Enterprise Value:

Enterprise Value = Market Cap + Total Liability - Cash

Enterprise value is a financial metric that represents the total value of a company. It provides a
more comprehensive picture of a company's total worth, taking into account its debt and
liquidity. Olympic’s enterprise value is taka 35,558,221,310.

Enterprise Value Market Cap Total Liability Cash

35,558,221,310 31,090,496,770 5,062,228,211 594,503,667

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 THE WALT DISNEY COMPANY

Company Overview

Founded in 1923, the Walt Disney Company is headquartered in California and has expanded
into a major force in the global entertainment industry. Among its divisions are Media Networks
(ABC, ESPN), Parks, Experiences, and Products (merchandise, theme parks), Studio
Entertainment (Disney, Pixar, Marvel), and Direct-to-Consumer and international (Disney+).
Disney enthralls audiences with recognizable characters and franchises across a variety of
entertainment mediums, including streaming services and movies. Disney is committed to
sustainability and social responsibility, and it keeps innovating and growing its global reach.

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 Unlevered Beta

As mentioned earlier, Beta is used to measure the exposure to undiversified risk of a company.
Unlevered Beta is the beta when the company doesn’t use any debts or loans to leverage its
operations.

In the case of Walt Disney,

Debt/ Equity ratio

· Tax rate = 21%

· According to Investing.com, (Levered) Beta = 1.28

So, the Unlevered Beta of Walt Disney is,

The Unlevered Beta of Walt Disney is 0.697

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 Enterprise Value

Market Cap:

Market Cap = Shares Outstanding x Market Share Price

Disney has a market cap of $155,659,281,600

Market Cap Shares Outstanding Market Share Price

155,659,281,600 85.07 1,829,778,789

Enterprise Value:

Enterprise Value = Market Cap + Total Liability - Cash

Disney’s enterprise value is $248,795,281,600

Enterprise Value Market Cap Total Liability Cash

248,795,281,600 155,659,281,600 104,751,000,000 11,615,000,000

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 SGR and IGR for Walt Disney

Walt Disney gave out no dividend in the year 2022 so the dividend payout is 0 and consequently
the retention rate is 1.00

Year ROA ROE Dividend Payout Retention Rate

2022 0.0240 0.0359 0 1.00

Year SGR IGR

2022 3.73% 2.46%

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 Proforma Income Statement

(using SGR of 3.72% for 5 years)

Income Statement (in

millions) 2022 2023 2024 2025 2026 2027

Total Revenue 82,722 85,799 88,991 91,412 94,812 98,339

Cost and Expenses 70789 73422.35 76153.66 78225.04 81135.01 84153.24

Depreciation 5163 5163 5163 5163 5163 5163

Restructuring &
Impairment Charges 237 245.82 254.96 261.90 271.64 281.74

Other income (expense)

net 667 691.81 717.55 737.07 764.48 792.92

Equity in the income of

investees 816 846.36 877.84 910.50 944.37 979.50

EBIT 6,682 7122.63 7,580 7,935 8,422 8,928

Interest expense 1397 1397 1397 1397 1397 1397

EBT 5285 5725.63 6,183 6,538 7,025 7,531

Income Tax (32.77%) 1732 1876.29 2026.06 2142.52 2302.19 2467.80

Net Income 3553 3849.34 4,157 4,396 4,723 5,063

30
We will be using the Sustainable Growth Rate (3.72%) as the future growth rate for our
balance sheet, as well. To create our Pro forma Balance Sheet, we will need to consider the
following assumptions:
● Walt Disney is currently operating at full (100%) capacity.

Pro Forma Balance Sheet

As at 30 October For the years 2022-2027

(in millions, except share data)

2022 2023 2024 2025 2026 2027

Current Assets

Cash and cash 11,615 12,047.08 12,495.23 12,960.05 13,442.16 13,942.21

Equivalent

Net receivables 12,652 13,122.65 13,610.81 14,117.13 14,642.29 15,186.98

Inventories 1,742 1,806.80 1,874.01 1,943.72 2,016.03 2,091.03

Content Advances 1,890 1,960.31 2,033.23 2,108.87 2,187.32 2,268.69

Other current assets 1,199 1,243.60 1,289.86 1,337.84 1,387.61 1,439.23

Total Current Asset 29,098 30,180.44 31,303.14 32,467.61 33,675.41 34,928.14

Produced and 35,777 37,107.90 38,488.31 39,920.08 41,405.11 42,945.38

Licensed Content
Cost

Investments 3,218 3,337.71 3,461.87 3,590.65 3,724.22 3,862.76

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Parks, Resorts and
other properties

Attractions, Buildings 66,998 69,490.33 72,075.37 74,756.57 77,537.51 80,421.91

and equipment

Accumulated (39,356) (39,356) (39,356) (39,356) (39,356) (39,356)

Depreciation

27,642 30,134.66 32,719.37 35,400.57 38,181.51 41,065.91

Projects in progress 4,814 4,993.08 5,178.82 5,371.47 5,571.28 5,778.53

Land 1,140 1,182.41 1,226.40 1,272.02 1,319.34 1,368.42

Net Intangible Assets 14,837 15,388.94 15,961.41 16,555.17 17,171.02 17,809.78

Goodwill 77,897 80,794.77 83,800.34 86,917.71 90,151.05 93,504.67

Other Assets 9,208 9,550.54 9,905.82 10,274.32 10,656.52 11,052.94

Total Assets 203,631 212,670.45 222,079.14 231,769.60 241,855.46 252,316.53

2022 2023 2024 2025 2026 2027

Current Liability

Accounts Payable 20,213 20,964.92 21,744.82 22,553.73 23,392.73 24,262.94

Current portion of 3,070 3,184.20 3,302.65 3,425.51 3,552.94 3,685.11

borrowings

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Deferred revenue and 5,790 6,005.39 6,228.79 6,460.50 6,700.83 6,950.10
other

Total Current 29,073 30,154.51 31,276.26 32,439.74 33,646.50 34,898.15

Liability

Borrowings 45,299 45,299 45,299 45,299 45,299 45,299

Deferred income tax 8,363 8,363 8,363 8,363 8,363 8,363

Other long term 12,518 12,518 12,518 12,518 12,518 12,518

liabilities

Redeemable 9,499 9,499 9,499 9,499 9,499 9,499

Noncontrolling
Interests

Total Liability 104,752 105,833.51 106,955.26 108,118.74 109,325.50 110,577.15

Equity

Common shares 56,398 56,398 56,398 56,398 56,398 56,398

Retained Earnings 43,636 47,485.34 51,642.28 56,037.76 60,760.57 65,823.77

Accumulated and (4,119) (4,272.23) (4,431.16) (4,596) (4,766.97) (4,944.30)

other comprehensive
loss

Treasury Stock (907) (907) (907) (907) (907) (907)

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Noncontrolling 3,871 4,015 4,164.36 4,319.27 4,479.95 4,646.60
interests

Total Equity 98,879 102,719.11 106,866.48 111,252.03 115,964.55 121,017.07

Total Liability and 203,631 208,552.62 213,821.74 219,370.77 225,290.05 231,594.22

Equity

EFN Needed 0 4,117.83 8,257.40 12,398.83 16,565.41 20,722.31

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 Intrinsic Valuation

The return that a firm, asset, or collection of assets can produce throughout the course of their
useful lives must be evaluated in order to determine its value. To achieve this, we will use the
Discounted CF Model to calculate Walt Disney’s intrinsic valuation.

We decided to forecast Walt Disney’s CFs for 5 years and then calculate a terminal value. Here,
● Growth rate: SGR = 3.72%
● WACC = 9.2% (According to Gurufocus.com)

Free Cash Flow:

Free Cash Flow 2023 2024 2025 2026 2027

(Millions)

Net Income 3849.34 4,157 4,396 4,723 5,063

Depreciation 5163 5163 5163 5163 5163

Interest Expense (1-T) 939.20 939.20 939.20 939.20 939.20

NWCI (0.93) (0.95) (0.99) (1.04) (1.08)

NFAI (2492.66) (2584.71) (2681.2) (2780.94) (2884.4)

FCF 7457.95 7673.54 7816.01 8043.22 8279.72

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Terminal Value:

Terminal Value = FCF final year (1+g)/WACC – g

where, g = perpetual growth rate = 2.5%

FCF 2027 (Millions) Growth Rate WACC Terminal Value

8279.72 0.025 0.092 126667.3582

Total Value:

PV 2023 = 7457.95/(1+0.092)^1 = 6829.63

PV 2024 = 7673.54/(1+0.092)^2 = 6435.03

PV 2025 = 7816.01/(1+0.092)^3 = 6002.29

PV 2026 = 8043.22/(1+0.092)^4 = 5656.39

PV 2027 = 8279.72/(1+0.092)^5 = 5332.15

PV OF Terminal Value = 126667.3582/(1+0.092)^5 = 81573.96

Total Value of Walt Disney = 111829.8471

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Intrinsic Value

Total Equity Value = Total Firm Value – Total Outstanding Debt

= (111829.45 - 104752)
= 7077.45 Million USD

This 7077.45 Million USD is the intrinsic value of Walt Disney.

Fair value of each share = Total Fair Equity Value / Number of CS outstanding
= $7077.45 Million / 1,827 Million
= $3.88

Each Stock at Microsoft is trading at $85.73

According to our Evaluation, Walt Disney is overvalued by $81.85.

Investment Decision (Buy or Sell)

From our assessment, we determined the fair price of Walt Disney to be $3.88. However, the
current market price of Walt Disney is $85.73, which indicates that the firm's share price is
highly overvalued. As a result, we should not invest in the firm's stock because it is overpriced,
and its share price can drop at any time.

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 Explanation

Intrinsic value is an estimate of a company's actual value that is unrelated to how the market
perceives it. After analyzing and calculating the intrinsic valuation of Walt Disney, we
recommend against investing in this firm at this time. This valuation shows that the company
should ideally be priced at $3.88 per share. The present market price of $85.73 is, however,
significantly higher than the price suggested by our assessment. This substantial difference
implies that the market is pricing Disney's stock much above its fair value. When a stock's
market price is much higher than its fair value, it is overvalued.
A stock that is overvalued indicates that the market has already priced in positive expectations or
potential for growth that may not happen, leaving limited opportunity for possible gains and
exposing investors to higher risks.
The risk of investing in an overvalued stock like Disney at $85.73 is that if market sentiment
shifts or the company's performance does not meet the high expectations already factored into
the stock price, the stock price could fall significantly to align with its fair value. As a result, the
decision not to buy Disney stock at its present market price of $85.73 is guided by the
assessment that the stock is overpriced in comparison to its fair value of $3.88.

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 Appendix
Olympic Industries Ltd

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41
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Walt Disney

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45