Is Disney too leveraged? Not enough? Is there a concern for bankruptcy? What is the normal...

Is Disney too leveraged? Not enough? Is there a concern for bankruptcy? What is the normal ratio for the industry?

Expert Solution

Leverage

Leverage refers to the use of borrowed money to fund the operations of a company.

Return on Equity

Return on equity is a profitability ratio that calculates how many dollars of profit a company generates with each dollar of shareholder’s equity.

The formula for return on equity (ROE) is given below:

Return on Equity= Net Income/Shareholder’s Equity

It is a measure of efficiency. When ROE is increasing, it means that a company is increasing its ability to generate profit without the need for additional capital. It is also an indicator of how well a company’s management is using shareholder’s capital.

Disney’s ROE for the quarter of June 2018 was 26.23%. Its higher than that of the previous quarter which posted an ROE of 25.57%. Disney’s ROE is higher than that of its peer companies like Netflix Inc. and Twenty first century fox Inc.

Disney’s ROE is much higher than the industry average of 13.09%.

Its cash flows are stable especially cash flows from theme parks. Disney faces a low risk of bankruptcy considering this and the size of the company.

I hope that was helpful :)

jeff jeffy answered 2 years ago

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