With a market capitalization of US$163b, The Walt Disney Company (NYSE:DIS) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for DIS to determine is solvency and liquidity and whether the stock is a sound investment.
How does DIS’s operating cash flow stack up against its debt?
DIS's debt levels have fallen from US$25b to US$21b over the last 12 months , which also accounts for long term debt. With this debt repayment, DIS currently has US$4.2b remaining in cash and short-term investments for investing into the business. On top of this, DIS has produced US$14b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 68%, indicating that DIS’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In DIS’s case, it is able to generate 0.68x cash from its debt capital.
Can DIS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$18b, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$17b, leading to a current ratio of 0.94x.
Can DIS service its debt comfortably?
DIS’s level of debt is appropriate relative to its total equity, at 39%. DIS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether DIS is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. For DIS, the ratio of 25.85x suggests that interest is comfortably covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as DIS is a safe investment.
DIS’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the large-cap. I admit this is a fairly basic analysis for DIS's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Walt Disney to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DIS’s future growth? Take a look at our free research report of analyst consensus for DIS’s outlook.
- Valuation: What is DIS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether DIS is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.
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