Internal Analysis The financial ratio analysis of a company is a useful indicator to measure the success of a company. By comparing financial ratios between companies in the same industry (competitors) it is a useful way for investors and shareholders to determine the financial health and/or the sustainability of a company. Disney’s main competitors within the industry include Time Warner and 21st Century Fox. There are five key areas of comparison that provide excellent financial analysis of a company. They are short-term solvency, long-term solvency, asset management, profitability, and market value.
Liquidity Ratio The short-term solvency ratio is a measurement used to measure how well a company is able to meet debt obligations. Specifically, the current ratio measurement takes the current assets divided by the current liabilities of a company. This measurement shows how well a company can pay back its liabilities from its current assets (cash, inventory, or receivables). The current ratio is also an indication of how efficient a company’s operating cycle is because if it takes a long time to turn products into cash a company may have issues fulfilling obligations. Disney had the lowest current ratio for 2013 between its competitors with a ratio of 1.21. Even though it has the lowest amongst its competitors Disney’s ratio is still significantly higher than a ratio of 1. Therefore using this current ratio measurement it can be strongly perceived that Disney has the ability to fulfill all of its obligations if they suddenly became due.
Financial Leverage Ratio The long-term solvency ratio, known as the financial leverage ratio is a measurement of a company’s mixed operating costs. This ratio shows how income will be affected by changes in output. The most common and widely used financial leverage ratio is the debt-equity ratio which is