Presentation on case study- Valuation of Walt Disney

1. Equity Valuation: The
Walt Disney Company
Abhinandan Singla
(19DM007)
Harshit Gupta (19DM076)
Lincoln (19DM098)
Radhika Garg (19DM149)
Saket Mahawar (19DM177)
Sonali Jindal (19DM220)

2. Valuation method
• Discounted Cash flow Method- Sum of the Parts Valuation
• Multiples Method (Relative Valuation)
• Combination of Discounted Cash flow Method or Multiples Method

3. Discounted Cash Flows Method
• Past 10 years accounting data.
• Company divided into 5 distinct line of businesses.
• Division is done because different businesses have different trends and value
drivers.

4. Forecasting Earnings
• Forecasting revenues for five years (2011-2015) for different line of business.
• Operating expenses- 3 years average percent of sales. Three years average is taken because
the recent technological change impacting the firm will be more representative of the
trends moving forward .
• Past three years average of interactive media is not taken as it is a new line of business
running into losses. Past data wont be good indicator of future expenses.
• Corporate expenses -Average of past three years, as expenses seems to be fairly stable
• Restructuring and Impairment charges and Other incomes assumed to be zero on average.
• Interest expense as percent of sales.
• Taxes same as previous year 35%.

6. Estimating Free Cash Flows
• Estimation of FCF is done by adjusting EBIT after taxes, depreciation and
amortization, change in Working Capital Requirement(WCR) and capital
expenditure(Capex). Increase in WCR will utilize cash and decrease in WCR will
free up cash.
• Depreciation is indirectly a function of firm’s past Capex. To calculate this we take
average ratio of depreciation to Capex ratio to estimate depreciation.
• WCR are estimated based on three-year average ratio to sales.
• Capex is estimated based on three-year average figure of capex to sales.

7. Estimating the Discount Rate
• CAPM (Re)= Rf +β*(risk premium); Rf= 10 year U.S
treasury bond yield, Risk premium 5.5%.
• WACC= [D/(D/E)*Rd*(1-TAX)] + E/(D+E)*Re
• Terminal value by Gordon growth model. Long term
growth assumed to be 1.5%.
• Then Terminal value and all forecasted cashflows are
brought to present value.
• Estimated equity value= Discounted cash flows +
Terminal value – Net debt
• Assumption- No cash holdings and Debt 30% of
enterprise value and no changes in number of shares.

9. Comparison and Reality Check
• Calculate P/E or EV/EBITDA multiple.
• Above multiple can be compared to current market multiple as well as with
competitors and industry average to check on our DCF estimates.
• DCF can be used to do sensitivity analysis on estimated share prices for different
discounting rates and perpetual growth rates.

11. Valuation based on multiples(Relative Valuation)
• Comparing multiples of similar firms for
relative valuation.
• Various multiples used are
1. Price/ Earnings
2. Price/Book value
3. Price/Sales
4. Price/FCF
5. EV/EBITDA
• Average multiples of comparable firms
and applied to relevant drivers for Disney.

12. Conclusion
• DCF is comprehensive and widespread method used for valuation.
• Terminal Value is found using FCF and small variation in these numbers can make
large impact on estimated present value.
• Forecasting of revenue growth, operating margin and cash flows are based on the
assumptions of the analyst, these are the limitations of DCF technique.

13. Thank You