BMAL 710 Discussion Board Instructions (40

BMAL 710
Discussion Board Forum Instructions
Discussion Board Forums Modules 2, 4, 6, and 8 (130 Points
Per DB)
Discussion boards are collaborative learning experiences.
Therefore, the student will create a thread in response to the
provided prompt for each forum. Each thread must be 2,100-
2,200 words (due by Thursday of each week) and demonstrate
course-related knowledge. In addition to the thread, the student
will reply to the threads of at least 2 classmates. Each reply
must be 600-700 words (due by the end of the respective
module/week). Each initial thread must include a mínimum of 7
sources in addition to the Bible, and peer replies must include
the integration of at least 3 peer-reviewed source citations and
scripture, in current APA format, outlined in each respective
Discussion Board rubric. Each thread and reply must integrate
at least 1 biblical principle.
This course utilizes the Post-First feature in all Discussion
Board Forums. This means you will only be able to read and
interact with your classmates’ threads after you have submitted
your thread in response to the provided prompt. For additional
information on Post-First, click here for a tutorial.
Note: Students will not be permitted to attach files within the
forum posts, you can copy/paste from any Word file. Formatting
consideration is provided due to the editing feature in
Blackboard, but students must attempt the best APA format as
possible.
For Discussion Board Forums 1–3 (Modules 2, 4, and 6), submit
your thread by 11:59 p.m. (ET) on Thursday of the assigned
module/week, and submit your replies by 11:59 p.m. (ET) on

Sunday of the same module/week.
For Discussion Board Forum 4 (Module 8), submit your thread
by 11:59 p.m. (ET) on Thursday of Module/Week 8, and submit
your replies by 11:59 p.m. (ET) on Friday of the same
module/week.
The Walt Disney Company (DIS)
Equity Report
FIR 7155 M50
11/22/2019
DIS EQUITY REPORT 1

Executive Summary
Analyst Name:
Company: The Walt Disney Company (DIS)
Price on report date: $132.98 on 11/07/2019
Forecast Horizon: 1 year
Recommendation: BUY
Target Forecasted $194.27
Price:
Highlights:
• The Walt Disney Company operates in four business segments:
Media
Networks, Park Experience and Products, Studio Entertainment,
and
Direct-To-Consumer and International
• Historically known for its distinctively amiable human
relationship
structure, catering to audiences of all ages
• One of the most powerful companies within the entertainment
industry
and the largest media powerhouse in the planet.
• Recently launched streaming services, similar to Netflix’s
service

platform, that broadcasts blockbusters and original shows from
Star
Wars, Marvel, Pixar, and Disney.
• Rapidly evolving media landscapes with minimal management
puts
Disney at risk of uncertainty for future succession.
• Despite competition throughout ages, Disney has stayed
resilient,
surpassing many of its competitive counterparts.
Summary of Analysis:
• Industry: Media Conglomerates
o Consumer Discretionary Sector
• Market Capitalization: $274.969B on Nov. 25, 2019
• Cash: $5.418B based on annual data reported Sep. 2019
• Revenue: $69.570B based on the quarterly data reported Sep
2019
• Operating Cash Flow: 5.984 based on annual data reported
Sept. 2019
• Free Cash Flow: $1.108B based on annual reported on
September
2019
• Analyst Rating: 2
• Dividend Yield: 1.19%

• EPS Estimate vs Actual: 1.55 EPS estimated and actual EPS of
1.84
reported December 30, 2018
DIS EQUITY REPORT 2
Qualitative Analysis
Section I. Company Profile
Products and Services
The Walt Disney Company, together with its subsidiaries and
affiliates, is a leading diversified
international family entertainment and media enterprise with
five business segments: media
networks, parks and resorts, studio entertainment, consumer
products and interactive media.
Disney is best known for its film and TV productions and theme
parks. The Media Networks
fragment incorporates cable and broadcast telecom networks,
TV production and distribution
activities, domestic TV stations, radio systems and stations.
Target Audience

The Walt Disney Company’s target market is comprised of a
variety of ages, however more
centrally focused on children. Disney’s primary objective
audience of 4-12-year-old boys and
girls is broadly diversified because of its general attention to
younger kids and pre-teens. This is
essential considering they have the greater influence over their
parent's decision-making and are
most excited about the brand. These children are also heavy-
users of the brand name in that they
experience the thrill of rides, wear Disney memorabilia and
other merchandise, and use the brand
as a source of visual and musical entertainment.
How Products/Services are Distributed
The company distributes its products in a variety of forms, all
of which encompasses the five
business segments described above. For example, DIS owns a
total of 11 theme parks that
include Walt Disney World and Walt Disney Land. The Parks,
Experiences and Products
segment claims and operates the Walt Disney World Resort in
Florida; the Disneyland Resort in
California; Aulani, a Disney Resort and Spa in Hawaii; the

Disney Vacation Club; the Disney
Cruise Line; and Adventures by Disney.
The Studio Entertainment fragment creates and procures live-
activity and enlivened movies,
direct-to-video content, musical records and live stage plays.
This segment conveys films
fundamentally under the Walt Disney Pictures, Pixar, Marvel,
Lucasfilm and Touchstone
standards.
Finally, Disney merchandise are offered in forms of apparel,
toys, home décor, books,
magazines, foods, beverages, stationary, electronics, fine art,
and a variety of Disney Store Retail
Chains across the globe. Their company has a very wide range
of products to chose from when
purchasing them as well as numerous entertainment
opportunities through all of their parks
around the world.
Other
Disney owns and collaborates with several Media Networks,
which has allowed them to expand

vigorously across the years. These media outlets include ABC
Television Network, ABC
Entertainment Group, Disney Channels Worldwide, ABC
Family, and Disney Media
Distribution. Disney additionally contends in the strong and
lucrative sports market. It has done
incredibly well with sports channel ESPN, which accounts for
24% of its total revenue. This is
due to its popularity in sports, in addition to program packaging
bundles.
DIS EQUITY REPORT 3
Section II. Industry Overview
The United States media and entertainment industry is a $703
billion market, comprised of
organizations that produce and distribute action pictures, tv
programs and commercials,
streaming content, music and audio recordings, broadcast, radio,
book publishing, video games
and supplementary services and products. The M&E market,
which is 33% of the world M&E

industry, is the largest M&E market in the world.
Disney is a mass media enterprise established in 1923 by Walt
Disney. It was originally
an animation company built in the era of black and white silent
films, but eventually evolved to a
new generation of media included melodic tunes and vibrant
colors. In 1937, Disney released its
first full-length animated film "Snow White and the Seven
Dwarfs," which initiated its long and
successful sequence of groundbreaking success.
Following its success in the animated film industry, Disney has
since expanded its market to
incorporate live-action television series and movies, a music
record company and theme-parks
and cruises around the globe. It is one of the largest mass media
company to exist and continues
to generate monumental productions accustomed to boys and
girls of all ages. While the shows
and movies are more child or teen-oriented, the parks and
cruises also target adults with adult-
only entertainment, bars, clubs and other age-restricted
activities.

Section III. SWOT Analysis:
Strengths
The following internal strategic factors are the strengths of The
Walt Disney Company:
Strong brand Equity
Growing portfolio of in demand products and services
Strong cooperative growth among business segments
Diversified Business
The Disney brand is known throughout the world and is
regularly listed as one of the best global
brands of all time. The company is known to have a wholesome
image, as it has built this image
for decades through its cartoons and, more recently, through its
theatrical releases.
It has grown from a small producer of animation series in the
1920s to one of the largest medias
and entertainment conglomerate in the world. The company has
been benefiting from its
investments in Parks and Resorts group driven by significant
price increases at many of its
properties. It also saw big gains from its movie business, in

particular via the Star Wars and
Marvel Franchises.
Disney also very strong financial it which it has the capacity to
generate robust cash flows.
Disney has a Financial Strength rating of 5, which is
substantially high in comparison to its
competitive counterparts such as Comcast, Netflix, and CBS.
All of these factors provided the
company with the ability to expand its presence throughout the
world over the years, particularly
in Asia.
DIS EQUITY REPORT 4
Weaknesses
The following factors are weaknesses of The Walt Disney
Company:
Limited Innovation
Limited Diversification

Limited Expansion – Amusement Parks
The Walt Disney Company’s generic strategy for competitive
advantage and intensive strategies
for growth focus on quality and uniqueness of product features,
with limited emphasis on rapid
technological innovation. This internal factor is a weakness
because technological innovation is a
differentiator and competitive advantage in the international
market.
As an entertainment, travel, and consumer products company,
Disney’s success depends on
consumer tastes and preferences, which are highly
unpredictable. It is very difficult for a
company in this space to consistently create films, cable
programming, theme park attractions,
and consumer products that will reliably meet the changing
preferences of the broad consumer
market. In addition, more and more of Disney’s business is
dependent on overseas markets,
which is even more difficult to predict from a consumer
preference perspective. After significant
investments, certain films, cable programs, and resort
attractions simply “bomb”, and the result

is a significant loss on the income statement.
Opportunities
The following opportunities are among the main managerial
concerns that should be addressed
when growing The Walt Disney Company:
Technological innovation
Growth in various industries
Growth of developing markets
The Walt Disney Company has an opportunity to adopt new
technologies to improve its global
business. For example, digital technology implementations can
improve business efficiencies and
output quality in amusement parks and resorts. Also, the
external factor of growth in various
industries is an opportunity to grow the corporation’s business
through diversification and related
managerial approaches. In relation, the growth of developing
markets is an external strategic
factor that creates the opportunity to expand the company’s
operations, such as through market
penetration in the mass media industry. The opportunities in
this aspect of the SWOT analysis

show that The Walt Disney Company can grow its revenues
through innovation, diversification,
and expansion.
Threats
DIS Management efforts must tackle the following threats to the
business:
Competition
Technological disruption
Digital content piracy
Aggressive competition is especially observable in the
international mass media and
entertainment industries. Also, the external factor of
technological disruption has potential to
reduce the company’s profits. For instance, technological
changes in online product delivery in
the entertainment and mass media markets continue to shift
some profits to businesses that offer
online media channels and networks. Moreover, digital content
piracy reduces the company’s
potential revenues, especially in markets with weak legal
protections against this threat.

DIS EQUITY REPORT 5
Section IV. Management:
Executive Leaders
• Robert A. Iger, Chairman, Chief Executive Officer of DIS
• Alan Bergman, Co-chairman of Walt Disney Studios
• Alan Braverman, Senior Executive VP, General Counsel and
Secretary
• Bob Chapek, Chairman of Disney Parks, Experiences, and
Products
• Alan F. Horn, Co-chairman, Chief Creative Officer of Walt
Disney Studios
• Kevin Mayer, Chairman of Direct-to-Consumer and
International
• Christine M. McCarthy, Senior Executive VP and Chief
Financial Officer
• Zenia Mucha, Senior Executive VP and Chief Communications
Officer
• Jayne Parker, Senior Executive VP and Chief Human
Resources Officer
• James Pitaro, President of ESPN and Co-chair of Disney
Media Networks
• Peter Rice, Chairman of Walt Disney Television and Co-chair

of Disney Media
Networks
• Jonathan S. Headley, Senior VP, Treasurer and Corporate Real
Estate
• Lowell Singer, Senior VP of Investor Relations
• Brent Woodford, Executive VP of Controllership, Financial
Planning, and Tax
Major Owners & Compensation
Income statements for executive base pay and bonus are filed
yearly with the SEC in the
EDGAR filing system.
Name and Position Title Total Cash Equity Other
Total
Compensation
Robert A. Iger
Chairman and Chief Executive Officer
$20,875,000 $43,623,303 $1,146,911 $65,645,214
Alan N. Braverman
Senior Executive Vice President,
General Counsel and Secretary
$6,350,213 $4,000,084 $69,233 $10,419,530

Christine M. McCarthy
Senior Executive Vice President and
Chief Financial Officer
$6,833,750 $4,500,064 $71,397 $11,405,211
Kevin A. Mayer
Chairman, Direct to Consumer and
International
$6,974,000 $4,500,064 $83,846 $11,557,910
Jayne Parker
Chief Human Resources Officer
$3,096,938 $3,250,127 $80,456 $6,427,521
Zenia B. Mucha
Chief Communications Officer
$2,961,150 $2,115,177 $24,452 $5,100,779
Total Cash Compensation information is comprised of yearly
Base Pay and Bonuses. Total

Equity aggregates grant date fair value of stock and option
awards and long-term incentives
granted during the fiscal year. Other Compensation covers all
compensation-like awards that
don't fit in any of these other standard categories.
Leadership Background
DIS EQUITY REPORT 6
Bob Iger
Chairman and CEO Robert "Bob" Iger took the reins at Disney
in 2006. Iger oversaw several key
acquisitions for Disney, including that of Pixar in 2006, Marvel
in 2009, Lucasfilm in 2012, and
most recently 21st Century Fox in 2017. Prior to 2006, Iger
served as Disney's COO from 2000
until 2005 when he was appointed president and chairman. Iger
originally joined Disney's
executive team in 1996 as head of ABC Group. Robert Iger is
Disney's single-largest individual
shareholder with 1.078 million shares as of March 20, 2019.
Alan Braverman

Alan Braverman is the senior executive vice president, general
counsel, and secretary of the Walt
Disney Company. Braverman joined Disney in 1996 when the
company acquired ABC, Inc.,
where he served as chief counsel. Braverman assumed his
current position in 2003 and directs
the company's entire staff of attorneys worldwide. Following a
recently-reported sale on July 5,
2019, Braverman, holds 98,922 shares of the company.
Christine McCarthy
Christine McCarthy obtained the position of senior executive
vice president and CFO at the Walt
Disney Company in 2015. She is in charge of Disney's finances
worldwide and oversees
company financial planning, investor relations, tax planning,
supply chain management, and
corporate real estate. McCarthy also directs Disney's efforts in
the area of corporate citizenship.
McCarthy previously served as treasurer and executive vice
president of corporate real estate.
Per McCarthy's most recent filing with the SEC on March 20,
2019, the Disney CFO holds
131,139 DIS shares, making her the company's second-largest

individual shareholder.
News
Management Repositioning
• Disneyland Resort will be overseen by Rebecca Campbell,
who most recently was
president of Europe, Middle East and Africa for the company’s
direct-to-consumer and
international segment.
• Walt Disney World Resort will be overseen by Josh D’Amaro,
who previously was
president of Disneyland Resorts. Campbell and D’Amaro will
assume their new roles
starting in November.
• The Disneyland Paris duties will be handed off to Michael
Colglazier, who leads Disney
parks and resorts in Asia.
New Streaming Services
• Disney Plus officially launched last week in the US, Canada
and the Netherlands. Disney
has called it the future of the company. It's the entertainment
giant's streaming service for
almost everything it creates, taking on Netflix as well as an
emerging crop of rivals that

includes Apple TV Plus and HBO Max.
Summary of Technical Analysis
https://disneyplus.bn5x.net/NV1A2
https://www.cnet.com/news/disney-plus-mandalorian-start-
streaming-at-midnight-pt-but-possibly-even-earlier/
DIS EQUITY REPORT 7
The chart above shows the 48-week price history.
The highest price in the past 48 weeks was on November 25,
2019 at $151.64.
The lowest price in the past 48 weeks was on March 19, 2019 at
$98.54.
This is a $53.10 difference. The stock is currently trading at the
high end of its 44-week
range
DIS has recently launched its newest media streaming service
which has significantly
increased the demand of Disney Stock. In little more than a day,
Disney Plus registered
more than 10 million people, the company said Wednesday. By

comparison, HBO Now
took nearly three years to reach about 5 million subscribers.
The chart above showcases the trend of stock within the past
three months. Within the
three-month range, the highest price still remains $151.64 on
November 25, 2019 and the
lowest price evidently was $128.15 on October 3, 2019.
DIS EQUITY REPORT 8
Financial Ratio Analysis
The following report analyzes the financial statements of The
Walt Disney Company for fiscal
year 2018 (year ending Jan 31, 2018). The report accounts for
annual data in correlation to the
intermittent impact of sales. The analysis is confined into
sections that covers the short-term and
long-term solvency of the company, asset utilization,
profitability, and overall market value of
Walt Disney Company. Each section identifies and evaluates the
health and prosperity of Walt
Disney’s financial status and determines future initiatives and

position for growth.
Section I. Short-term Solvency
Liquidity Ratio Ratio Formula
FY18 Ratio
Calculated (DIS)
Current Ratio
��
��
0.94x
Quick Ratio
(�� − ��)
��
0.86x
Cash Ratio
��ℎ
��
0.23x
Liquidity ratios are crucial in determining a firm’s capacity to
satisfy debt obligations. Based on
the data above, Walt Disney Company is in an adequate
financial position in terms of liquidity.
With a current ratio of 0.94, we identify that DIS current assets

account for 94% of its current
liabilities. Low values for the current ratio (values less than 1)
indicate that a firm may have
difficulty meeting current obligations. However, the company
does meet the industry average,
making DIS current ratio acceptable to most creditors. The
quick ratio identifies a company's
ability to fulfill short-term obligations with its most liquid
assets and therefore excludes
inventories from its current assets. Walt Disney Company has a
quick ratio of .86 which
indicates that 86% of its current assets can be liquidated and
converted to cash within a 90-day
period, in order to pay off its current liabilities. Lastly, the cash
ratio is a measurement of a
company's total cash and cash equivalents to its current
liabilities. The metric determines the
firm’s capability to repay its short-term debt with cash or near-
cash resources. The company’s
cash ratio of 0.23 identifies that Walt Disney Company
insufficient funding in cash to pay-off
short-term debt. This only means that in worst case scenario,
the company would have to sell or
liquidate assets in order to account for the debts they currently

hold.
Section II. Long-term Solvency
Financial Leverage
Ratio
Ratio Formula
FY18 Ratio
Calculated (DIS)
Total Debt Ratio
(�� − �� )
��
0.46
Debt-Equity Ratio
��
��
0.40
DIS EQUITY REPORT 9
Equity Multiplier
Ratio
��
��

1.87
Times Interest Earned
Ratio
��
��
21.76
Cash Coverage Ratio
�� + ��
��
26.17
Financial leverage ratios identify the value of equity in the firm
by evaluating its overall debt
status. The data shows that Walt Disney Co. only uses 46% of
its debt and 54% of its equity as
long-term financial activities. The equity multiplier ratio shows
us that 1.87% of Disney’s assets
are financed or owed by shareholders. Similarly, the times
interest earned ratio indicates that
21.76% of the firm’s income can be utilized to cover interest
expense given a period of time.
Lastly, the Cash Coverage Ratio is a metric that calculates the
company’s capacity to pay

interest. With a metric of 26.17, it is evident that Disney
continues to cover its interest an
exceptional rate.
Section III. Asset Utilization
Turnover Ratio Ratio Formula
FY18 Ratio
Calculated (DIS)
Inventory Turnover
Ratio
��
��
23.51x
Days in Sales Inventory
Ratio
365 ��
��
15.53
Receivables Turnover
Ratio
��

��
7.19
Days in Sales
Receivable Ratio
365 ��
��
50.78
Total Asset Turnover
Ratio
��
��
0.60
Capital Intensity Ratio
��
��
1.66
Turnover ratios determine the company’s ability to efficiently
and effectively utilize its assets at
maximum capacity. Disney’s high turnover rate indicates that
the company’s purchasing system
is tightly managed. A higher inventory turnover illustrates the

company’s ability to sell
good/services quickly and maintain consumer demand. This also
means that Disney’s sales and
purchasing departments remain in sync. Contrarily, Walt Disney
Company’s low receivables
turnover ratio suggest they have a poor collection process and
are in dire of a credit policy
DIS EQUITY REPORT 10
reassessment. The asset turnover also tells us that the company
lacks ability to efficiently utilize
assets to generate sales. However, Disney seems to be oper ating
at industry average, in
comparison to many of its competitive counterparts like
Viacom, with a similar asset turnover
ratio of 0.55. Lastly, the capital intensity ratio measures the
company’s net sales in proportion to
the amount invested. Disney’s capital intensity level of 1.66
identifies that the firm generates a
proportional amount of sales to the company investment/assets.
Section IV. Profitability
Profitability Ratio Ratio Formula

FY18 Ratio
Calculated (DIS)
Profit Margin Ratio
��
��
44.94%
Return on Assets
(ROA) Ratio
��
��
12.77%
Return on Equity
(ROE) Ratio
��
��
25.83%
Profitability is addressed with respect to expenses and costs,
and it is evaluated in relation to
assets to identify how viable an organization is in deploying
assets to generate sales and
eventually profits. The profit margin of 44.94% tells us that

Disney generates $0.45 profit per
dollar of sales, which selectively is pretty low compared to
other companies within the industry.
In turn, Disney’s ROA indicates that for every dollar invested in
assets, $0.13 was produced in
net income. Finally, Return on Equity shows the firm’s ability
to turn assets into profits.
Essentially, this means that for every dollar the company put in,
Walt Disney company earns
$0.26 in net.
Section V. Market Value
Market Value Ratio Ratio Formula
FY18 Ratio
Calculated (DIS)
Price-Earnings Ratio
�� ℎ ��
�� ℎ ��
13.84
Market-to-Book Ratio
�� ℎ ��
�� ℎ ��
32.36

Market value ratios are used to evaluate the current share price
of a company's stock. Walt
Disney’s calculated P/E ratio of 13.84 indicates that shares sell
13.84 times the firm’s earnings
per share. This is significantly lower than industry average
when compared to competitors such
as Netflix (NFLX) who’s metric is calculated at 99.87.
However, a high P/E ratio is does not
necessarily determine whether a company has substantial stock
value. In addition, the Market-to-
Book ratio is used to compare a business’s net assets that are
available in relation to the sales
price of its stock. This ratio depicts that Walt Disney’s stock
costs 32.36x its net assets.
Section VI. Du-Pont Analysis
�� = ��
��
ROE using the extended Du-Point Analysis for DIS:

�� =
��
��
�
��
��
�
��
��
�
��
��
�
��
��
�� = 0.2496 � 1.046 � 0.8118 � 0.6028 � 2.022
ROE = 0.2583 = 25.83%
It is evident that return on equity is one of the most important
indicators of the firm’s

profitability and potential growth. The ROE measures the after-
tax profit the company earns
in comparison to the total amount of shareholder’s equity.
Based on time trends of Walt
Disney Company FY15-FY18, we see fluctuation in several
components of the ROE.
With an EBIT Margin of 0.250 in 2018 in comparison to 0.252
in 2015, the data indicates
that there has been a -1% growth rate in firm’s EBIT margin
within the past 3 years. In
contrast, we see a positive in all other components of ROE such
as Interest Burden with a
growth rate of 2.48% from 2015 to 2018, which shows us the
percentage of EBIT left after
the deduction of interest expense. Similarly, the trends also
show an increase in DIS tax
burden of 23.45% since 2015. The tax burden defines proportion
of earnings before tax after
income tax charge, which essentially means that the higher tax
burden, the higher the Walt
Disney Co. return on equity. Overall, Walt Disney Company has
projected 27% growth in
ROE within the past 5 fiscal periods and is predicted to grow

for coming years based on
linear regression analysis depicted in Figure 1.
Walt Disney Company ROE vs Competitors ROE (2012 – 2018)
Walt Disney Company’s ROE has comparatively been
determined lower than industry
average in comparison to many of its competitive counterparts.
For example, one of Disney’s
largest competitors, Twenty-First Century Fox Inc (TFCFA)
currently holds 63.3% return on
equity and has continuously ranked higher than 97% of the 439
companies in the
entertainment industry for the past 10 years. This means that
TFCFA holds a 59.6%
advantage in terms of equity return, and that the company
efficiently utilizes its investment
funds to generate growth in earnings. Furthermore, we can see
from long-term perspective
that Twenty-First Century Fox Inc. encompasses more financial

leverage in the entertainment
industry, and far more than Walt Disney Company alone.
Section VII. Revenue Growth FY16-FY18
Figure 1. Historical growth rates for the Walt Disney Company
show a linear decline
within the past 5 years.
Walt Disney Company indicate a positive revenue growth rate,
as the company revenues have
increased by 13.3% from $52.5 billion in 2015 to $59.4 billion
in 2018, adding close to $7
billion to its revenue base. However, the continued decrease
from 2015 to 2017 suggests linear
decline as growth of Parks and Recreation are offset by
increased operating expenses.
Table 1. Revenue growth rates calculated based on Revenue
within FY14-FY18 time period
(shown in figure 1).
Fiscal
Period
DIS
Revenue

(in millions)
Growth
Rate
2014 48,813.00 --
2015 52,465.00 6.96%
2016 55,632.00 5.69%
2017 55,137.00 -0.90%
2018 59,434.00 7.23%
6.96% 5.69%
-0.90%
7.23%
-5.00%
0.00%
5.00%
10.00%
2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8
FISCAL PERIOD
R E VE N U E G R O W T H

F Y 1 4 - F Y 1 8
Revenue Growth Linear (Revenue Growth)
Figure 2. Select income statement data for the past three years
Figure 3. Expectations for fiscal year 2019, based on quarterly
data from the first two quarters.
The data depicts a 1.06% growth rate for Fiscal year 2019.
Income Statement
FY16-FY18
(Recorded in Millions)
18-Sep 17-Sep 16-Sep
Revenue Growth and Common
Size Values
FISCAL PERIOD FY 2018 FY 2017 FY 2016 FY 18 FY 17 FY
16

Revenue 59,434 55,137 55,632 7.23% -0.90% 5.69%
Cost of Goods Sold 32,726 30,306 29,993 7.39% 1.03% 19.64%
Gross Profit 26,708 24,831 25,639 7.03% -3.25% 6.00%
Other Operating Expense 3,011 2,782 2,527 7.61% 9.17%
6.85%
Operating Income 14,837 13,873 14,358 6.50% -3.50% 7.90%
Interest Expense -682 -507 -354 25.66% 30.18% 25.14%
Net Interest Income -574 -385 -260 32.93% 32.47% 55.00%
Other Income (Expense) 466 300 770 35.62% -156.67% 1.17%
Other Income (Minority Interest) -468 -386 -399 17.52% -3.37%
-17.79%
Pre-Tax Income 14,729 13,788 14,868 6.39% -7.83% 6.73%
Tax Provision -1,663 -4,422 -5,078 -165.90% -14.83% 1.22%
Net Income (Continuing Operations) 13,066 9,366 9,790 28.32%
-4.53% 9.58%
Net Income 12,598 8,980 9,391 28.72% -4.58% 10.74%
EPS (Basic) 8.4 5.73 5.76 31.79% -0.52% 14.06%
EPS (Diluted) 8.36 5.69 5.73 31.94% -0.70% 14.49%
Shares Outstanding (Diluted Average) 1,507.00 1,578.00
1,639.00 -4.71% -3.87% -4.27%

Depreciation, Depletion and
Amortization
3,011 2,782 2,527 7.61% 9.17% 6.85%
EBITDA 18,422 17,077 17,749 7.30% -3.94% 7.11%
Figure 4. Depicted Earnings per share growth rate calculated
based on Figure 3 2019
expectations.
FISCAL
YEAR
EPS
Assumed Growth
Rate
2019 4.96 --
2020 5.06 1.98%
2021 5.26 3.80%
2022 5.42 2.95%

2023 5.8 6.55%
Figure 5. Expectations for the next five years, using the growth
rates from linear historical
growth pattern and assumptions of each income statement line
item as a percentage of revenue
based on my past three years’ data.
Income
Statement
FY 2018 ACTUAL
FY19
Expectations (Reported in
thousands)
Q1
% of
Revenue
Q2
% of
Revenue
Total Revenue 14,922,000 -2.55% 20,245,000 26.29%

61,473,000
Cost of Revenue 8,376,000 -7.46% 12,819,000 34.66%
54,794,144.9
Gross Profit 6,546,000 3.73% 7,426,000 11.85% 31,462,310.8
Total Operating
Expenses
3,155,000 8.59% 4,666,000 32.38% 19,744,179
Operating Income 3,391,000 -0.80% 2,760,000 -22.86%
11,678,940
Interest Expense 198,000 17.68% 472,000 58.05% 1,997,268
Total Other
Income/Expenses
Net
4,014,000 97.48% 331,000 -1112.69% 1,400,626.5
Income Tax
Expense
1,647,000 60.84% 395,000 -316.96% 1,671,442.5
Income from
Continuing
Operations

5,590,000 50.16% 1,623,000 -244.42% 6,867,724.5
Net income 5,452,000 48.86% 1,760,000 -209.77% 7,447,440
Basic EPS 3.56 47.47% 0.98 -263.27% 4.95
EBITDA 8,263,000 47.65% 4,064,000 -103.32% 17,196,816
Risk and Factors
Section I. Risk Factors
One of Disney’s most daunting risk factor is the economic
climate. The entertainment industry as
a whole is based on families having disposable income. If there
is a recession, it could have a
fairly large impact on The Walt Disney Corporations financial
stability. Not only is the economic
condition of the United States a major risk factor, the global
economy also poses a threat.
“According to the MPAA, about 70% of studios' annual box
office revenue is derived from
international markets” (Competitive Landscape). Disney now
has to be mindful of where the
economy is heading as a whole, which creates a challenging
objective for the company.

The Walt Disney Corporation are constantly competing with
others in the industry. Since Disney
is the largest entertainment entity in the United States a lot of
their competition is on a global
basis. This global competition is something to keep an eye on in
the future, and local competition
has been mounting as well. “Competition in the industry is high,
and the trend is increasing”
(Competitive Landscape). New sport media outlets are
expanding and even though none have yet
to directly compete with ESPN, they are slowly reducing ESPNs
hold on the market.
This point is exacerbated in terms of sports licensing through
ESPN and other networks. With
more competition and the same amount of licensed materials,
firms are not able to hold licenses
for all their needed content, creating an interesting supply and
demand. I definitely feel this
(Recorded in
thousands)
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Assumed Growth

Rate:
3% 2% 4% 3% 7%
Total Revenue 61,473,000 62,702,460 65,210,558 67,166,875
71,868,556
Cost of Revenue 54,794,144.86 55,890,028 58,125,629
59,869,398 64,060,256
Gross Profit 31,462,310.75 32,091,557 33,375,219 34,376,476
36,782,829
Total Operating
Expenses
19,744,179 20,139,063 20,944,625 21,572,964 23,083,071
Operating Icome 11,678,940 11,912,519 12,389,020 12,760,690
13,653,938
Interest Expense 1,997,268 2,037,213 2,118,702 2,182,263
2,335,021
Total Other
Income/Expenses
Net
1,400,626.5 1,428,639 1,485,785 1,530,358 1,637,483
Income Tax
Expense
1,671,442.5 1,704,871 1,773,066 1,826,258 1,954,096

Income from
Continuing
Operations
6,867,724.5 7,005,079 7,285,282 7,503,841 8,029,109
Net income 7,447,440 7,596,389 7,900,244 8,137,252 8,706,859
Basic EPS 4.96 5.06 5.26 5.42 5.80
EBITDA 17,196,816 17,540,752.32 18,242,382.41
18,789,653.89 20,104,929.66
could negatively affect DIS in the long run, considering the
constant evolution in market and
industrial demographic.
Section II. Discount Rate
We begin by using the Capital Asset Pricing Model (CAPM) to
estimate the risks of investing in
Walt Disney Company stock.
The formula is listed as follows:
�� = �� + ��(
�� − ��

��)
�� = �� + �(�� − �� )
Next, we find the necessary components of the equation:
Based on the United States Treasury Bill, we determine the
Risk-free rate (�� ) is 1.55.
Figure 1. DIS Beta (β) is 0.99
VarianceDIS 25.48
VarianceS&P 500 10.29
CovarianceDIS, S&P 500 10.19
z
Correlation coefficientDIS, S&P 500 0.63
βDIS 0.99
αDIS 0.27

Lastly, we use the given information to calculate the expected
rate of return
�� = �� + �(�� − ��)
�� = 0.0155 + 0.99(0.1147 − 0.0155)
�� = 0.113708 = 11.37%
Calculations
Risk-Free Rate Rf 1.55%
Expected Rate of Return on Market Portfolio Rm 11.47%
Systematic Risk (ΒDIS) Of Walt Disney Co. Βdis 0.99
Expected Rate of Return On Walt Disney Co.’s Common Stock
E(Rdis) 11.37%
With an Expected Rate of Return of 11.37%, we determine that
DIS has a sufficient, as it
measures the efficiency of any investment.
In the Rate of Return calculation, the growth rate is added
directly to today's free cash flow yield.
Therefore, the calculation is reliable only if the company can
grow at the same rate in the future
as it did in the past. Investors should pay close attention to this
when researching growth stocks.

More accurate measurement return returns are Return on
Capital.
Section III. Fair Price
We use the dividend Discount Model: Single Stage to calculate
DIS Fair Price
The formula is as follows:
Assumptions: Risk Premium
Market portfolio dividend growth rate 9.52%
Add: Market portfolio dividend yield 1.95%
Expected rate of return on market portfolio 11.47%
Less: Risk-free rate of return 1.55%
Market portfolio risk premium 9.36%
�0 =
�1
�� − �
=
�0(1 + �)

�� − �
We recently identified the �� to be 11.37%.
We find on DIS financial statements that its dividends, as of
7/5/2019, is $0.88
Lastly, we determine that 10.40% growth rate (YTY)
So we plug in and solve, using the information given:
�0 =
�1
�� − �
=
�0(1 + �)
�� − �
�0 =
0.88(1 + 0.0480)
0.1137 − 0.0480
�0 =
0.92224
0.0657
We establish that fair price using the Dividend Discount Model

is $194.27
Section V. Recommendation
It is apparent DIS actual is below calculated target price. In
conclusion, I would recommend to
BUY Walt Disney Co. stock as it is easily the logical decision
as investor, with the following
reservations:
• Economic Climate changes pose as risk to integrity of Walt
Disney Company
• Unstable executive management positions that could be
detrimental to the future
successes of the company
• Rise in technological evolution and changing time trends
Fortunately, the current launch of Disney Plus could streamline
a new source of revenue to the
business and introduce DIS to a more global market. Based on
such analysis, I do recommend
DIS to investors for purchase with moderate risk tolerance.
Appendix
i. https://finance.yahoo.com/quote/dis/financials/
ii. https://finance.yahoo.com/quote/DIS/balance-sheet?p=DIS
iii. https://finance.yahoo.com/quote/DIS/cash-flow?p=DIS
iv. https://finance.yahoo.com/quote/DIS?p=DIS
v. https://www.gurufocus.com/stock/DIS/dividend
vi. https://www.gurufocus.com/stock/DIS/analysis

vii. https://www.gurufocus.com/stock/DIS/ownership
viii. http://panmore.com/walt-disney-company-swot-analysis-
recommendations
ix. https://www.treasury.gov/resource-center/data-chart-
center/interest-
rates/Pages/TextView.aspx?data=billrates
x. https://www.gurufocus.com/stock/DIS/data/pe-ratio
xi. https://www.thewaltdisneycompany.com/about/
xii. https://finbox.com/DIS/models/dcf-growth-exit-10yr
xiii. https://simplywall.st/news/an-intrinsic-value-calculation-
for-the-walt-disney-company-dis-shows-
investors-are-overpaying/
xiv. https://www.stock-analysis-on.net/NYSE/Company/Walt-
Disney-Co/DCF/Present-Value-of-FCFF
https://finance.yahoo.com/quote/dis/financials/
https://finance.yahoo.com/quote/DIS/balance-sheet?p=DIS
https://finance.yahoo.com/quote/DIS/cash-flow?p=DIS
https://finance.yahoo.com/quote/DIS?p=DIS
https://www.gurufocus.com/stock/DIS/dividend
https://www.gurufocus.com/stock/DIS/analysis
https://www.gurufocus.com/stock/DIS/ownership
http://panmore.com/walt-disney-company-swot-analysis-
recommendations
https://www.treasury.gov/resource-center/data-chart-
center/interest-rates/Pages/TextView.aspx?data=billrates
https://www.treasury.gov/resource-center/data-chart-
center/interest-rates/Pages/TextView.aspx?data=billrates
https://www.gurufocus.com/stock/DIS/data/pe-ratio
https://www.thewaltdisneycompany.com/about/
https://finbox.com/DIS/models/dcf-growth-exit-10yr
https://simplywall.st/news/an-intrinsic-value-calculation-for-

the-walt-disney-company-dis-shows-investors-are-overpaying/
https://simplywall.st/news/an-intrinsic-value-calculation-for-
the-walt-disney-company-dis-shows-investors-are-overpaying/
https://www.stock-analysis-on.net/NYSE/Company/Walt-
Disney-Co/DCF/Present-Value-of-FCFF
Equity Research Report
Overview
For the equity research report, you will put yourself in the shoes
of a stock analyst to study,
examine, and value your chosen company before making a buy
or sell recommendation based on
the current stock price.
An equity research report is generally prepared by equity
analysts in investment banking houses
to provide information to investing clients, advisors, and other
interested parties about the stock’s
future potential and to recommend a purchase or sale of the
stock.
The analyst would recommend buying a stock if he estimates the
value of a share to be greater

than the price which you can buy it on the market. Similarly, he
would make a sell recommendation
if he values the company below its current market price. There
is some evidence that analyst
reports are positively biased, because of lack of incentives to
produce negative reports. Of course,
you can prepare your own unbiased report and use it for your
own internal consumption at the time
of investing. The idea is to find good bargains and avoid buying
overvalued stocks. This is tough
because securities usually trade at their fair price if markets are
fairly informationally efficient.
There are several different valuation techniques. The valuation
principle you will use for to
estimate the firm’s value is known as the discounted cash flow
method, or “fundamental
valuation.” You will do this by first forecasting the expected
future cash flows and then discounting
those cash flows back to present value. The discount rate is
based on the riskiness of the forecasted
free cash flows. After these cash flows are discounted back to
present value, you adjust the
estimated firm value for debt and preferred stock outstanding,
and divide by the shares outstanding

for your target stock price.
The report will contain the following sections:
Executive Summary Analyst Name and Company, Firm being
analyzed: Name and
Ticker Symbol, Price on report date, Forecast horizon,
Recommendation (Buy, hold or sell; or strong buy etc.), Target
forecasted price, Highlights, Summary of analysis
Qualitative Analysis Company profile or business description,
Industry overview, SWOT
analysis, Management, Major owners, News, Summary of
technical
analysis and charts
Financial Statements
Analysis
Ratio Analysis and Interpretation, Earnings Forecast, Growth
forecast, Trends over time and versus competitors
Risk and Pricing Risk factors, Computation of Required return
or discount rate,
Calculate Fair Price, Compare with market, Recommendation

Appendix: Actual financial statements
The report usually contains an executive summary page with the
key recommendation. This
recommendation should be based on very solid justification.
Next, the report details the qualitative
analysis of the firm’s business and the industry conditions.
Following this, is a financial statement
analysis section which numerically forecasts earnings and future
dividends. Finally, you assess the
risk factors to compute the appropriate rate at which to discount
future cash flows to arrive at the
fair price that should be paid for the stock. Any factual
information and the actual financial
statements should be included in the appendix. The report itself
should contain the interpretation
of these facts.
Where to start
There are many potential sources of data and information about
the company which you will need
to gather and review when you are preparing the report. Every

listed firm is legally required to file
its statements at the publicly-accessible SEC (Securities and
Exchange Commission) EDGAR
website. They will also have information on the company’s own
investor relations webpage.
Bloomberg, Reuters, and the Wall Street Journal are good,
albeit expensive, media and data
sources for latest news about the company. A nice free website
which is an excellent source of
qualitative and quantitative financial information is Yahoo
Finance. Gather all of your hard data
and source material (financials, economic outlooks,
competitors’ financials, etc.) and be sure to
include them – formatted neatly – into your report’s appendix.
Qualitative Analysis
It is important to analyze each piece of information in your
report. Don’t just copy it into the report;
you must interpret it. What is the meaning of each piece of
information and how it will effect
stock’s fair value, in your opinion?
Your analysis will begin by using qualitative factors and

analysis to determine the business
outlook. In other words, how will fundamental information
affect future cash flows in the
numerator of the valuation equation?
Think about how every piece of information will affect future
sales or revenues (i.e. the top line
of the income statement). Will the sales increase due to
economic recovery and growth OR will
the sales decline due to competition and other factors?
Also think about how this information will affect the bottom
line (i.e. EPS, free cash flows, or
dividends). Will the costs rise due to inflation, or wil l the firm
successfully control costs and
increase profitability?
Keep in mind that sales often have patterns such as seasonality,
trends, business cycles, growth
through innovation. So when you are projecting the future sales
all these trends and patterns should
be helpful in making a more accurate forecast.
First, try to forecast how the overall economy will perform in

the forecasting period. If the
economy grows most firms are likely to share the fruits of that
growth. If the economy will be in
recession than most firms will experience declining sales. There
are some exceptions such as
Walmart or inferior good manufacturers, which may do well in
recession. Take this into account
when you are analyzing the GDP growth rate, which is usually
forecasted by economists and
should help you to predict the firm’s growth.
Now determine the stage of the industry’s life cycle. Industries
in the pioneering stage may have
losses in their initial years – Amazon had huge losses in the
initial years after the website was
launched – but then these firms can earn high profit margins as
the product is established.
To determine how qualitative factors will affect your firm’s top
and bottom lines, you’ll need to
use your own opinions, research and creativity. This may
include relevant news articles, technical
analysis/charting, a SWOT (Strengths, Weaknesses,

Opportunities, Threats) matrix, and knowing
the major shareholders and managers of the firm. The
possibilities are endless, but for your report,
you’ll ultimately need to forecast revenues and expenses, so
you’ll need to justify them with your
analysis.
To analyze management and ownership of the firm you need to
ask yourself:
Who is running the firm that you are analyzing? What is their
background, skill set, and
experience? How are they paid? Cash compensation may leave
managers unmotivated, options
may lead managers to take on too much risk, bonus
compensation may lead to earnings
manipulation. Therefore, the best practice firms tend to use cash
plus restricted stock unit
compensation for their managers. Most importantly, try to
examine management’s track record of
allocating capital. i.e. how does management makes use of
profits once they have been earned?
This is important because poor allocation of your profits can
destroy great business, regardless of
how much profit you make. If you making dumb investments

with that profit, it won’t help you
much in the long‐ run.
Quantitative Analysis
Financial Statement Analysis is done to assess the financial
health of a firm. Within this section,
you will compute and interpret various types of ratios, and
highlight any changes in these ratios
over time and any major differences in ratios across the firm
and its competitors.
The next goal is to project the firm’s EPS in the next year. The
best places to start are current and
historic financial statements, (We already have this data!) and
use your qualitative and ratio
analysis to determine why revenue, expenses, earnings and cash
flows are moving up and down
each year.
For projecting future expenses, it is useful to common size the
historic and current statements as

% of sales and then use the ratios for forecasting next year’s
expenses, being sure to factor in our
qualitative analysis. Now to get the earnings per share we
divide the net income by the number of
shares outstanding. A short cut to find the number of shares
outstanding is to divide the Market
capitalization by price. But be mindful that firms can add more
shares in future through equity
offerings, and (more commonly) the exercise of stock options
by its executives. If so, then you
should increase the number of shares outstanding for the future.
Historic Data Common Size Average & Adjust Forecast
2009 2008 2009 2008 2010
Sales or
Revenues
$14.6
Billion
13.5 8%
growth
9.9%

Growth
8.95% adjust down to
6.5%; recession
$15.5
Billion
Various
Expenses (% of
sale)
$12.5
Billion
11.3 86% of
sales
84% of
sales
85% adjust down to
83%; cost cutting
measures
$12.9

Billion
Net Income $2.1
Billion
$2.2
Billion
$2.6
Billion
EPS 1.94 1.97 2.32
Risk Analysis and Pricing
Next you’ll analyze the risk of the firm to estimate an
appropriate discount rate. The discount rate
should increase as the firm’s cash flows gets riskier. Some
people just use a “common sense” rate
of required return. Others rely on sophisticated mathematical
modeling to determine the risk
premium (the additional return in order to compensate investors
for uncertainty about the stock’s
future performance) on the stock. To do this, you will require
the risk free rate plus a risk premium.

The proponents of the advanced mathematical models claim that
only systematic risk (and not
idiosyncratic risk) is rewarded in the stock market. This type of
risk is caused by macro factors
such as changes in interest rates, GDP growth, supply shocks,
financial crisis. Therefore, to
measure systematic risk, we estimate the covariance of the stock
returns with the market portfolio.
This covariance is called beta (β). Beta estimates a stock’s
systematic risk. Unsystematic risk is
not rewarded because you can easily reduce or eliminate it by
holding well diversified portfolios.
The Capital Asset Pricing Model provides a framework for
computing the required return from the
stock. Essentially, discount rate that you will put into the
dominator of the valuation equation
would be the required return according to the CAPM. This
required return is:
�(�� ) = �� + �� [�(��) − ��]
Rf is the risk free rate, which can be estimated using the
treasury bill rate. You can find this

information on US Treasury website.
(http://www.ustreas.gov/offices/domestic‐ finance/debt‐
management/interest‐ rate/yield.shtml) For example, the rate
was 0.43% in September 2009.
You can obtain βi from Yahoo Finance or Bloomberg, or
estimate it yourself by regressing 24-60
months of historic stock returns (Ri) on historic market returns
(Rm).
A commonly used proxy for a forecast of market wide stock
returns, Rm, is the historic S&P 500
index return. Historic average for large stocks according to
many textbooks is between 10 and 12%
per year. You can then adjust this historical average to
incorporate your opinion about the long
run future of the stock market.
Dividend Discount Model: Single Stage
Now that you’ve estimated future cash flows, growths rates, and
the discount rate, you can now
estimate the value of the stock. This is the primary contribution
of your equity report: the target
price of the stock. There are multiple methods and models used
to arrive at an estimated target

price. We will cover several in this tutorial. You w ill need to
use at least one appropriate discounted
cash flow method, but you may wish to try several different
models to see how sensitive your
target price is to the assumptions implicit in each model. First,
we’ll cover the single stage dividend
discount model, otherwise known as the Gordon Growth Model:
�0 =
�1
�(�� ) − �
=
�0(1 + �)
�(�� ) − �
Suppose you’re valuing an established firm in a mature industry
with a steady growth rate. If we
assume that dividends will grow at a constant rate in perpetuity,
and that the require return for
equity holders doesn’t change year-to-year, we can
mathematically show that the fundamental
present value of the stock is equal to next year’s dividend (D1)
divided by the required return

(E(Ri)) minus the growth rate (g). Since we don’t know for sure
what D1 will be a year in advance,
we can use the most recent dividend (D0), and grow it by the
growth rate (1+g).
Free Cash Flow Model: Single Stage
What if the firm you’re valuing doesn’t pay a regular dividend?
What if the firm’s dividends are
too erratic to be valued by a smooth growth rate? What if you
are valuing a closely-held firm and
dividends aren’t public knowledge? In any of these cases, the
Gordon Growth Model won’t be the
best choice, and you may need to use a discounted free cash
flow model instead.
�� =
��1
�� − �
�� =
��1
�(�� ) − �
The models look very similar, but instead of dividends per

share, you use the firm’s free cash flows
to find the overall value of the firm. BEWARE! We can use
either Free Cash Flows to the Firm
(FCFF) or Free Cash Flows to Equity (FCFE), but we need to
adjust our discount rate and outcome
variable accordingly. Notice that when we use FCFE, we
discount by the required return of equity
holders (E(Ri)) and we calculate the value of equity (VE). This
isn’t the price of each share, but the
overall value of equity, so you still need to divide this by the
number of shares outstanding to
arrive at the target price per share. Now see that when we use
FCFF, since we haven’t taken out
any interest payments or changes in debt, we need to discount
by the weighted-average cost of
capital (WACC), and we end up calculating the value of the
firm, not the value of equity. Once we
value the firm, we need to adjust this figure by subtracting off
the value of debt, adding the value
of non-operational assets (investment property, stock in other
companies, etc.), and then dividing
by the shares outstanding to arrive at the target price per share.

Multi-stage Discounted Cash Flow Models
What if you’re valuing a firm with a growth rate higher than the
required return on equity? This
will give you a negative valuation in the single stage growth
models (technically, we derived the
Gordon Growth Model using a Taylor-series expansion which
assumes E(Ri) > g, so if this isn’t
the case, we get an infinite value, not negative). What if you’re
valuing a firm in the early stages
of its industry, and the growth rate will be very high for a few
years before coming back down to
a terminal growth rate (gt)? In either case, you’ll have to use a
multi-stage growth model. The good
news is that the multi-stage models work with either dividends
or free cash flows. You just need
to use the appropriate discount rate (k) depending on which
cash flow (CF) you’re using – D,
FCFF, or FCFE.
�0 =
��1
(1 + �)
+

��2
(1 + �)2
+ ⋯
�� + ��
(1 + �)�
, �ℎ �� =
��+1
� − ��
This model, especially when used with FCFF, gives you the
most control and the flexibility to
value any firm, but it is also the most labor intensive and
complex because you have to forecast
cash flows for t or (t+1) years. Remember, if you’re using free
cash flows, you’ll still have to make
the appropriate adjustments to go from the value estimate to the
target price per share.
Valuation based on Price Multiples
An alternative approach to this is to project a price multipl e for
the firm. We have already projected
earnings per share (EPS) in the financial statement analysis and
now we are trying to find the fair

price, P0. So we can use EPS times the projected price to
earnings multiple (P/E). In order to get
this forecasted price to earnings multiple, you can use various
benchmarks such as historic,
industry-average, market-wide average. You don’t have to stop
at the P/E ratio. Since earnings can
sometimes be negative, it’s not uncommon to use a Price/Sales
multiple. Since earnings is
influenced by some arbitrary accounting principles, many
finance people prefer price-to-cash flow
multiples. In the early 2000s, many “dot com” firms didn’t even
have revenue, but they needed
money from investors. How were they valued? Venture
capitalists used price-to-click multiples
for several of these firms. While your imagination may be the
limit, the P/E multiple is probably
the safest. Since the terminal firm value (Vt) is hard to estimate
so far into the future, some analysts
use multiples to estimate the terminal firm value. Multiple
valuation can give you slightly different
estimates for the fair price of the stock. Depending on what
method you use and your assumptions,
you might get different estimates of the fair price. At the end
you can use plain average or weighted

average from the different approaches to forecast the stock price
in the future.
Once you can have the fair price, you will then make your
recommendation on the stock.
– Recommend a purchase if market price is significantly less
than your target price
– Recommend selling if the market price is significantly higher
than your target price
– You can recommend holding the stock if the market price is
too close to your target price to
generate a decent return
It is good practice to calculate the potential return based on
today’s price and your target price.
Finally, it is a very good idea to perform sensitivity analysis or
scenario analysis. In short, vary
your assumptions about sales and/or costs to learn what might
happen to the stock price under
optimistic or pessimistic scenarios for the stock. The stock’s
price is going to be most sensitive to
your assumptions about required return and terminal growth

rate, so it’s good to vary these and
see what ranges give you buy, sell, or hold recommendations.
Project Grading Breakdown:
Section Points
Executive Summary 10
Qualitative Analysis 30
Financial Statement Analysis 20
Risk and pricing 30
Overall Quality 10
Total 100

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