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Walt Disney Co. (DIS)
Analysis of Goodwill and Intangible Assets
Advanced level
- Accounting Policy on Goodwill and Intangible Assets
- Goodwill and Intangible Asset Disclosure
- Adjustments to Financial Statements: Removal of Goodwill
- Adjusted Financial Ratios: Removal of Goodwill (Summary)
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Accounting Policy on Goodwill and Intangible Assets
Disney is required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and if current events or circumstances require, on an interim basis. Goodwill is allocated to various reporting units, which are an operating segment or one level below the operating segment. Disney compares the fair value of each reporting unit to its carrying amount, and to the extent the carrying amount exceeds the fair value, an impairment of goodwill is recognized for the excess up to the amount of goodwill allocated to the reporting unit.
The impairment test for goodwill requires judgment related to the identification of reporting units, the assignment of assets and liabilities to reporting units including goodwill, and the determination of fair value of the reporting units. To determine the fair value of the reporting units, Disney generally uses a present value technique (discounted cash flows) corroborated by market multiples when available and as appropriate. Disney applies what Disney believes to be the most appropriate valuation methodology for each of the reporting units. The projected cash flows of Disney’s reporting units reflect intersegment revenues and expenses for the sale and use of intellectual property as if it was licensed to an unrelated third party.
In times of adverse economic conditions in the global economy, Disney’s long-term cash flow projections are subject to a greater degree of uncertainty than usual. If Disney had established different reporting units or utilized different valuation methodologies or assumptions, the impairment test results could differ, and Disney could be required to record impairment charges.
Disney is required to compare the fair values of other indefinite-lived intangible assets to their carrying amounts. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized for the excess. Fair values of other indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate. Disney has determined that there are currently no legal, competitive, economic or other factors that materially limit the useful life of the FCC licenses and trademarks.
Amortizable intangible assets are generally amortized on a straight-line basis over periods up to 40 years. The costs to periodically renew Disney’s intangible assets are expensed as incurred.
Disney tests long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount may not be recoverable. Once a triggering event has occurred, the impairment test employed is based on whether the intent is to hold the asset for continued use or to hold the asset for sale. The impairment test for assets held for use requires a comparison of cash flows expected to be generated over the useful life of an asset group to the carrying value of the asset group. An asset group is established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets and could include assets used across multiple businesses or segments. If the carrying value of an asset group exceeds the estimated undiscounted future cash flows, an impairment would be measured as the difference between the fair value of the group’s long-lived assets and the carrying value of the group’s long-lived assets. The impairment is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts, but only to the extent the carrying value of each asset is above its fair value. For assets held for sale, to the extent the carrying value is greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference.
Disney tested its goodwill and other indefinite-lived intangible assets, long-lived assets and investments for impairment and recorded non-cash impairment charges of $538 million, $210 million and $22 million in fiscal 2019, 2018 and 2017, respectively. The fiscal 2019 and fiscal 2018 impairment charges related to equity investments and were recorded in “Equity in the income (loss) of investees, net” in the Consolidated Statements of Income. The fiscal 2017 impairment charges were recorded in “Restructuring and impairment charges” in the Consolidated Statements of Income.
Source: 10-K (filing date: 2019-11-20).
Goodwill and Intangible Asset Disclosure
Walt Disney Co., balance sheet: goodwill and intangible assets
US$ in millions
Based on: 10-K (filing date: 2019-11-20), 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19).
| Item | Description | The company |
|---|---|---|
| Intangible assets | Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. | Walt Disney Co.’s intangible assets decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level. |
| Goodwill | Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. | Walt Disney Co.’s goodwill decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level. |
| Goodwill and other intangible assets | Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. | Walt Disney Co.’s goodwill and other intangible assets decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level. |
Adjustments to Financial Statements: Removal of Goodwill
Walt Disney Co., adjustments to financial statements
US$ in millions
Based on: 10-K (filing date: 2019-11-20), 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19).
Walt Disney Co., Financial Data: Reported vs. Adjusted
Adjusted Financial Ratios: Removal of Goodwill (Summary)
Walt Disney Co., adjusted financial ratios
Based on: 10-K (filing date: 2019-11-20), 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19).
| Financial ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Walt Disney Co.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
| Adjusted financial leverage | A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
Walt Disney Co.’s adjusted financial leverage ratio decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level. |
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Walt Disney Co.’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level. |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Walt Disney Co.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
Walt Disney Co., Financial Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2019-11-20), 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19).
2019 Calculations
1 Total asset turnover = Revenues ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= ÷ =
| Activity ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Walt Disney Co.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2019-11-20), 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19).
2019 Calculations
1 Financial leverage = Total assets ÷ Total Disney Shareholder’s equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Disney Shareholder’s equity
= ÷ =
| Solvency ratio | Description | The company |
|---|---|---|
| Adjusted financial leverage | A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
Walt Disney Co.’s adjusted financial leverage ratio decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2019-11-20), 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19).
2019 Calculations
1 ROE = 100 × Net income attributable to The Walt Disney Company (Disney) ÷ Total Disney Shareholder’s equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Net income attributable to The Walt Disney Company (Disney) ÷ Adjusted total Disney Shareholder’s equity
= 100 × ÷ =
| Profitability ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Walt Disney Co.’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2019-11-20), 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19).
2019 Calculations
1 ROA = 100 × Net income attributable to The Walt Disney Company (Disney) ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Net income attributable to The Walt Disney Company (Disney) ÷ Adjusted total assets
= 100 × ÷ =
| Profitability ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Walt Disney Co.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |