Microsoft Excel LibreOffice Calc

Walt Disney Co. (DIS)

Economic Value Added (EVA)

High level of difficulty

EVA is registered trademark of Stern Stewart.

Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.

Economic Profit

Walt Disney Co., economic profit calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
Net operating profit after taxes (NOPAT)1 12,121  10,148  11,316  9,024  8,610  6,973 
Cost of capital2 12.97% 12.47% 12.75% 13.18% 13.07% 12.89%
Invested capital3 79,473  79,398  74,460  67,942  67,257  66,741 
 
Economic profit4 1,814  248  1,820  69  (178) (1,627)

Based on: 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), 10-K (filing date: 2013-11-20).

1 NOPAT. See details »

2 Cost of capital. See details »

3 Invested capital. See details »

<>4 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 12,121 – 12.97% × 79,473 = 1,814

Item Description The company
Economic profit Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital. Walt Disney Co.’s economic profit declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

Net Operating Profit after Taxes (NOPAT)

Walt Disney Co., NOPAT calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
Net income attributable to The Walt Disney Company (Disney) 12,598  8,980  9,391  8,382  7,501  6,136 
Deferred income tax expense (benefit)1 (1,581) 344  1,245  (24) 504  58 
Increase (decrease) in allowance for doubtful accounts2 5  34  (4) 3  (1) (6)
Increase (decrease) in equity equivalents3 (1,576) 378  1,241  (21) 503  52 
Interest expense 682  507  354  265  294  349 
Interest expense, operating lease liability4 262  237  178  180  181  204 
Adjusted interest expense 944  744  532  445  475  553 
Tax benefit of interest expense5 (231) (260) (186) (156) (166) (194)
Adjusted interest expense, after taxes6 713  483  346  290  309  359 
Interest and investment income (108) (122) (94) (148) (317) (114)
Investment income, before taxes (108) (122) (94) (148) (317) (114)
Tax expense (benefit) of investment income7 26  43  33  52  111  40 
Investment income, after taxes8 (82) (79) (61) (96) (206) (74)
Net income (loss) attributable to noncontrolling interest 468  386  399  470  503  500 
Net operating profit after taxes (NOPAT) 12,121  10,148  11,316  9,024  8,610  6,973 

Based on: 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), 10-K (filing date: 2013-11-20).

1 Elimination of deferred tax expense. See details »

2 Addition of increase (decrease) in allowance for doubtful accounts.

3 Addition of increase (decrease) in equity equivalents to net income attributable to The Walt Disney Company (Disney).

4 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 2,360 × 11.12% = 262

5 2018 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 944 × 24.50% = 231

6 Addition of after taxes interest expense to net income attributable to The Walt Disney Company (Disney).

7 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 108 × 24.50% = 26

8 Elimination of after taxes investment income.

Item Description The company
NOPAT Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income. Walt Disney Co.’s NOPAT declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Cash Operating Taxes

Walt Disney Co., cash operating taxes calculation

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
Income tax expense 1,663  4,422  5,078  5,016  4,242  2,984 
Less: Deferred income tax expense (benefit) (1,581) 344  1,245  (24) 504  58 
Add: Tax savings from interest expense 231  260  186  156  166  194 
Less: Tax imposed on investment income 26  43  33  52  111  40 
Cash operating taxes 3,449  4,296  3,986  5,144  3,793  3,080 

Based on: 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), 10-K (filing date: 2013-11-20).

Item Description The company
Cash operating taxes Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction. Walt Disney Co.’s cash operating taxes increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Invested Capital

Walt Disney Co., invested capital calculation (financing approach)

US$ in millions

Microsoft Excel LibreOffice Calc
Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
Current portion of borrowings 3,790  6,172  3,687  4,563  2,164  1,512 
Borrowings, excluding current portion 17,084  19,119  16,483  12,773  12,676  12,776 
Operating lease liability1 2,360  2,110  2,066  2,198  2,196  2,177 
Total reported debt & leases 23,234  27,401  22,236  19,534  17,036  16,465 
Total Disney Shareholder’s equity 48,773  41,315  43,265  44,525  44,958  45,429 
Net deferred tax (assets) liabilities2 2,975  4,311  3,538  3,239  3,574  3,565 
Allowance for doubtful accounts3 192  187  153  157  154  155 
Equity equivalents4 3,167  4,498  3,691  3,396  3,728  3,720 
Accumulated other comprehensive (income) loss, net of tax5 3,097  3,528  3,979  2,421  1,968  1,187 
Redeemable noncontrolling interests 1,123  1,148  —  —  —  — 
Noncontrolling interests 4,059  3,689  4,058  4,130  3,220  2,721 
Adjusted total Disney Shareholder’s equity 60,219  54,178  54,993  54,472  53,874  53,057 
Projects in progress6 (3,942) (2,145) (2,684) (6,028) (3,553) (2,476)
Securities classified as available-for-sale7 (38) (36) (85) (36) (100) (305)
Invested capital 79,473  79,398  74,460  67,942  67,257  66,741 

Based on: 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), 10-K (filing date: 2013-11-20).

1 Addition of capitalized operating leases.

2 Elimination of deferred taxes from assets and liabilities. See details »

3 Addition of allowance for doubtful accounts receivable.

4 Addition of equity equivalents to total Disney Shareholder’s equity.

5 Removal of accumulated other comprehensive income.

6 Subtraction of projects in progress.

7 Subtraction of securities classified as available-for-sale.

Item Description The company
Invested capital Capital is an approximation of the economic book value of all cash invested in going-concern business activities. Walt Disney Co.’s invested capital increased from 2016 to 2017 and from 2017 to 2018.

Cost of Capital

Walt Disney Co., cost of capital calculations

Capital (fair value)1 Weights Cost of capital
Equity2 168,264  168,264  ÷ 191,621  = 0.88 0.88 × 14.34% = 12.59%
Borrowings3 20,997  20,997  ÷ 191,621  = 0.11 0.11 × 3.32% × (1 – 24.50%) = 0.27%
Operating lease liability4 2,360  2,360  ÷ 191,621  = 0.01 0.01 × 11.12% × (1 – 24.50%) = 0.10%
Total capital: 191,621  Total weights: 1.00 Cost of total capital: 12.97%

Based on: 10-K (filing date: 2018-11-21).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 155,169  155,169  ÷ 183,153  = 0.85 0.85 × 14.34% = 12.15%
Borrowings3 25,874  25,874  ÷ 183,153  = 0.14 0.14 × 2.58% × (1 – 35.00%) = 0.24%
Operating lease liability4 2,110  2,110  ÷ 183,153  = 0.01 0.01 × 11.22% × (1 – 35.00%) = 0.08%
Total capital: 183,153  Total weights: 1.00 Cost of total capital: 12.47%

Based on: 10-K (filing date: 2017-11-22).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 156,377  156,377  ÷ 179,522  = 0.87 0.87 × 14.34% = 12.49%
Borrowings3 21,079  21,079  ÷ 179,522  = 0.12 0.12 × 2.59% × (1 – 35.00%) = 0.20%
Operating lease liability4 2,066  2,066  ÷ 179,522  = 0.01 0.01 × 8.63% × (1 – 35.00%) = 0.06%
Total capital: 179,522  Total weights: 1.00 Cost of total capital: 12.75%

Based on: 10-K (filing date: 2016-11-23).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 196,183  196,183  ÷ 216,168  = 0.91 0.91 × 14.34% = 13.01%
Borrowings3 17,788  17,788  ÷ 216,168  = 0.08 0.08 × 2.12% × (1 – 35.00%) = 0.11%
Operating lease liability4 2,198  2,198  ÷ 216,168  = 0.01 0.01 × 8.21% × (1 – 35.00%) = 0.05%
Total capital: 216,168  Total weights: 1.00 Cost of total capital: 13.18%

Based on: 10-K (filing date: 2015-11-25).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 152,309  152,309  ÷ 169,780  = 0.90 0.90 × 14.34% = 12.86%
Borrowings3 15,275  15,275  ÷ 169,780  = 0.09 0.09 × 2.27% × (1 – 35.00%) = 0.13%
Operating lease liability4 2,196  2,196  ÷ 169,780  = 0.01 0.01 × 8.24% × (1 – 35.00%) = 0.07%
Total capital: 169,780  Total weights: 1.00 Cost of total capital: 13.07%

Based on: 10-K (filing date: 2014-11-19).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Capital (fair value)1 Weights Cost of capital
Equity2 121,656  121,656  ÷ 138,378  = 0.88 0.88 × 14.34% = 12.61%
Borrowings3 14,544  14,544  ÷ 138,378  = 0.11 0.11 × 2.68% × (1 – 35.00%) = 0.18%
Operating lease liability4 2,177  2,177  ÷ 138,378  = 0.02 0.02 × 9.37% × (1 – 35.00%) = 0.10%
Total capital: 138,378  Total weights: 1.00 Cost of total capital: 12.89%

Based on: 10-K (filing date: 2013-11-20).

1 US$ in millions

2 Equity. See details »

3 Borrowings. See details »

4 Operating lease liability. See details »

Economic Spread Ratio

Walt Disney Co., economic spread ratio calculation

Microsoft Excel LibreOffice Calc
Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
Selected Financial Data (US$ in millions)
Economic profit1 1,814  248  1,820  69  (178) (1,627)
Invested capital2 79,473  79,398  74,460  67,942  67,257  66,741 
Performance Ratio
Economic spread ratio3 2.28% 0.31% 2.44% 0.10% -0.26% -2.44%

Based on: 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), 10-K (filing date: 2013-11-20).

1 Economic profit. See details »

2 Invested capital. See details »

3 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 1,814 ÷ 79,473 = 2.28%

Performance ratio Description The company
Economic spread ratio The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital. Walt Disney Co.’s economic spread ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Economic Profit Margin

Walt Disney Co., economic profit margin calculation

Microsoft Excel LibreOffice Calc
Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
Selected Financial Data (US$ in millions)
Economic profit1 1,814  248  1,820  69  (178) (1,627)
Revenues 59,434  55,137  55,632  52,465  48,813  45,041 
Performance Ratio
Economic profit margin2 3.05% 0.45% 3.27% 0.13% -0.36% -3.61%

Based on: 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), 10-K (filing date: 2013-11-20).

1 Economic profit. See details »

2 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × 1,814 ÷ 59,434 = 3.05%

Performance ratio Description The company
Economic profit margin The ratio of economic profit to sales. It is the company’s profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin. Walt Disney Co.’s economic profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.