Disney Stock: Capital Structure Analysis (DIS)

Capital is the lifeblood of any business operation. It helps organizations meet their daily and long-term financial needs, as well as signaling to stakeholders that the firm is on the right track. Companies raise capital through debt and/or equity. Usually, it’s a mixture of the two, which is referred to as the company’s capital structure. 

Analysts review the capital structure of a firm to gain insights about management’s strategic relationship with and reliance on outside capital. A company with a strong growth strategy has a heavy reliance on outside capital. However, a mature company, such as Disney (DIS), can get away with a more conservative approach to capital structure and rely on cash flows generated from operations to propel itself.

Key Takeaways

• Disney’s capital structure remains heavily weighted toward using equity to finance growth, versus debt.
• This remains true even after the company more than doubled its debt load this year with the closing of the 21st Century Fox acquisition.
• Despite leverage ratios that are near decade highs, Disney—compared to its major peers—uses less debt and has a less levered balance sheet.

Capital Structure Overview

Capital structure varies based on industry and corporate financial strategy. Companies using more debt than peers may also be riskier since debt payments must be paid back even if earnings are negative or lackluster. 

Equity, on the other hand, does not need to be paid back, but it generally costs more to raise equity capital than debt, particularly in periods of low interest rates. This is why many companies, such as Disney, have used debt to increase its cash hoard over the past few years, taking advantage of low-interest rates.

Disney’s Debt and Equity Capitalization

Disney’s fiscal year 2024 capital structure highlights a debt of approximately $48.5 billion, paired with $95.2 billion in total equity. The company’s debt-to-equity ratio stands at 0.51, which reveals that Disney has strategically chosen to finance its operations more with equity than debt. This provides a lower-risk profile, as it suggests Disney is not overly reliant on debt to fund its activities.

This 0.51 ratio offers Disney significant financial flexibility. It means the company has room to take on more debt if necessary for expansion or other investments without overwhelming its balance sheet. It’s also a more conservative ratio measurement which is typical of companies aiming to safeguard against market downturns. While using debt allows for faster growth or acquisitions, Disney has maintained a conservative leverage level that protects against potential volatility in interest rates.

Note

Disney raised $316 million in operating income in Q4 2024 driven by Inside Out 2 and Deadpool & Wolverine.

Disney’s Profitability

It’s tangentially related to its capital structure, so let’s look at Disney’s profitability. Disney’s Q4 2024 revenue saw a 6% increase to $22.6 billion, reflecting growth in multiple business segments, particularly media and entertainment. The year-on-year revenue growth of 3%, totaling $91.4 billion. This shows Disney’s diverse operations have adapted and thrived.

Despite revenue growth, Disney’s operating income declined by 6% in Q4, primarily due to rising production and distribution costs. The company faced increasing expenses in areas like content creation, particularly in its streaming services. This means that while Disney has successfully expanded its revenue, the cost of delivering premium content has eaten into profitability. On a more positive note, Disney reported a significant increase in annual net income, going from $4.8 billion in 2023 to $7.6 billion in 2024.

All of this highlights the stability and security in Disney’s operations. This aligns with the company’s capital structure, where the company more conservatively is not necessarily pursuing fast growth. It’s more content generating longer-term value by having raised equity as opposed to needing immediate capital for expansion.

Disney’s Cash Position

Cash isn’t part of a capital structure either, but it is directly impacted by it. If companies are more desperate for cash, it might be more likely they try to raise debt which could be easier or faster to raise compared to equity.

As of the end of fiscal year 2024, The Walt Disney Company reported cash, cash equivalents, and restricted cash totaling $6.05 billion. Throughout fiscal 2024, Disney generated approximately $14 billion in cash from operations, underscoring its robust cash-generating capabilities. After accounting for capital expenditures, the company achieved over $8 billion in free cash flow. Looking ahead to fiscal 2025, Disney also projects generating around $15 billion in cash from operations, with planned capital expenditures of approximately $8 billion.

One way to interpret all of this is that the company is generating enough cash to meet its needs. It does not need to raise more funds by issuing capital or borrowing money. For this reason, barring expansion or potential acquisitions, Disney’s capital structure may remain more stead for the foreseeable future.

What Was Disney’s Total Revenue for Fiscal Year 2024?

Disney generated $91.4 billion in total revenue for fiscal year 2024, reflecting a 3% year-over-year increase. This growth was driven by strong performances in its theme parks, streaming services, and traditional media segments. 

What Is Disney’s Debt Level?

As of the end of fiscal 2024, Disney’s total debt stood at $48.5 billion. This debt consists of short-term and long-term borrowings, used to fund acquisitions, content production, and infrastructure investments.

How Much Shareholder Equity Does Disney Have?

Disney’s shareholder equity reached $95.2 billion, reflecting the company’s retained earnings, assets, and investments. This could be considered a very strong equity position.

What Is Disney’s Debt-to-Equity Ratio?

The debt-to-equity ratio is approximately 0.51, calculated by dividing total debt by shareholder equity. Very generally speaking, a ratio below 1 suggests Disney is not overly reliant on debt and maintains flexibility by prioritizing equity over borrowed funds.

The Bottom Line

Capital is a tool used by companies to finance company operations and growth projects. Some companies prefer the use of debt, especially in low-interest-rate environments. Other companies prefer equity because it doesn’t need to be paid back. Most companies, such as Disney, strive to find some optimal balance between debt and equity to help grow operations without substantially increasing risk. In 2024, Disney’s debt-to-equity ratio was 0.51.