7.2 Written assignment Discovery Inc., analysis of cash flows PDF

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Discovery Inc., analysis of cash flows

In order to complete this assignment I have chosen the example of Discovery Inc. I picked this company for 2 reasons; first I like very much their work because I grew up seeing Discovery´s documentaries, and second because I already had their Form 10-K of the last year for the research I did for the written assignment of unit 4. So the company name is Discovery Inc. and they have 3 ticket symbols because they have three different types of stocks: DISCA, DISCB, and DISCK[ CITATION Dis20 \l 10250 ]I'll leave the URL in the references. There are several items that are familiar to me in the Cash flow statements, and are familiar because I have seen them and read about them in the textbook. One familiar item found in the Statement of cash flow is “Purchases of property and equipment”[ CITATION Dis20 \l 10250 ] this item is the section of investing activities and states that the company has expended in PPE in 2020 $402 million, in 2019 $289 million, and in 2018 $147 million[ CITATION Dis20 \l 10250 ]. Since this company focuses in the content creation as they say: “We are a global media company that provides content across multiple distribution platforms. As one of the world’s largest pay-tv programmers, we provide original and purchased content and live events to approximately 3.7 billion cumulative subscribers and viewers worldwide”[ CITATION Dis20 \l 10250 ] the property and equipment purchases expenses are usually for the purchasing of facilities and offices for the direction and management of the company; and the expenses in equipment are from all the equipment they might use in the creation of content, from cameras to paper clips.

The most unfamiliar item that I could found in the Statement of cash flow is “Impairment of goodwill and other intangible assets”[ CITATION Dis20 \l 10250 ] about which the document

states an inflow of $124 million in 2020, and of $155 million in 2019[ CITATION Dis20 \l 10250 ]. This was as first sight an unfamiliar item but after researching about it I realized that the textbook talk about it I also found that:

“In accordance with both GAAP in the United States and IFRS in the European Union and elsewhere, goodwill is not amortized. In order to accurately report its value from year to year, companies perform an impairment test. Impairment losses are, functionally, like amortization.”[ CITATION Cor20 \l 10250 ] “The impairment charge is a non-cash expense and added back into cash from operations. The only change to cash flow would be if there were a tax impact, but that would generally not be the case, as impairments are generally not taxdeductible.”[ CITATION Cor20 \l 10250 ]

So basically the Impairment of goodwill and other intangible assets is the revaluation of the goodwill of the company obtained in a previous acquisition of other firm.

Finally the last question: Would I invest in Discovery Inc. based in the statement of cash flow? I definitively would invest in Discovery Inc. but not based only in the statement of cash flow, I would consider all the other financial statements and it is as well, as I tell before a personal relation with the company because I learned a lot as a child form Discovery´s documentaries.

References:

Corporate Finance Institute. (2020). Corporate Finance Institute.com. Obtenido de https://corporatefinanceinstitute.com/resources/knowledge/accounting/goodwillimpairment-accounting/ Discovery Inc. (2020). UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K. Silver Spring, Maryland. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_DISCA_202 0.pdf...