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Six Flags Entertainment Corporation Operations and Financial Performance Evaluation

Introduction

Amusement parks in the United States represent a place were the youth and families can go to have fun in a safe and controlled environment. The industry leader in amusement parks is Disney whose brand is recognized worldwide. High capital is a barrier of entry into this industry since upwards of $500 million dollars is needed to build a theme park with single rides costing over $40 million each (Referenceforbusiness). To succeed in this industry it takes innovation, technology, and great marketing to attract customers to your facilities. The industrial revolution accelerated the popularity of amusement parks due to the creation of mechanized rides such as the ferris wheel. A company that successfully penetrated the marketplace 50 years ago is Six Flags Entertainment Corporation. The purpose of this paper is to evaluate the operations and financial performance of Six Flags.

Company Background

Six Flags Entertainment Corporation was founded in 1961 by Angus Wynne (Sixflags). The first Six Flags theme park was opened in Texas. The company operates in the amusement park industry under SIC code 7996 (Marigoldtech). Today Six Flags is the world’s largest regional theme park with 18 facilities of which 16 are located in the United States, one in Mexico, and one in Canada. The company is a public firm whose stocks are traded in the New York Stock Exchange (NYSE) under the symbol SIX. The price of Six Flags common stocks as of February 5, 2014 was $33.99 (Yahoo). The market capitalization of Six Flags is $3.23 billion. The Chairman, President and Chief Executive Officer (CEO) of the company is Jim Reid-Anderson. The organization a few years back filed for Chapter 11 bankruptcy protection. “Six Flags and certain of its domestic subsidiaries filed Chapter 11 bankruptcy on June 13, 2009 and emerged from Chapter 11 on April 30, 2010” (Sixflags). The firm’s accounting books are prepared using the U.S. generally accepted accounting principles (GAAP). Six Flags receives over 26 million visitors each year. The company faces a variety of business risks. The general state of the economy is a business risk because entertainment is a luxury item in the personal budgets of people. A second major business risk the firm faces is competition. Bad weather is another risk that affects attendance to the parks. A fourth risk is changes in consumer taste and preferences.

Six Flags Entertainment Corporation Operations and Financial Performance Evaluation

Common Size Financial Statements

The common size financial statements of Six Flags Entertainment Corporation for the last five years are illustrated below. A trend analysis of the year to year changes within the accounts of the income statement and balance sheet is also included.

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Six Flags Entertainment Corporation Income Statement (000)

2012 Change 2011 Change 2010 Change 2009 Change 2008
Total revenues 1070332 5.64% 1013174 19.50% 847812 -7.13% 912861 -10.62% 1021298
Operating expenses 411679 3.47% 397874 36.00% 292550 -31.22% 425367 1.46% 419250
Selling, general, and administrative 225875 5.03% 215059 51.37% 142079 -27.83% 196874 -8.15% 214340
Cost of product sold 80169 3.73% 77286 15.41% 66965 -12.93% 76907 -11.05% 86457
Depreciation 132397 -12.29% 150952 41.99% 106315 -26.64% 144919 4.71% 138406
Amortization 15648 -13.29% 18047 49.97% 12034 1138.07% 972 -19.20% 1203
Loss on disposal of assets 8105 6.43% 7615 -35.06% 11727 -5.13% 12361 -30.13% 17692
Gain on sale of investee -67319
Interest expense 47444 -28.35% 66214 21.59% 54455 -48.78% 106313 -42.65% 185370
Interest income -820 -17.75% -997 62.64% -613 -30.18% -878 -62.51% -2342
equity in loss of investee 2222 -28.58% 3111 126.75% 1372 -143.95% -3122 -487.34% 806
Loss on debt extinguishment 587 -98.74% 46520 151.55% 18493 -100.00% -107743
Other expense 612 738.36% 73 -92.36% 956 -94.48% 17304 18.30% 14627
Restructure costs -47 -100.19% 25086 -32.96% 37417
Income from continuing operations before reorg. items, taxes and discontinued operations 213780 3275.12% 6334 -93.91% 104062 62.20% 64156 20.52% 53232
Reorganization items 2168 -11.69% 2455 -67.17% 7479 -94.61% 138864
Income from continuing operations before taxes and discontinued operations 211612 5355.32% 3879 -95.98% 96583 -147.57% -203020 -481.39% 53232
Income tax -172228 2035.50% -8065 -172.16% 11177 285.15% 2902 -97.51% 116630
Income from continued operations before discontinued operations 383840 3113.66% 11944 -86.02% 85406 -141.47% -205922 224.81% -63398
Income from discontinued operations 7273 505.58% 1201 -312.57% -565 -104.78% 11827 -175.37% -15691
Net income 391113 2875.37% 13145 -84.51% 84841 -143.71% -194095 145.41% -79089
Less: Net income attributable to non-controlling interests -37104 3.63% -35805 2.92% -34788 -0.81% -35072 -13.89% -40728
Net (loss) income 354009 -1662.26% -22660 -145.27% 50053 -121.84% -229167 91.26% -119817

 

Six Flags Entertainment Corporation Balance Sheet (000)
2012 Change 2011 Change 2010 Change 2009 Change 2008
Assets
Current assets
Cash and cash equivalents 629208 171.88% 231427 23.72% 187061 13.49% 164830 -21.63% 210332
Account receivables 29523 59.92% 18461 -8.86% 20255 1.98% 19862 -0.97% 20057
Inventories 22280 6.23% 20973 -10.91% 23542 7.95% 21809 -12.45% 24909
Prepaid expenses 37490 -3.05% 38668 7.25% 36055 -25.88% 48646 17.36% 41450
Deferred income taxes 44973 0 0 0 0
Total current assets 763474 146.66% 309529 15.97% 266913 4.61% 255147 -14.02% 296748
Other assets
Debt issuance costs 26043 99.93% 13026 -67.98% 40675 225.97% 12478 -60.00% 31194
Restricted-use investment securities 1218 137.43% 513 -82.54% 2938 23.08% 2387 -85.14% 16061
Deposits and other assets 4214 -59.78% 10477 -37.03% 16639 -83.12% 98583 48.99% 66167
Total other assets 31475 31.06% 24016 -60.14% 60252 -46.89% 113448 0.02% 113422
Property and equipment 1635190 5.88% 1544351 4.99% 1470986 -44.61% 2655636 0.03% 2654939
Accumulated depreciation -380561 50.71% -252514 138.44% -105901 -91.01% -1178404 -207.67% 1094466
Total property and equipment 1254629 -2.88% 1291837 -5.37% 1365085 -7.59% 1477232 -5.33% 1560473
Assets held for sale 0 -100.00% 1200 0
Goodwill 630248 0.00% 630248 0.00% 630248 -39.98% 1050125 0
Intangible assets 376565 -4.07% 392548 -4.43% 410755 3811.95% 10500 -99.01% 1059486
Total assets 3056391 15.41% 2648178 -3.11% 2733253 -6.00% 2907652 -4.04% 3030129
Liabilities and equity
Current liabilities
Account payable 23580 -1.02% 23823 -28.55% 33342 -25.85% 44965 79.43% 25060
Accrued compensation, payroll taxes and benefits 35949 -39.52% 59441 71.98% 34563 100.03% 17279 -24.66% 22934
Accrued insurance reserve 35369 3.64% 34128 -6.62% 36546 -4.38% 38222 12.65% 33929
Accrued interest payable 2359 120.26% 1071 -68.62% 3413 -94.68% 64209 49.47% 42957
Other accrued liabilities 25663 -13.98% 29834 -23.84% 39175 -15.55% 46388 3.08% 45001
Deferred income 52703 38.13% 38156 51.11% 25251 26.86% 19904 13.13% 17594
Liabilities from discontinued operations 0 0 0 0 -100.00% 1400
Current portion of long term debt 6240 -82.32% 35296 7.09% 32959 -92.51% 439826 73.18% 253970
Mandatory redeemable preferred stock 0 -100.00% 306650 0
Total current liabilities 181863 -17.99% 221749 8.04% 205249 -79.00% 977443 120.72% 442845
Long term debt 1398966 51.74% 921940 -1.73% 938195 -52.30% 1966754 -3.79% 2044230
Liabilities from discontinued operations 0 0 0 0 -100.00% 6730
Other long term liabilities 76398 0.29% 76180 79.32% 42482 -40.25% 71094 -4.36% 74337
Deferred income taxes 65070 -70.52% 220734 -7.06% 237509 96.94% 120602 -0.91% 121710
Total liabilities 2160238 14.86% 1880700 32.12% 1423435 -54.61% 3135893 16.67% 2687852
Redeemable non controlling interests 437941 -0.68% 440927 -0.16% 441655 24.08% 355933 -14.11% 414394
Stockholders equity
Mandatory redeemable preferred stock -100.00% 302382
Preferred stock 0 0 0 0 0
Common stock 1345 -1.54% 1366 95.98% 697 -71.64% 2458 0.61% 2443
Capital in excess par value 904713 8.72% 832112 1.63% 818799 -45.64% 1506152 0.98% 1491494
Retained earnings 15849 -178.90% -20088 -141.50% 48404 -102.35% -2059487 0
Accumulated other comprehensive loss -29688 -40.52% -49912 1090.65% -4192 -87.41% -33297 -41.02% -56458
Total equity 892219 16.86% 763478 -11.60% 863708 -247.85% -584174 55.16% -376499
Non-controlling interests 3934 7.19% 3670 -17.62% 4455 #DIV/0! 0 0
Total equity 896153 16.77% 767478 -11.60% 868163 -248.61% -584174 55.16% -376499
Total liabilities and equity 3056391 15.41% 2648178 -3.11% 2733253 -6.00% 2907652 -4.04% 3030129

Six Flags generated $1.07 billion in sales in 2012. The revenues of the company increased by 5.64% in comparison with the previous year and it rose by 26.24% since it got out of chapter 11 bankruptcy in 2010. The organization had a net income of $354 million in 2012. In comparison with 2008 the net income of the firm has risen by $474 million. The account receivables of Six Flags increased by 59.92% in 2012, while its accounts payables decreased by 1.02%. The total assets of Six Flags amounted to $3.06 billion as of December 31, 2012. Its total assets increased by 15.41% in comparison with the previous year. The cash reserves of the company at the end of 2012 were $629 million. During the last five the cash balance of the organization has nearly tripled. The statement of cash flow of the firm reflects that the company obtained $373 million from operating activities, $51.68 million from financing activities, and an outflow of $27.66 million from investing activities in 2012. The inventory of the company in 2012 was $22.28 million which is a 6.23% increase from 2011. The total liabilities of Six Flags are $2.16 billion. The firm has done a good job of lowering its debt. Its total debt has decreased by 31.11% since 2009.

Ratio Analysis

A ratio analysis of Six Flags for the last five years is illustrated below;

Ratio Analysis 2012 2011 2010 2009 2008
Net Margin 33.07% -2.24% 5.90% -25.10% -11.73%
Return on assets (ROA) 11.58% -0.86% 1.83% -7.88% -3.95%
Return on equity (ROE) 39.50% -2.95% 5.77% -7.88% 31.82%
Earnings per share  (EPS) $6.38 $-0.41 $1.81 $-2.51 $-1.46
Current ratio 4.20 1.40 1.30 0.26 0.67
Acid test ratio 4.08 1.30 1.19 0.24 0.61
Debt ratio 0.71 0.71 0.52 1.08 0.89
Dividends per share $2.70 $0.18 $0.03 $0.00 $0.00

The net margin of Six Flags in 2012 was 33.07%. Net margin measures the absolute profitability of a company (Loth). Six Flags net margin is 44.8% better than in 2008. The return on assets of Six Flags was 11.58% in 2012. ROA measures how effective a company has been at generating profits from its assets (Ccdconsultants). The return on assets results of Six Flags in 2012 is its best number during the past five years. In 2012 the return on equity of the firm was 39.50%. The company’s return on equity was 42.45% better than the previous year. “ROE encompasses the three pillars of corporate management — profitability, asset management, and financial leverage” (Fool). Six Flags had earnings per share in 2012 of $6.38 which is great considering the fact that three of the four previous years its EPS was negative.  EPS can be defined as the portion of a company’s profit allocated to each outstanding share of common stock (Investopedia). Six Flags current ratio in 2012 was 4.20. The figure is outstanding since a current ratio is considered good if is above the 1.0 threshold. The current ratio shows the ability of a company to pay off its short term debt (Accounting-simplified). The acid test ratio is another short term liquidity ratio. The firm’s acid test ratio has been steadily climbing during the past four years. In 2012 Six Flags had a debt ratio of 0.71 which implies the firm is not too highly leveraged. Six Flags paid a dividend per share of $2.70 in 2012.

Conclusion

Six Flags Entertainment Corporation faced some tough times in the aftermath of the global recession of 2008-2009 which led them to file chapter 11 bankruptcy. The management of the firm did a great job of reorganizing the company. The financial performance of the enterprise was outstanding in 2012. Its profitability, liquidity, and asset management were very good. A 33.07% net margin in any industry is tremendous. I would recommend an investor purchase Six Flags common stocks.

Works Cited
  • Accounting-simplified.com. 2013. “Current Ratio – Liquidity Ratio – Working Capital Ratio.” 6 February 2014. <https://accounting-simplified.com/financial/ratio-analysis/current.html>
  • Ccdconsultants.com. 2009. “Return on Assets Interpretation.” 6 February 2014. <https://www.ccdconsultants.com/documentation/financial-ratios/return-on-assets-interpretation.html>
  • Fool.com. 2008. “Return on Equity: An Introduction.” 6 February 2014. <https://www.fool.com/investing/beginning/return-on-equity-an-introduction.aspx>
  • Investopedia.com. 2014. “Definition of Earnings Per Share – EPS. 6 February 2014. <https://www.investopedia.com/terms/e/eps.asp>
  • Loth, R. 2014. “Profitability Indicator Ratios: Profit Margin Analysis.” 6 February 2014. <https://www.investopedia.com/university/ratios/profitability-indicator/ratio1.asp>
  • Marigoldtech.com. “SIC Code 7996 – Amusement Parks Mailing List.” 6 February 2014. <https://www.marigoldtech.com/lists/sic.php?sic-code=7996>
  • Referenceforbusiness.com. 2014. “SIC 7996 – Amusement Park.” 6 February 2014. <https://www.referenceforbusiness.com/industries/Service/Amusement-Parks.html>
  • Sixflags.com. 2014. “History.” 6 February 2014. <https://investors.sixflags.com/phoenix.zhtml?c=61629&p=irol-homeprofile>
  • Sixflags.com. 2014. “Investor Q&A.” 6 February 2014. <https://investors.sixflags.com/phoenix.zhtml?c=61629&p=irol-faq#42766>
  • Yahoo.com. 5 February. “Six Flags. Entertainment Corporation.” Yahoo Finance. 5 February 2014. <https://finance.yahoo.com/q?s=six&ql=1>

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