Our SWOT analysis for the Walt Disney Company is based on McGraw-Hill Companies outline model which defined several factors as key points when looking to size up a company’s strengths, weaknesses, opportunities, and threats. The Walt Disney Company SWOT Analysis examines the company’s key business structure and operations, history and products, and provides summary analysis of its key revenue lines and strategy.
Disney has maintained a substantial growth rate in various financial areas given the many ups and downs of the economy. Despite any impending economic factors, Disney’s revenue has steadily increased over the past years. Disney’s revenues are comprised of four major segments that bring in their income, which include: media networks, parks and resorts, studio entertainment, and consumer products.
The Walt Disney Company, together with its subsidiaries, is a diversified entertainment company. The company primarily operates in the US and Canada. It is headquartered in Burbank, California and employs about 150,000 people. The company recorded revenues of $37,843 million during the financial year (FY) ended September 2008, an increase of 6.6% over FY2007. The operating profit of the company was $7,345 million during FY2008, a decrease of 6.2% compared to FY2007. The net profit was $4,427 million in FY2008, a decrease of 5.5% compared to FY2007i.
In July 2006, the FASB issued guidance which clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized.
The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company adopted the guidance on income taxes at the beginning of fiscal year 2008. Applying the guidance on income taxes to all tax positions upon adoption resulted in reductions of $148 million and $15 million to opening retained earnings and minority interests, respectively.
b) Have the company’s policies and estimates been realistic in the past? Policies and estimates results have been consistent over the years and quarter periods. There has been no evidence of manipulating quarterly reports that forces them to make large fourth-quarter adjustments. Evaluate the Quality of Disclosure a) Does the company provide adequate disclosures to assess the firm’s business strategy and its economic consequences?
The company uses the Letter to Shareholders in their annual report to clearly layout the firm’s industry conditions, its competitive position, and management’s plans for the future. In the latest letter to shareholders, the Company points out their success throughout the year in the production of two animated films, the announcement of China’s go-ahead to build a new theme park in Shanghai and the acquisition of Marvel entertainment. At the same time it points out how several key businesses were affected as result of the severe global economic downturn and an acceleration of secular challenges.
b) Do footnotes adequately explain the key accounting policies and assumptions and their logic? Footnotes do explain in a clear and organized manner. Changes in accounting policies are explained adequately to let you understand the reasons as well as the impact in the final results. c) Does the firm adequately explain its current performance?
Management’s Discussion and Analysis provides a narrative on the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections: Consolidated Results, Business Segment Results, Non-segment Items, Pension and Benefit costs, Liquidity and Capital Resources, Contractual Obligations, Commitments, and Off Balance Sheet Arrangements, Accounting Policies and Estimates, Accounting Changes, and Forward-Looking Statements. All these clearly explain the Company’s current performance.
Financial Analysis – Multiyear Analysis/Comparisons ROE Decomposition Return on Equity (ROE) is one of the most important finance profitability metrics. It is a measure of how much a company earned in comparison to the total amount of shareholder equity found on the balance sheet. Below you will find Disney’s ROE decomposition model. Three very important metrics are provided by this model – Profitability, Efficiency, and Solvency/Leverage indicators of the company. These metrics help understands risks and opportunities faced by the company as well and can help take action when it is most appropriate.
During the twentieth century, the S;P 500, which is a measure of the biggest and best public companies in America, averaged ROE’s of 10% to 15%. In 2009, Disney has a ROE of 10% which is a “double digit ROE”. Considering that the US is currently under “The Great Recession”, Disney has proven to still be productive. Disney’s financial leverage is under the upper acceptable limit of 2: 1, and does not have a substantial amount of debt maintained. This return on equity makes it likely for it to be capable of generating cash internally and proves to be a sound and safe investment.
Disney is a diversified media conglomerate with licensing rights to a large number of the most popular and legendary characters including Mickey Mouse and Winnie the Pooh. Disney has a vast library of animated movies featuring these characters along with several theme parks around the world. Disney produces live-action and animated films under a number of names and owns ABC, Disney Channel and ESPN. Additionally, Disney owns stakes in A;E, The History Channel and Lifetime networks.
Disney uses this broad multi-pronged distribution network to create a competitive advantage for among and between its business units. The company focuses on maintaining the strength of its brand and the quality of its products. In recent years it has invested in technology to provide customers with access to its entertainment product on multiple platforms and locations. Disney continues to expand globally to extend its brand to customers around the world. One of its most significant actions in recent years was the acquisition of Pixar. This acquisition was seen as reinforcing Disney’s commitment to high-quality animation. In addition to bringing Steve Jobs to the Disney board, the integration of Pixar added the talented John Lasseter to the company.
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