Walt Disney Company’s Yen Financing Harvard Case Solution & Analysis

Walt Disney Company's Yen Financing  Case Study Solution


This case study is dealing with a well-known company Walt Disney which was incorporated in 1923 by two persons Roy and Walt Disney and the name was proposed by its owners. Headquarters of the company are situated at California mainly Burbank. It has diversified its operations by being international along with providing a diversified product line. It was mainly dealing in Motion pictures, real estate projects’ development community, consumer products sale and features of television.

It has diversified its operations by building a well-established Disneyland amusement theme park in Anaheim, California which has received a lot of attention of the customers and it has become very important source of income for the company. Moreover, company has become international by establishing a resort in another country Orlando, Florida. It has also a presence in Tokyo, Japan with the name Tokyo Disneyland from where it receives huge chunk of amount in the form of royalty in Yen.

Disney land is famous for its motion films production which consists of the markets for television, theatrical as well as for home video markets. Target market is the audience which is selected on the basis of age such as major portion of its target audience consists of younger generation which is keen of watching animated movies whereas it has also become very popular among teenagers and adults as well. It is also involved in the business of restaurants, hotels and games.

It has been involved in financing other companies as well such as it acquired in 1984 a company which was dealing in real estate with the brand name of Arvida Corporation. It has also been involved in consumer products segment where it has protected its intellectual property and created intangible assets in the form of securing its name through licensing along with securing its properties, characters as well as music and songs to create differentiation.

Historical Performance:

After analyzing the performance of company from year 1923 to 1984, it is found that the revenues of the company were having a rising trend and the company was generating revenue of around 1.03 billion dollars in year 1982 which was increased to 1.3 billion dollars in 1983 whereas it had a growth rate of 27% and reached to around 1.65 billion dollars which was a quite attractive sign for its investors whereas its expenses and costs were also increasing with the same patterns due to which there was not greater increase in profits.

This has led to a small increase in income before corporate expense from year 1982 to 1983 whereas it has increased with a greater amount of around more than 70 million dollars whereas its corporate expenses have also increased in the same pattern that shows a huge difference in Net Income for the company.

This is because of the unusual expenses incurred in year 1984. It made possible for the company to avail a tax credit in year 1984 which resulted in a huge interest expense for the company. This also resulted in the lowest EPS of the company in year 1984, it was adjusted with cumulative effect of accounting change.

As far as balance sheet is concerned it has been analyzed in the form of total assets and borrowings by the company from 1983 and 1984. It can be analyzed from the appendix that the company was generating more revenue in the year 1984 as compared to year 1983 whereas, its borrowings also increased from year 1983 to 1984. Hence, company was focusing more on debt financing in year 1984 which resulted in high finance cost for the company.

Borrowings of the company in year 1983 were only 352 million dollars whereas it reached to the highest debt financing for the company so far by touching the peak limit of more than double which was around 862 million dollars resulted in more opportunity cost for the company for acquiring its subsidiary.

The financial statement of company further shows that the recreational and entertainment segments are showing a downward trend in terms of operating income before adjusting the corporate expenses whereas it is following the rising trend for corporate expenses, borrowings, consolidated revenues from all the product lines, net income and total assets.


Walt Disney Company’s Yen Financing Harvard Case Solution & Analysis



Risks faced by Walt Disney:

The major categories of financial risks faced by the company consist of basis risk as company has to pay certain front-end charges in terms of basis which is a risk for the company. Company has to overcome this risk by generating high returns and getting an option which has lowest internal rate of return. Moreover, company is facing a high interest rate risk as company has to pay more interest rate by getting a loan for a short period of time which needs to be arranged again at relatively lower rate of borrowing.................

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