Walt Disney World: Financial Analysis

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Walt Disney World is an entertainment complex opened on October 1, 1971, that provides resort services. The complex is based in Bay Lake and Lake Buena Vista, in Florida. The founders of the complex are Walt and Roy Disney. The current president is George Kalogridis. The complex has numerous attractions and resorts that are recognized because they are created as a reference to certain Disney media products, characters, themes, etc. Thus, the industry is divided into two broad sectors. Thus, while providing entertainment services to daily visitors, Walt Disney World also allows for extended visits, therefore gathering more income. The difference that makes this company stand out from the competition is that it is based on easily recognizable characters and media products. Thus, this theme park creates an immersive atmosphere that attracts a significant number of visitors every day. This feature also determined the choice of the company to analyze. The motivation of Walt Disney World is to provide entertainment to families and individuals while making their stay most comfortable.

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Financial Information

According to Calu, Dumitru, Glăvan, and Gușe (2016), “tourism is the third socio-economic activity in the European Union in terms of its contribution to achieving the Gross National Product and increasing the absorption rate on the labor market, respectively” (p. 1016). This statement means that the industry that Walt Disney World is involved in is one of the most demanding, although profitable at the same time. This is even more critical when one considers the scale on which the company operates. Therefore, the standards set by this kind of industry are more than just high. Every company leading business in this field has to deal with a lot of competition as well as with high-income requirements. There are also several complications that make designing and successfully managing an amusement park particularly challenging.

For example, Riki, Rouzbeh, Sarabandi, and Riki (2015) state that “One of the features of amusement parks is providing his users with a set of activities; it means that it is an area that is easy to access and interact with. It can be said its most important quality is being a place for different groups of citizens to meet and make social interaction with one another” (p. 447). Based on an example of Tehran amusement parks, the authors determine several problems that the park’s creators have to think through to build and manage a park successfully. Since Walt Disney World is also a resort park, the matter becomes significantly more complicated.

Nevertheless, the focus of this paper is the financial side of the question. According to the Fiscal Year 2016 Annual Financial Report for Walt Disney Company (2016), Disney Company is investing significant sums in parks and resorts. “The increase at our domestic parks and resorts in fiscal 2016 compared to fiscal 2015 was due to spending on new attractions at Walt Disney World Resort and Disneyland Resort, while the increase in fiscal 2015 compared to fiscal 2014 was driven by spending on new attractions at Walt Disney World Resort” (The Walt Disney Company, 2016, p. 44). As it becomes evident from the balance sheet provided in the same document, Walt Disney Company is interested in expanding Walt Disney World theme parks and resorts to ensure bigger net income. The table of revenues demonstrates that, since the fiscal year 2014-2015, the net income received from Walt Disney World had been steadily growing (The Walt Disney World, 2016).

Therefore, it is safe to assume that Walt Disney World’s internal mechanisms of regulation function correctly. The policy of Disney Company ensures that the resorts and theme parks become more and more profitable by increasing the investment rates, which also helps fight off the competition. However, competition is one of the external factors that influence the development and growth of this organization.

External Factors

Determining external factors that may have an impact on the Walt Disney World performance depends on what framework a researcher is using. It may be PESTLE or SWOT Analysis approach (Bush, 2016). However, some factors remain specific for particular companies. For example, for Apple Company that was a factor in increasing labor costs in China, which led to Apple’s decrease in manufacturing capabilities. For Disney World Company in general and Walt Disney World as its subsidiary branch, those external factors may be technology development (and technology changes in a more general sense), consumer patterns changes, reception of Disney theatrical products (movies, cartoons, shows, etc.), and macroeconomic shifts. All of these factors possess the ability to alter the value of Disney’s assets in various ways.

The one factor that should probably be excluded for Disney is competition since its policy and prolonged recognition across the globe made it almost dominant in the field of media products. For Walt Disney World, this becomes even more explicit because its attendance remains at an average of fifty-five million. Moreover, Walt Disney World is supported by Walt Disney Company in a way that is beneficial for both industries. This unique approach and market reputation ensure that Walt Disney World brings a lot of profit and never meets significant competition in the entertainment market.

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Technology development is one of the external factors that Disney company took advantage of on numerous occasions. For example, it shifted from hand-drawn animation to 3D animated films successfully creating such films like Frozen or Zootopia. Thus, it is evident that the leadership of Walt Disney World can incorporate the latest technological advances in their entrepreneurship, which will result in increased net income.

Consumer pattern changes may also be seen in media products of Disney. Numerous researches highlight how the themes presented in Disney-produced films shift towards more relevant social issues. Although this may seem only to influence Disney’s media production, while not affecting the parks and resorts of Walt Disney World, attractions and parks of Walt Disney World are closely related to Disney’s media products. Therefore, by ensuring consumers’ interest in Disney media products, this organization’s leaderships secure the increase in the net income gathered by Walt Disney World’s attractions and parks. This is tightly connected to Disney’s products reception, which had never experienced a significant shift to negative. Across the history of Disney’s production of consumer feedback, it had never been unsuccessful.

Macroeconomic shifts are probably the most significant external factor that may affect Walt Disney World’s performance. According to the Fiscal Year 2016 Annual Financial Report (The Walt Disney Company, 2016), “These macroeconomic factors as well as a decline in the fair value of pension and postretirement medical plan assets may put upward pressure on the cost of providing pension and postretirement medical benefits and may increase future funding requirements” (p. 19). Thus, it becomes evident that the macroeconomic shifts may result in increased investment rates. However, as of now, it is safe to invest even larger sums in Disney’s subsidiary businesses such as Walt Disney World, which ensures that this issue is yet to become problematic.

Financial Analysis

The financial statements of Walt Disney World demonstrate that the current condition of this organization is well-led and reinforced with the implementation of numerous external factors manipulations. It is also supported by a high number of investments both externally and internally. As of the end of the fiscal year 2016, the revenue generated by The Walt Disney Company (2016) summed up to $55,632 million including net income (about $9,800 million), Disney shareholders’ equity (about $43,000 million), etc. This surpassed the fiscal year 2015 results by roughly 6-7%.

Firstly, Walt Disney World’s sales are generated from admissions to theme parks and resorts, food and beverage sales, merchandise sales. Additionally, sales are made from charging fees for hotel residences, vacation opportunities such as cruises and other vacation packages. Moreover, sales are achieved through sponsorships and opportunities of co-branding, and sales and rental opportunities of real estate. All of these sales, however, require numerous expenses such as labor, infrastructure, and depreciation costs. Additionally, Disney organizations have to spend enormous sums to produce merchandise and purchase food and beverage. Moreover, expenses come from marketing requirements as well as vacation club units costs. However, the input-to-output ratio demonstrates that these costs are more than covered by the amount of revenue generated.

Cash flow profits are currently experiencing an increase due to revenue growth that drives cash receipts of various Disney businesses as well as parks and resorts. Nevertheless, as stated before, macroeconomic shifts outside of Walt Disney World’s control may significantly impact the company’s performance. This impact includes the company’s operating cash flow profits.

Disney’s leaderships state that “borrowing costs can be affected by short- and long-term debt ratings assigned by independent rating agencies that are based, in part, on the Company’s performance as measured by credit metrics such as interest coverage and leverage ratios” (The Walt Disney Company, 2016, p. 18). Then again, although it is stated that debt levels may grow, increasing revenue generation ensures that this will not become a significantly problematic issue, at least, not in the short-term policy. However, certain measures are implemented to ensure that in the long run, this will not create significant obstacles.

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Liquidity requirements are mostly eliminated using the revenue acquired through investments or negating securities. Thus, as of 2016, Walt Disney World successfully manages liquidity issues of the master trust.

Walt Disney World and other Disney-related organizations perform an annual measurement of the expected return on assets. With this focus on monitoring the problem, Disney’s leadership ensures that this will not become an issue that creates any malfunctions in the system’s operation. More importantly, “past disruptions in the U.S. and global credit and equity markets made it difficult for many businesses to obtain financing on acceptable terms” (The Walt Disney Company, 2016, p. 18). This implies that the borrowing costs of Walt Disney World may experience a significant increase. However, this is a problem only in theory, and Disney’s leadership implements measures to counteract.

Past trends of Walt Disney World demonstrate that this organization became the biggest source of Disney’s valuation. However, an article published in Forbes suggests that three key elements need to be incorporated in Disney’s entrepreneurship to ensure future growth and profit increases (Trefis Team, 2015). These features include implementing innovative approaches to attracting visitors to Walt Disney World’s attractions and parks and stimulating revenue generated by attractions and resorts. Since the focus of this paper is Walt Disney World, the third element of a fee increase for streaming and broadcasting services is not described.

Indeed valuation of Walt Disney World comes from the number of visitors that it has daily and annually. If the leadership will provide new means of encouraging visitors to come more often and buy a place in a hotel on the territory of the parks, the generated revenue is guaranteed to increase. Moreover, higher profits may be achieved by increasing food, beverage, and merchandise costs. However, it is important to balance the expenses in a way that would not prevent visitors from spending their money on the services and products offered in the Walt Disney World.

One of the ways to achieve that would be to include more innovative attractions based on the most popular Disney characters and media products. As stated before, Walt Disney World’s revenue gathering mostly comes from attractions that succeed through promoting Disney’s media products. Therefore, this approach requires creating new media products and adapting them in a way that would be the most appealing to the audience.

Risk Analysis

Needless to say, for an organization as big as Disney, there are a lot of factors that may lead to cost increases, reputation compromises, and performance malfunctions. However, in the case of Walt Disney World, the most important factors are changes in the US economic state, both global and regional, changes in consumer preferences and patterns, and changes in the competitive environment. These factors are important because they may create hazards that will directly affect Walt Disney World’s performance. Therefore, it is necessary for Walt Disney World’s leadership to monitor each of these processes carefully. To negate the possible risks, Disney implements a number of preventive measures determined to prevent revenue losses and ensure stable organizations’ performance despite the potential crises.

Corporate Governance

The Walt Disney World functions under the Corporate Governance Guidelines that create several mechanisms that provide an environment that promotes collaboration and respect while setting common goals. “The Guidelines address, among other things, the composition and functions of the Board of Directors, director independence, stock ownership by and compensation of Directors, management succession and review, Board leadership, Board Committees and selection of new Directors” (“Notice of 2016 Annual Meeting and Proxy Statement,” 2016, p. 8). Therefore, it is safe to assume that Walt Disney World’s corporate governance is well-regulated and carries out its duties under the framework of a document meant to prevent it from transcending its authority.

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Conclusion

The financial analysis of the Walt Disney World organization demonstrates that – being a part of an extremely big company – possesses every possible instrument to perform flawlessly. Although some obstacles occur in a more or less significant amount, the organization’s leadership implements several measures to eliminate risk-driven conditions and, in case a crisis occurs, negate its consequences. Moreover, Walt Disney World’s policy is aimed at increasing generated revenue at all times, while also lowering expenses. All in all, it is safe to argue that the future of this organization is that of prosperity and new possibilities that will be efficiently incorporated into the existing policy.

References

Bush, T. (2016). External factors that affect a business. Web.

Calu, D. A., Dumitru, M., Glăvan, M. E., & Gușe, R. G. (2016). (Non)financial reporting (A)symmetries in the case of amusement parks in Europe. Amfiteatru Economic, 18(10), 1015-1033.

Riki, J., Rouzbeh, F., Sarabandi, M., & Riki, A. (2015). Assessment of amusement parks and the principles of designing urban (Case study of Tehran amusement parks). International Journal of Biology, Pharmacy and Allied Sciences (IJBPAS), 4(2), 444-459.

The Walt Disney Company. (2016). Fiscal Year 2016 Annual Financial Report. Web.

The Walt Disney Company. (2016). Notice of 2016 Annual Meeting and Proxy Statement. Web.

Trefis Team. (2015). Three things which are key to Disney’s growth in future. Forbes. Web.

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BusinessEssay. 2022. "Walt Disney World: Financial Analysis." January 14, 2022. https://business-essay.com/walt-disney-world-financial-analysis-research-paper/.

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