Advanced Financial Statement Analysis of Eurodisney

Introduction

In the following we have based our answers on the data provided in the case itself. We did not find the financial reports of 2007 and 2008.

Question 1: identify the key accounting policies (step 1) and primary areas of accounting flexibility (step 2) for euro disney.

Step 1: Key accounting policies

Due to the “2005 Restructuring” of the financial obligations of the Walt Disney Company and its consolidated subsidiaries (the “Group”), this Group has changed its strategy into attracting new Theme Parks visitors and Hotel guests, and increasing visitation by improving guest satisfaction and value perception. This should be accomplished by adopting an extensive multifaceted development plan.

Following this strategy, the Group hopes to increase both guest volume and guest spending through enhancing products to best meet the needs of core guest segments.

Given that the strategy of a company determines the key accounting policies, we can now give an overview of these policies.

⇨ Key accounting policies:

- Consolidation principles

EDL Hotels rents land to a group of six special-purpose financing companies (fully consolidated in ED’s financial statements because all special-purpose financing companies are managed by management companies that are (in)directly owned by the Walt Disney Company or EDA), who, in turn, own the hotels on the land and lease these hotels back to EDL Hotels.

- Use of estimates

The management of the company has to make estimates and assumptions concerning financial reporting. These decisions can affect the reported amounts in the financial statements.

- Property, plant & equipment

The financial report of 2006 states that properties, plants and equipment are initially measured and recognized at acquisition cost, including any directly attributable cost of preparing the asset for its intended use or any financial cost related to its financing. Only...