Locate the 2007 financial statements for The Walt Disney Company on the Internet and consider the following questions:
1. Does Disney use the direct method or the indirect method? Explain.
2. Analyze Disney’s overall cash flow picture for 2005, 2006, and 2007 in light of the positive or negative cash flow patterns for the three categories of cash flows.
3. In the notes to Disney’s financial statements, cash and cash equivalents is defined. What is that definition?
4. What is the largest dollar item in the Operating Activities section of Disney’s 2007 statement of cash flows? Explain exactly what is represented by this item.
5. What would Disney’s operating cash flow have been in 2007 if interest and taxes paid were not considered to be operating items?
6. Companies often compute earnings before interest, taxes, depreciation, and amortization (EBITDA). This number is used as an approximation of operating cash flow before interest and taxes. Using the information in Disney’s income statement and statement of cash flows, compute EBITDA for 2007. Compare EBITDA to your answer in (5), and explain why there is a difference.