Aswath Damodaran 339
Disney: Effects of Past Downturns
Recession Decline in Operating Income
2002 Drop of 15. 82 %
1991 Drop of 22. 00 %
1981 - 82 Increased
Worst Year Drop of 29. 47 %
! The standard deviation in past operating income is about 20 %.
Both are designed to measure how much Disney’s operating income will drop
in a “downside” scenario. The first approach gives a more intuitive estimate
than the latter.
Note that the downside does not have to be framed in terms of a recession. It
could be in terms of something that the firm fears (the loss of a large contract,
for instance)
Alternatively, this entire analysis could have been based upon “normalized
operating income”, which would be the operating income that the firm will earn
in a “normal year”, rather than on current operating income.
