financial statement analysis 
 dig deep into the W alt Disney Company’s financial statements to find what is most impacting to their profitability and returns. You will learn to search for the key results that are impacting change which can help the company repeat or avoid those outcomes.
Locate the W alt Disney Company Case 8-2 on page 498 of your text. Be sure to submit thoughtful and substantial answers to the questions following each case.

Required:
a.  Calculate and disaggregate Disney’s return on common equity for each of the two  fiscal years ending September 30, Year 9, and September 30, Year 13  (use year-end figures for any ratio computations typically using  averages).
b.  Drawing only on your answers to a and the data available, identify the two components that contributed most to the observed change in Disney’s return on common equity between Year 9 and Year 13. State two reasons for the observed change in each of the two components.
CASE 8-2
Analyzing Return on Invested Capital
Walt Disney Company
Walt Disney Company (Disney) is a diversified international entertainment company with operations in three business segments. Revenue and operating income data for the three segments are shown below.
BUSINESS SEGMENT DATA
Years Ending September 30
YEAR 13
YEAR 9
($ millions)
Operating
Operating
Business Segments
Revenue Income Revenue Income
Theme parks and resorts $3,441
$ 747 $2,595 $ 785
Film entertainment
3,673
622
1,588
256
Consumer products
1,415
355
411
188
$8,529 $1,724 $4,594 $1,229
The profitability of the leisure-time industry is influenced by various factors including economic conditions, the amount of available leisure time, oil and transportation prices, and weather patterns.
Disney management has been very aggressive in raising theme park admission prices. For the 10-year period
ending in Year 13, admission prices increased at an annual rate of 8-9% compared to less than Page 499
4% for U.S. consumer price inflation. Disney’s Film Entertainment business has grown rapidly because of increasing acceptance of The Disney Channel and, importantly, management efforts to exploit
the expanding distribution opportunities available for its extensive video library. Disney’s Consumer Products revenue has also grown meaningfully as the company has moved its product mix aggressively toward direct
publishing and direct retail and away from higher-margined licensing and royalty income sources. During the fourth quarter of fiscal Year 13 (ending September 30, Year 13), Disney wrote off the full carrying value of
Euro Disney. The charge was $350 million ($218 million after tax).
WALT DISNEY COMPANY
Selected Financial Statement and Other Data
Years Ending September 30
Year 13
Year 9
8,529
(6,968)
(158)
186
(515)
1,074
(403)
$ 671
$ 1.23
$ 0.23
$4,594
(3,484)
(24)
67
0
1,153
(450)
$ 703
$ 1.27
$ 0.11
($ millions except per share data)
Income Statement
Revenue
Operating expenses
Interest expense
Investment and interest income.
Income (loss) from Euro Disney..
Pretax income…
Taxes….
Net income
Eamings per share
Dividends per share
Balance Sheet
Cash..
Receivables
Inventories
Other…
Current assets
Property, plant, and equipment, net
Other assets.
Total assets
Current liabilities
Borrowings..
Other liabilities.
Stockholders’ equity
Total liabilities and stockholders’ equity.
Cash Flow from Operations.
Other Data
Common shares outstanding (millions).
Closing price, common stock per share
$ 363
1,390
609
1,889
4,251
5,228
2,272
$11,751
$ 2,821
2,386
1,514
5,030
$11,751
$ 2,145
$ 381
224
909
662
2,176
3,397
1,084
$6,657
$1,262
861
1,490
3,044
$6,657
$1,275
544
$ 37.75
552
$30.22
Note: Total assets except “other” current assets, current liabilities, and other
liabilities are considered operating, as is the Euro Disney loss.
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