KRoell-MT482 Assignment-Unit 6

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Jan 9, 2024

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Walt Disney Company: Analyzing Return on Invested Capital 1 Walt Disney Company: Analyzing Return on Invested Capital Kelly Roell MT482 December 19, 2023 Dana Leland

Walt Disney Company: Analyzing Return on Invested Capital 2 Case 8-2: Analyzing Return on Invested Capital Throughout this case analysis we will analyze Walt Disney Company’s financial statements and determine what is impacting the company’s profitability and returns. The analysis will calculate and disaggregate Disney’s return on common equity for years 9 and 13 at year end. We will identify components that contributed most to the return on common equity within years 9 & 13 as well as reasons for the observed change. The calculations and disaggregation for Disney Company’s return on common equity for years 9 & 13 are as follows: Measurement Formula Year 13 Year 9 Return on Common Equity Net Income – Preferred Dividends / Average Comon Equity $671 – 0 / $5,030 = 13.34% $703 – 0 / $3044 = 23.09% Net Operating Profit After Tax (Sales-Operating Exp)x(1-[Tax exp/pretax profit]) ($8529-6968-515)x(1- [403/1074])=$654 ($4594-3484)x(1- [450/1153])=$676 Net Operating Assets Total operating assets – total operating liabilities $9862 – 4335 = $5527 $5985 – 2752 = $3243 Return on Net Operating Assets NOPAT / NOA $654 / 5527 = 11.82% $676 / 3243 = 20.87% Net Financial Obligations NOA – Equity $5527-5030 = $497 $3243-3044 = $199 Financial Leverage Average NFO / Average Equity $497 / 5030 = .098 $199 / 3044 = .065 Net Financial Expense NOPAT – Net Income $654 – 671 = (-17) $676 – 703 = (-27) Net Financial Return NFE / Average NFO (-17) / 497 = (-3.52%) (-27) / 199 = (-13.57%) Spread RNOA – NFR .1182 – (-0.0352) = 15.34% .2087 – (-.1357) = 34.44% After the analysis of these calculations the two components that contributed the most to Disney’s change of return on common equity between the two years were the write off of the Euro Disney value in Year 13 due to income loss, and the expansion of their more profitable lines of business such as their film entertainment business. Euro Disney was a huge loss for Disney

Walt Disney Company: Analyzing Return on Invested Capital 3 and was finally written off in Year 13 for $515 million in total lost assets, resulting in a reduction of assets and a loss of return on equity. This write off and economic conditions lead to a reduction in total net income for Year 13. Expansion and increase financial leverage of 2% notes that more equity was used to finance Disney’s net operating assets. Analyzing the growth in total common equity between the two periods we can back this claim and see that is was up $1.986 million. Disney increased its operating assets from $3.243 million in Year 9 to $5.527 million in Year 13 which decreased the return on equity when they invested more into expanding their more profitable sectors such as Disney Film Entertainment (the Disney Channel).

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Walt Disney Company: Analyzing Return on Invested Capital 4 References Subramanyam, K., & Wild, J. (2013). Financial Statement Analysis (11th ed.). McGraw-Hill Learning Solutions. https://purdueuniversityglobal.vitalsource.com/books/125963955X