1. Nicholas Ozog
FIN 315: Financial Management
Financial Ratio Analysis (FACTSET): Walt Disney vs. Time Warner
(following calculations and definitions are all paraphrased from content found on
Investopedia)
Return on Equity (ROE)(Profitability): Calculated by dividing net income by
stockholder’s equity. An alternative way to calculate is to use the Du Pont method of
analysis, in which return on assets is multiplied by the equity multiplier
(assets/equity). The significance of ROE is that it shows how much profit a
company generates with the money invested by shareholders. The higher the
return on equity percentage, the better the return for investors usually is. Investors
need be aware, however, that a disproportionate amount of debt in a company’s
capital structure can create a misleading ROE (Investopedia, 2015).
Walt Disney: 16.60
Time Warner: 14.27
Price to Earnings (P/E)(Valuation): Calculated by dividing current market value
per share by earnings per share. The significance of the P/E ratio is that it is a
representation of the price an investor is currently paying for $1 of a company’s
earnings. This information can then be compared to other P/E ratios, of companies
in the same industry, to determine if it is normal, overpriced, or cheap (Investopedia,
2015).
Walt Disney: 20.83
Time Warner: 19.77
Quick Ratio (Liquidity): Calculated by subtracting inventory from current assets
and dividing the result by current liabilities. The significance of the quick ratio is
that it shows how the company is situated in terms of its liquid assets versus short-
term debts. Looking at it in simple terms, the quick ratio represents the dollar
amount of liquid assets available for each dollar of current liabilities. Obviously, the
higher the quick ratio, the better position the company is in (Investopedia, 2015).
Walt Disney: 1.02
Time Warner: 1.25
Total Asset Turnover (Operating Efficiency): Calculated by dividing sales by
total assets. The significance of the total asset turnover is that it shows how well a
company is deploying its assets in pursuit of revenue. The higher the total asset
turnover, the more revenue per dollar of assets the company is generating. It need
be understood, however, that industry averages vary considerably and the ratio of a
company in one cannot be fairly compared to the ratio of a company in another
sector (Investopedia, 2015).
Walt Disney: 0.59
Time Warner: 0.41

2. Total Debt to Total Assets (Leverage): Calculated by dividing total debt by total
assets. The significance of the total debt to total assets ratio is that it represents the
percentage of a company’s assets that have been financed by debt. The higher the
percentage, the higher the company is leveraged and the higher its financial risk
(Investopedia, 2015).
Walt Disney: 17.63
Time Warner: 35.56
Conclusion: When comparing Walt Disney Co. and Time Warner Inc.’s ROE, Disney
comes out ahead. Disney’s ROE has been consistently growing over the past 10
years, aside from a slight decline during the recessionary years, which they have
steadily come back from. Time Warner’s ROE, on the other hand, has consistently
fallen short of Disney, even falling deep into the red in ’08, when Disney never went
below 10%.
The P/E ratios of the two companies are very close and have been over the past
several years, with Time Warner currently only coming in at about a buck cheaper.
As these P/E ratios are so close, they are most likely indicative of the normal market
P/E ratio, and suggest no expectations for unusually high or low returns in the
future of either company.
The quick ratio of Time Warner Inc. has remained safely over 1.00 for the past seven
years. Walt Disney Co.’s quick ratio, however, has lingered just at, or commonly
below 1.00, for the past ten years. This is a red flag that Disney does not have a safe
amount of liquid assets to cover their current liabilities. In terms of liquidity, Time
Warner is in a much better position.
Walt Disney Co.’s asset turnover has remained very stable over the past ten years.
Time Warner Inc.’s asset turnover has fluctuated a bit more, but always remained
lower than that of Disney’s, showing that Disney is consistently more successful at
utilizing their assets in pursuit of profits.
While the quick ratio gave indication that Walt Disney Co. could be at risk with their
current liabilities, Time Warner Inc.’s total debt to total assets ratio is significantly
higher than that of Disney. This indicates that they are in a position of higher
financial risk with their long-term debt, but still safely below 50 percent. Time
Warner’s total debt to total assets ratio has been increasing over the past ten years,
however, while Walt Disney’s has been decreasing. When comparing the two
companies, this is not a good indicator for Time Warner.
When determining in which company to invest, I believe Walt Disney Co. is the
better choice. With a steadily increasing ROE, a greater string of success in
deploying assets to achieve revenue, and a generally safer position of financial risk,
it is the clear winner.

3. References
Asset Turnover. (2015). Investopedia. Retrieved from http://www.investopedia.com
Price-Earnings Ratio. (2015). Investopedia. Retrieved from
http://www.investopedia.com
Quick Ratio. (2015). Investopedia. Retrieved from http://www.investopedia.com
Return On Equity. (2015). Investopedia. Retrieved from
http://www.investopedia.com
Total Debt To Total Assets. (2015). Investopedia. Retrieved from
http://www.investopedia.com