In July 2011, the finale to the Harry Potter movie series, Harry Potter and the Deathly Hallows€” Part 2, from Time Warner Inc.€™s Warner Bros. Pictures, earned an estimated $ 307 million in 59 countries overseas for the opening week, topping the previous best international debut of $ 260.4 million set in May 2011 by Disney€™s Pirates of the Caribbean: On Stranger Tides. Time Warner Inc. and Walt Disney Co. both run diversified lines of entertainment and are major competitors with each other in many areas. According to Disney€™s annual report of fiscal 2010: €œThe Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive Media.€ And in the annual report of Time Warner: €œTime Warner Inc., a Delaware corporation, is a leading media and entertainment company. The Company classifies its businesses into the following three reporting segments: Networks, Filmed Entertainment, and Publishing.€ Except for parks and resorts, Time Warner runs almost the same business lines as Disney. 13
Below are the financial statements for the two firms. Time Warner€™s fiscal year ends on December 31; thus, the statements are for end- of- year 2009 and 2010. Disney, on the other hand, has a fiscal year ending on the Saturday closest to September 30; fiscal year 2009 ended on October 3, 2009, and fiscal year 2010 ended on October 2, 2010. As a result, Disney€™s financials are 3 months earlier than the financials for Time Warner.
a. How did Time Warner€™s profit margins change from 2009 to 2010? To what would you attribute the differences? Answer the same questions for Disney.
b. Compare the profit margins between Time Warner and Disney. How are they different? How would you explain these differences?
c. What differences do you notice in the common- sized balance sheets that might indicate that one of the firms is doing better than the other?

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Time Warner Inc. Annual Income Statement and Common-Sized Income Statement for Years Ending December 31, 2009 and 2010 (in $ millions except earnings per share) 2009 2010 Dollar value $25,388 14,235 $11,153 Percentage of sales 100096 56196 43.9% 23.9% 1.1% 1.3% 175% 4.6% 0.3% 12.8% 4.596 8.2% Dollar value $26,888 15,023 11,865 Percentage of sales 100.0% 55.9% 44.1% 22.8% 1.0% Sales Cost of goods sold Gross profits Selling, general, and adminlstrative expenses Depreclation and amortization Other operating expenses Operating income Interest expense Nonoperating Income (expenses) Earnings before tax Income taxes Net income (loss) 6,073 6,126 280 264 4470 1,166 (67) 3,237 1153 2,084 5,428 1,178 (331) 3,919 1348 2.571 20.2% 4.4% 1.2% 14.6% 5.0% 9.6% Common shares outstanding Earnings per share 1,184.0 1.76 1,128.4 S 2.28 Time Warner Inc. Balance Sheet and Common-Sized Balance Sheet for Years Ending December 31, 2009 and 2010 (S millions) DECEMBER 31 2009 DECEMBER 31, 2010 Percentage of total assets Percentage of total assets 5.5% 96% 2.96 ASSETS Cash and short-term investments Recelvables Inventories Other current assets Total current assets Gross fixed assets Accumulated depreciation and amortization Net fixed assets Other assets TOTAL ASSETS Dollar value Dollar value s 4,733 5,875 1,769 1,315 $ 13,692 $ 14950 7290 8.9% 2.7% 20% 20.7% 3,663 6,413 1,920 1,142 56% 17.0% 62.3% 100.0% 15 824 (4,169 11,655 41.731 S 66,524 19.7% 23.8%, 6.396 17.5% 62.7% 100.0% 11,218 41149 66,059 LIABILITIES Accounts payable and accruals Short-term notes payable Other current liabilities Total current liablilities Long-term debt Deferred taxes Other liabilities TOTAL LIABILITIES 7,807 862 804 $9,473 15,346 1,607 6,236 32,662 7,733 26 884 8,643 16,523 1,950 6,463 S 33,579 11.6% 0.0% 1.3% 13.0% 24.8% 2.9% 9.7% 50.5% 11.8% 1.3% 14.3% 23.2% 2.4% 9.4% 49.4% EQUITY Common equity: Common stock: Par value Capital surplus Total common stock sold Less: Treasury stock-total dollar amount Total common stock Retained earnings Total common equity TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 16 158,129 $158,145 (27,034) $131,111 (97.714) 33,397 66,059 00% 239.4% 239.4% 40.9% 198.5% (147.996 50.6% $ 16 157,146 $157,162 (29,033) $128,129 (95,184 0.0% 2 36296 236.2% -43.696 192.6% (143190) 49.5% 100.0% s32945 S 66,524 000 % Walt Disney Co. Annual Income Statement and Common-Sized Income Statement for Years Ending October 3, 2009 and October 2, 2010 (in $millions except earnings per share) 2009 2010 Dollar value $36,149 28821 $ 7,328 Percentage of sales 100.0% 79.7% 20.3% Dollar value Percentage of sales 100.0% 778% 22.2% Sales Cost of goods sold Gross profits Selling, general, and administrative expenses Operating income Interest expense Nonoperating Income (expenses) Earnings before tax Income taxes Net Income (loss) Common shares outstanding Earnings per share $38,063 29,624 8,439 1.983 6,456 409 580 6,627 2,314 4,313 1,948 S2.21 14.4% 1.396 2.5% 15.796 5.7% 10.0% 5,205 17.0% 1.1% 1.5% 17.4% 6.1% 11.3% 466 S 5,658 2,049 $ 3,609 1,875 1.92 Walt Disney Co. Balance Sheet and Common-Sized Balance Sheet for Years Ending October 3, 2009 and October 2, 2010 ($ millions) OCTOBER 3, 2009 OCTOBER 2, 2010 Percentage of total assets Percentage of total assets Dollar value ASSETS Cash and cash equivalents Recelvables Inventories Other current assets Total current assets Gross fixed assets Accumulated depreciation and amortization Net fixed assets Other assets TOTAL ASSETS 3,417 4,854 1,271 2,347 $11,889 $32,475 17.395) $15,080 36,148 $63, 117 5.4% 7.7% 2.0% 3.7% 18.8% 51.5% Dollar value $ 2,722 5,784 1,442 2,277 $12,225 $32,875 (18,373) $14,502 42,479 $69,206 3.9% 8.496 2.196 177% 475% -26.5% 21.0% 61.4% 100.0% 23.9% 57.3% 100.0% LIABILITIES Accounts payable and accruals Short-term notes payable Other current llabilities Total current liabilities Long-term debt Deferred taxes Other liabilities TOTAL LIABILITIES 5,616 1,206 2,112 8,934 11,495 1,819 5,444 27 692 8.9% 1.9% 3.3% 14.2% 18.2% 2.9% 8.6% 6,109 2,350 2,541 $11,000 10,130 2,630 6,104 $29864 8.8% 3.4% 3790 15.996 14.6% 3.8% 8.8% 43.9 43 EQUITY Common equity: Total common stock sold Less: Treasury stocktotal dollar amount Total common stock Retained earnings Other equity Total common equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,038 (22,693) 4,345 31,033 42.8% 36.0% 6.9% 49.2% 0.1% 56.1% 100.0% $28,736 (23,663) $ 5,073 34,327 (58) 539,342 $69,206 41.5% 34.2% 7.3% 496% $35,425 $63,117 56.8%