CASE $8-2$ Analyzing Return on Invested Capital Walt Disney Company Search 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 I September $30$ YEAR $13$ YEAR $9$ $ milions$)$ Business Segments Operating Operating Revenue Income Revenue Income Theme parks and resorts $$3\mathrm{.}441$ $$747$ $$2,595785$ Conamer produets $1415199$ $$8\mathrm{.}529$ $$1,724$ $$4\mathrm{.}594$ $$1,229$ available leisure time, oil and transportation prices, and weather Dage $400$ The profitability of the leisure$-$time industry is influenced by various factors including economic conditions, the amount patterns. Disney management has been very aggressive in raising theme park admission prices. For the $10-$year period ending in Year $13,$ admission prices increased at an annual rate of $8-9\%$ compared to less than $4\%$ for U$.$S$.$ consumer price inflation. Disney's Film Entertainment business has grown rapidly because of increasing acceptance of The Disney Channel and, importantly, management efforts to exploit the expanding distribution opportunities available for its extensive video library. Disney's Consumer Products revenue has also grown meaningfuly as the company has moved its product mix aggressively toward direct publishing and direct retail and away from higher$-$margined licensing and royalty income sources. During the fourth quarter of fiscal Year $13($ending September $30,$ Year $13),$ Disney wrote off the full carry ing value of Euro Disney. The charge was $$350$ million $($$$218$ million after tax$).$ WALT DIS NEY COMPANY Selected Financial Statement and Other Data Years Ending September $30($millions except per share data$)$ Year $13$ Year $9$ Income Statement $ $8,529$ $$4,594$ Revenue Operating expenses Interest expense $(6,968)(158)(3,484)(24)$ Investment and interest income $18667$ Income $($loss$)$ from Euro Disney. $(515)$ Pretax income. $1,0741,153$ Taxes $(403)$ $ $671$ $ $1\mathrm{.}23$ $ $0\mathrm{.}23(450)$ $ $703$ Net income Eamings per share Dividends per share $ $1\mathrm{.}27$ $ $0\mathrm{.}11$ Balance Sheet $363381$ Cash. Receivables $1,390224$ Inventories $609909$ Other. $1,889662$ Current assets $4,2512,176$ Property, plant, and equipment, net Other assets $5,2283,3972,2721,084$ $$6,657$ $$11,751$ Total assets $ $2,821$ $$1,262$ Current liabilities Borrowings Other liabilities Stockholders' equity $2,3868611,5141,4905,0303,044$ $$6,657$ $$11,751$ Total liabilities and stockholders' equity. Cash Flow from Operations $ $2,145$ $$1,275$ Other Data Common shares outstanding $($millions$)$ Closing price, common stock per share $544552$ $$37\mathrm{.}75$ $$30\mathrm{.}22$ Note: Total assets except "other" current assets, current iabilities, and other Nabiities are considered operating, as is the Euro Disney loss Required: Page $500($use year$-$end figures for any ratio computations 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 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. CHECK $($a$)$ Yr$.13$ RNOA $11,82\%($b$)$ Yr$.13$ Spread $15\mathrm{.}34\%($CFA Adapted