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 1,415 355 188 $8,529 $1,724 $4,594 $1,229 411 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 Page 499 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 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 ($218 million after tax). 0 WALT DISNEY COMPANY Selected Financial Statement and Other Data Years Ending September 30 ($ millions except per share data) Year 13 Year 9 Income Statement Revenue ..... $ 8,529 $4,594 Operating expenses (6,968) (3,484) Interest expense (158) (24) Investment and interest income 186 67 Income (loss) from Euro Disney. (515) Pretax income... 1,074 1,153 Taxes. (403) (450) Net income $ 671 $ 703 Eamings per share $ 1.23 $ 1.27 Dividends per share $ 0.23 $ 0.11 Balance Sheet Cash $ 363 $ 381 Receivables 1,390 224 Inventories 609 909 Other.. 1,889 662 Current assets 4,251 2,176 Property, plant, and equipment, net 5,228 3,397 Other assets 2,272 1,084 Total assets $11,751 $6,657 Current liabilities 2,821 $1,262 Borrowings 2,386 861 Other liabilities. 1,514 1,490 Stockholders' equity 5,030 3,044 Total liabilities and stockholders' equity. $11,751 $6,657 Cash Flow from Operations .... $ 2,145 $1,275 Other Data Common shares outstanding (millions) 544 552 Closing price, common stock per share $ 37.75 $30.22 Note: Total assets except "other" current assets, current liabilities, and other Nabilities are considered operating, as is the Euro Disney loss. Required: Page 500 a Calculate and disaggregate Disney's retum 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). 6. 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 retum 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% (6) Yr. 13 Spread = 15.34%