Question

(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.


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 pat terns. 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 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).

Required:
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 13 (use year-end figures for any ratio computations 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 twocomponents.


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  • CreatedJanuary 22, 2015
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