Homeworkhmwk 3 Score 0 of 1 pt Mini Case Chapter 3 similar t

Homework:hmwk 3 Score: 0 of 1 pt Mini Case. Chapter 3 (similar to) 2 of 2 (1 complete) The financial statements for 2012 and 2013 or Time Warner Inc. are shown in this popup window,? and those for Walt Disney Co. are shown in this popup window, a. How did Time Warner\'s profit margins change from 2012 to 2013? To what would you attribute the differences? Answer the same question 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? a. How did Time Warner\'s gross profit margin change from 2012 to 2013? % (Round to one decimal place.)

Solution

a: The gross profit margin of Time Warner increased from 44.5% in 2012 to 45.5 percent in 2013. This is an increase of 1% of sales for the year. This was due to a reduction in the cost of goods sold as a percentage of sales. The net profit margin increased from 10.2% in 2012 to 12.4% in 2013. This was due to reduction in operating expenses as well as fall in interest expenses.

The gross profit of Walt Disney remains constant at 21% of sales. This was because the percentage of cost of goods sold was static even though the amount of sales increased.

The net income margin of Walt Disney increased marginally from 14.6 percent to 14.7 percent. While the operating expenses increased, the interest expense of the company decreased leading to marginal increase in the profit margin.

b: Time Warner has a very high gross profit ratio while Walt Disney has a lower gross profit margin. This is because the cost of goods sold for Time Warner is lesser than the cost of goods sold of Walt Disney as a percentage of sales. The net profit margin of Walt Disney is however higher than that of Time Warner due to lower operating expenses.

c: The equity of Time Warner is 44% of total assets in 2013 where is the value of equity of walt Disney is 55.9 percent of total assets in 2013. This indicates that there is less reliance on debt in Walt Disney which is an indicator that the company is doing better than Time Warner.