Financial Statements Analysis
● Compare financial statement ratios
to identify critical objective elements of
a company and diagnose a company’s
positives and risks.
Companies are as unique as people. But, like people groups
of people share similarities. Companies that operate within the
same sector or industry tend to share certain characteristics.
Such characteristics are highlighted by calculating and compar-
ing a company’s financial ratios.
Comparing a company’s ratios over time show if a company
is changing, for the better or for worse. Comparing ratios among
different companies bring a company’s particular characteris-
tics into focus.
The Financial Statements Analysis case study includes two sep-
arate components:
� Detective Activity
This activity compels you to understand why ratios are what
they are for a given company or industy. You will practice inter-
preting financial ratios by matching financial statements to their
companies, sorted by sector. This activity includes nine sec-
tors: communications, consumer discretionary, consumer sta-
ples, energy, healthcare, industrials, materials, technology, and
utilities.
� Case Study
The case study will require you to access and compare Disney’s
financial statements to those of its peers. Use the Terminal
Tutorial and Case Study Notes to answer the case questions.
◼ FINANCIAL STATEMENTS ANALYSIS / BLOOMBERG BUSINESSWEEK CASE STUDY
Detective Activity
● Use the notes below, the company descriptions, the Common Size Income Statement & Balance Sheet, and Financial Ratio
Comparisons to determine which company goes with which data in each sector.
This learning supplement contains a short narrative describing
two companies that operate within the same sector. Each sector
also includes a consider this paragraph intended to guide your
thinking and analysis.
Read the narrative and consider this paragraph for a particu-
lar sector. Then, look at the two columns of sector-specific data.
Each column of ratios is identified by a capital letter. Beginning
at the top, slowly draw your fingers down the columns, look-
ing for ratios that are different between the two companies.
Determine which ratios help you identify which of the two com-
panies belong to which column of data.
The first sector in this activity is communications. The two
companies within the communications sector are Netflix and
AT&T. Data in columns A and B are derived from the Netflix
and AT&T financial statements. Find five ratios from columns
A and B that are useful in determining which column is Netflix
and which is AT&T.
The income statement and balance sheet are presented in
common size format.
Move through this supplement one sector at a time. Read
the narratives for the companies and sector and analyze the
ratios for the two companies in the sector. Look for ratios that
are significantly different from one column to the other. Use the
two-finger approach. Take two fingers and go down the columns
of data from top to bottom.
Avoid the tendency to linger and over-analyze. Look for
insights and use your knowledge of the ratios to transform the
insights into understanding.
Find five ratios for each sector. There are likely more than
five that are useful. After a useful ratio has been identified, use
what you know from the narrative to identify which company
belongs to which column.
COMMUNICATIONS
� Netflix Inc. (NFLX)
Netflix Inc. is an internet subscription service for watching tele-
vision shows and movies. Subscribers can instantly watch unlim-
ited television shows and movies streamed over the Internet to
their televisions, computers, and mobile devices. In the United
States, subscribers can receive standard definition DVDs and
Blu-ray Discs delivered to their homes. Netflix began by dis-
tributing media content made by outside studios. However, the
company now produces a significant amount of its own content.
� AT&T Inc. (T)
AT&T Inc. is a communications holding company. The Company,
through its subsidiaries and affiliates, provides local and
long-distance phone service, wireless and data communications,
Internet access and messaging, IP-based and satellite television,
© Bloomberg L.P.
2
security services, telecommunications equipment, and direc-
tory advertising and publishing.
Consider This.
AT&T is a very old company while Netflix began operations in
1997. AT&T sells physical products like phones from physical
locations versus Netflix which sells a virtual product, online
video content. Over the last few years, Netflix has been devel-
oping its own content which is very expensive, yet, its profits
were not sufficient to fund necessary content investments. Even
so, Netflix is a market darling.
CONSUMER DISCRETIONARY
� The Home Depot, Inc. (HD)
The Home Depot, Inc. is a home improvement retailer that
sells a wide assortment of building materials, home improve-
ment and lawn and garden products, and provide a number of
services. Home Depot operates throughout the United States,
Canada, China, and Mexico.
� AutoZone, Inc. (AZO)
AutoZone, Inc. is a specialty retailer of automotive replacement
parts and accessories. The Company offers an extensive prod-
uct line for cars, sport utility vehicles, vans, and light trucks,
including new and re-manufactured automotive hard parts,
maintenance items, accessories, and non-automotive prod-
ucts. AutoZone operates in the United States, Puerto Rico, and
Mexico.
Consider This.
Compare the typical buying experience between AutoZone and
Home Depot. An AutoZone customer is looking for a very unique
product. Perhaps an alternator for a 1969 Chevrolet Camero.
Very few people in the world are looking for such a product.
In order to attract customers, AutoZone must keep a diverse
product base in its stores or warehouses. A Home Depot cus-
tomer is altogether different. Despite the size of Home Depot
stores, they stock a small number of unique products that hap-
pen to sell a lot.
CONSUMER STAPLES
� Costco. (COST)
Costco Wholesale Corporation operates wholesale membership
warehouses in multiple countries. The Company sells a lim-
ited variety food, automotive supplies, toys, hardware, sport-
ing goods, jewelry, electronics, apparel, health, and beauty
aids, as well as other goods. The company is the largest oper-
ator of wholesale club stores with 740 in 44 US states, Puerto
Rico, Australia, Canada, Mexico, the UK, Japan, South Korea,
◼ FINANCIAL STATEMENTS ANALYSIS / BLOOMBERG BUSINESSWEEK CASE STUDY
Taiwan, and Spain. Costco generates its revenues from a com-
bination of membership fees and product sales.
� The Kroger Co. (KR)
The Kroger Co. operates supermarkets and convenience stores
in the United States. The Company also manufactures and pro-
cesses some of the food its supermarkets sell. The company is
the largest traditional grocer in the United States with 2,800
supermarkets. Kroger operates its stores under its own name as
well as Dillon’s, Fry’s, Smith’s, Food 4 Less, Ralphs, Fred Meyer,
King Soopers, and others.
Consider This.
Costco is a wholesale club that sells most of its products at dis-
count prices. Kroger sells its products in a competitive envi-
ronment with higher a gross margins. Additionally, compared
to Kroger, Costco is known for its operating skill and efficiency.
ENERGY
� SunPower Corporation (SPWR)
SunPower Corporation is an integrated solar products and
services company. The Company designs, manufactures, and
markets high-performance solar electric power technologies.
SunPower serves residential, commercial, and power plant seg-
ments throughout the world. Power plants account for more
than 40% of its total revenues. More than 80% of the compa-
ny’s sales come from the United States.
� Peabody Energy Corporation (BTU)
Peabody Energy Corporation mines and markets low sulfur coal,
primarily for use by electric utilities. The Company also trades
coal and emission allowances. Peabody owns and operates
mines in Arizona, Colorado, New Mexico, and Wyoming, Illinois,
Indiana, and Australia. Approximately half of the company’s rev-
enue comes from the US. The company filed for Chapter 11 bank-
ruptcy in 2016 and came out of bankruptcy in 2017.
Consider This.
SunPower is a solar technology company dependent on gov-
ernment incentives. Peabody is an old-fashioned coal company.
HEALTHCARE
� Teva Pharmaceutical Industries Ltd. (TEVA)
Teva Pharmaceutical Industries Ltd., is a global pharmaceutical
company. The Company develops, manufactures, and markets
generic and branded human pharmaceuticals as well as active
pharmaceutical ingredients. A generic drug is one that is no lon-
ger protected by the inventor’s patents Teva is based in Israel
but sells its products throughout the world. Approximately 45%
of the company’s generic drug revenues come from the US while
Europe accounts for 32%.
� Bristol-Myers Squibb Company (BMY)
Bristol-Myers Squibb Company is a global biopharmaceutical
company. The Company develops, licenses, manufactures,
markets, and sells pharmaceutical and nutritional products.
Bristol-Myers Squibb products and experimental therapies
© Bloomberg L.P.
3
address cancer, heart disease, HIV and AIDS, diabetes, rheu-
matoid arthritis, hepatitis, organ transplant rejection, and psy-
chiatric disorders.
Consider This.
Teva is a commodity producer of pharmaceuticals. Bristol-Myers
develops and sells its own drugs.
INDUSTRIALS
� Deere & Company (DE)
Deere & Company manufactures and distributes a range of agri-
cultural, construction, forestry, and commercial and consumer
equipment. The Company supplies replacement parts for its
own products and for those of other manufacturers. Deere
also provides product and parts financing services. Deere and
Company extends its services and products worldwide.
� The Boeing Company (BA)
The Boeing Company, together with its subsidiaries, develops,
produces, and markets commercial jet aircraft, as well as pro-
vides related support services to the commercial airline industry
worldwide. The Company also researches, develops, produces,
modifies, and supports information, space, and defense sys-
tems, including military aircraft, helicopters and space and mis-
sile systems.
Consider This.
Deere produces agriculture and construction equipment in
a market with many alternatives. Among farmers, Deere is a
premium product. Boeing manufactures airplanes. Boeing’s
primary competitor is Airbus. They both provide a line of air
frames that compete head to head. Deere sells its equipment
through a network of independent dealerships around the
world. Boeing sells its planes directly to its customers.
MATERIALS
� Mosaic (MOS)
The Mosaic Company produces and distributes crop nutrients to
the agricultural communities located in North America and sev-
eral other countries. The Company’s principal products include
concentrated phosphates and potash. The company operates
in a very competitive market and its products may be perceived
as commodities.
� Heidelberg (HEI)
HeidelbergCement AG produces and markets aggregates. The
Company also manufactures building materials, including
cement and concrete, in Europe, North America, Asia, Australia,
and Africa. Together, cement, concrete, and aggregates account
for nearly 90% of the company’s sales. HeidelbergCement also
has group services which manage fossil fuels and electricity for
its operations and trades internationally in cement and clinker
(an intermediate product used to make portland cement). The
firm operates in more than 40 countries.
Consider This.
Mosaic manufactures and sells agricultural fertilizer which is
◼ FINANCIAL STATEMENTS ANALYSIS / BLOOMBERG BUSINESSWEEK CASE STUDY 4

subject to the agricultural product cycle. Heidelberg is subject

to a construction cycle. The agricultural cycle occurs every year
while the construction cycle is longer in duration.

TECHNOLOGY
� Facebook Inc. (FB)
Facebook, Inc. operates a social networking website. The
Company website allows people to communicate with their
family, friends, and co-workers. Facebook develops technolo-
gies that facilitate the sharing of information, photographs, web-
site links, and videos. Facebook users have the ability to both
share and restrict information based on their own specific crite-
ria. Approximately 85% of the company’s revenue comes from
mobile advertising while 11.8% comes from desktop advertis-
ing. The remaining revenue comes from payments and fees.

� Apple Inc. (AAPL)

Apple Inc. designs, manufactures, and markets personal com-
puters and related personal computing and mobile communi-
cation devices along with a variety of related software, services,
peripherals, and networking solutions. Apple sells its products
worldwide through its online stores, its retail stores, its direct
sales force, third-party wholesalers, and resellers. One prod-
uct, the iPhone, accounts for more than 60% of the company’s
total revenue.

Consider This.
Apple produces a physical product while Facebook sells an
online social media platform. Physical products come with costs
and operating inefficiencies that online services do not incur.
Facebook is a relatively young technology company that recently
went public. Although they are very profitable, the company
does not pay a dividend.

UTILITIES
� Centrica (CNA)
Centrica PLC operates as an integrated energy company offer-
ing a wide range of home and business energy solutions. The
Company sources, generates, processes, stores, trades, saves,
and supplies energy and provides a range of related services.

� American Electric Power Company, Inc. (AEP)

American Electric Power Company, Inc. operates as a public
utility holding company. The Company generates, transmits,
distributes, and sells electricity to residential and commercial
customers. AEP serves customers in the United States.

Consider This.
AEP is an old fashioned electric utility. It produces, transmits,
and distributes electric power over a pre-defined service ter-
ritory as a regulated natural monopoly. Regulators are tasked
with ensuring utility companies are sufficiently profitable to
attract investment capital but not too profitable. Centrica is an
energy marketer. The company generally markets energy pro-
duced by other firms.

© Bloomberg L.P.
◼ FINANCIAL STATEMENTS ANALYSIS/ BLOOMBERG BUSINESSWEEK CASE STUDY 5

Name

Group

SECTOR COMPANY RATIOS

COMMUNICATIONS A

CONSUMER C
DISCRETIONARY
D

CONSUMER STAPLES E

ENERGY G

HEALTHCARE I

INDUSTRIALS K

MATERIALS M

TECHNOLOGY O

UTILITIES Q

© Bloomberg L.P.
◼ FINANCIAL STATEMENTS ANALYSIS / BLOOMBERG BUSINESSWEEK CASE STUDY 6

Common Size Income Statement & Balance Sheet

Fiscal Year 2018 (all values in USD)

Communications Consumer Disc. Consumer Stap. Energy Healthcare Industrials Materials Technology Utilities

INCOME STATEMENT A B C D E F G H I J K L M N O P Q R

Revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Cost of Revenue 63.1 46.5 46.8 66.0 87.0 78.0 117.2 86.1 56.0 29.0 68.4 80.6 84.4 -- 16.8 61.7 86.3 35.7

Gross Profit 36.9 53.5 53.2 34.0 13.0 22.0 (17.2) 13.9 44.0 71.0 31.6 19.4 15.6 -- 83.2 38.3 13.7 64.3

Operating Expenses 26.7 38.2 37.1 19.5 9.8 19.9 32.0 3.3 54.2 48.3 17.4 7.6 5.9 92.0 38.6 11.6 10.3 47.7

Operating Income 10.2 15.3 16.1 14.5 3.2 2.1 (49.2) 11.9 (8.7) 22.7 14.1 11.9 9.7 10.5 44.6 26.7 3.4 16.6

Interest Expense 2.7 4.7 1.6 1.0 0.1 0.5 6.3 2.7 4.9 0.8 3.2 0.5 2.3 1.8 0.0 1.2 0.8 6.1

Net Non-Operating Losses (0.3) (3.9) (0.1) (0.1) (0.1) 0.4 (3.4) (2.7) 0.1 (4.6) 0.0 (0.1) (0.3) (1.1) (1.2) (2.0) 0.6 (1.3)

Pre-Tax Income 7.8 14.6 14.6 13.6 3.1 1.2 (52.1) 11.9 (13.8) 26.5 10.9 11.5 5.8 9.8 45.4 27.4 1.9 12.2

Income Taxes 0.1 2.9 2.7 5.0 0.9 (0.3) 0.1 0.3 (1.0) 4.5 4.6 1.1 0.8 2.6 5.8 5.0 1.1 0.7

Income Before Extraordinary 7.7 11.4 11.9 8.6 2.2 1.5 (47.0) 9.4 (12.7) 21.8 6.3 10.3 4.9 6.4 39.6 22.4 0.6 11.9

Minority Interest 0.0 5.7 0.0 0.0 0.2 0.0 3.4 1.0 5.8 0.4 0.0 0.1 2.2 7.5 -- 0.0 2.6 0.6

Net Income 7.7 11.3 11.9 8.6 2.2 1.6 (47.0) 11.6 (11.4) 21.8 6.3 10.3 4.9 6.3 39.6 22.4 0.6 11.9

BALANCE SHEET A B C D E F G H I J K L M N O P Q R

Cash and Near Cash 14.6 1.0 2.3 8.1 14.8 0.9 13.2 13.2 2.9 19.8 5.6 6.5 4.2 7.2 10.3 7.1 6.2 0.6

Short-Term Investments 0.0 0.0 0.6 0.0 2.9 0.0 0.0 0.0 0.0 5..6 0.7 0.8 0.0 0.0 31.9 11.0 0.3 0.2
Accounts Receivable 0.0 5.0 2.8 4.4 4.1 4.4 7.5 4.7 9.6 13.3 7.1 3.7 4.2 5.4 7.8 6.3 9.9 2.8
Inventories 0.0 0.0 42.2 28.6 27.0 17.6 13.1 3.8 7.8 3.4 8.8 51.5 11.3 5.7 0.0 1.1 2.2 1.3
Other Current Assets 22.7 3.7 1.7 1.4 0.8 7.0 9.4 4.7 2.4 7.0 2.5 10.5 1.4 2.6 1.8 10.4 23.3 1.0
Net FIxed Assets 1.6 24.7 45.1 49.6 48.2 56.6 35.7 70.1 11.3 14.4 18.6 10.8 58.4 36.2 25.4 11.3 20.1 80.1
Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Accounts Payable 2.2 5.1 47.2 16.3 27.5 15.7 13.8 -- 3.1 5.4 3.5 11.0 6.7 7.3 0.8 15.3 2.8 2.7
Short-Term Borrowing 0.0 1.9 0.6 6.2 0.0 9.6 1.7 0.5 3.7 4.9 21.4 2.7 0.2 3.7 0.0 5.7 1.4 5.2
Other Short-Term 22.8 5.1 6.1 13.9 21.3 12.8 14.4 13.8 16.9 20.2 11.1 55.8 5.4 6.5 6.4 10.7 36.6 4.6
Long-Term Liabilities 39.9 31.3 53.6 54.5 15.9 32.3 36.5 17.9 44.0 16.1 38.9 9.1 22.3 26.5 0.0 25.6 21.3 31.5
Total Lliabilites 79.8 63.5 116.3 96.7 67.9 81.4 106.4 53.5 74.0 59.6 83.9 99.7 47.3 53.0 13.6 70.7 80.8 72.1

Equity 20.2 36.5 (16.3) 3.3 32.1 18.6 (6.4) 46.5 26.0 40.4 16.1 0.3 52.7 47.0 86.4 29.3 19.2 27.9

© Bloomberg L.P.
◼ FINANCIAL STATEMENTS ANALYSIS / BLOOMBERG BUSINESSWEEK CASE STUDY 7

Financial Ratio Comparison

PROFITABILITY RATIOS A B C D E F G H I J K L M N O P Q R

Gross Margin 36.9 53.5 53.2 34.0 13.0 22.0 (17.2) 13.9 44.0 71.0 31.6 19.4 15.6 -- 83.2 38.3 13.7 64.3
Operating Margin 10.2 15.3 16.1 14.5 3.2 2.1 (49.2) 11.9 (8.7) 22.7 14.1 11.9 9.7 10.5 44.6 26.7 3.4 16.6
Pre-tax Margin 7.8 14.6 14.6 13.6 3.1 1.2 (52.1) 11.9 (13.8) 26.5 10.9 11.5 5.8 9.8 45.4 27.4 1.9 12.2
Net Margin 7.7 11.4 11.9 8.6 2.2 1.5 (47.0) 9.8 (12.7) 21.8 6.3 10.3 4.9 6.3 39.6 22.4 0.6 11.9
Return on Assets 5.4 4.0 14.4 19.7 8.1 5.2 (25.4) 8.3 (3.3) 14.4 3.5 9.1 2.4 3.2 24.3 16.1 0.9 2.9
Return on Total Capital 12.7 7.8 41.0 33.0 17.6 10.6 (54.4) 16.3 (3.7) 24.7 5.9 80.4 4.4 5.6 27.9 26.4 3.8 6.7
Return on Equity 27.5 11.9 -- 298.3 26.6 27.7 -- 16.9 (16.9) 38.2 22.7 1,049 4.7 7.6 27.9 49.4 6.3 10.3

LIQUIDITY RATIOS A B C D E F G H I J K L M N O P Q R

Current Ratio 1.5 0.8 0.9 1.2 1.0 0.8 1.5 1.8 1.0 1.6 0.7 1.1 1.7 1.2 7.2 1.1 1.0 0.5
Quick Ratio 0.6 0.5 0.1 0.3 0.4 0.1 0.7 1.3 0.5 1.3 0.4 0.2 0.7 0.7 6.9 0.8 0.4 0.3
Cash Ratio 0.6 0.1 0.1 0.2 0.4 0.0 0.4 0.9 0.1 0.8 0.2 0.1 0.3 0.4 5.9 0.6 0.2 0.1
Defensive Interval 98.2 99.5 21.5 24.0 24.0 6.3 72.1 112.4 146.5 293.6 113.4 54.1 79.2 106.6 668.0 177.2 44.6 --

SOLVENCY RATIOS A B C D E F G H I J K L M N O P Q R
Debt-to-Equity 197.8 91.0 -- 1,858.9 49.6 225.8 -- 39.6 183.0 52.0 373.8 3,377 42.7 64.3 0.0 106.8 118.3 131.8
Debt-to-Capital 66.4 47.7 143.0 94.9 33.1 69.3 120.0 28.4 64.7 34.2 78.9 97.1 29.9 39.1 0.0 51.7 54.2 56.9
Debt-to-Assets 39.9 33.2 54.1 60.7 15.9 41.9 38.2 18.4 47.6 21.0 60.3 11.8 22.5 30.2 0.0 31.3 22..7 36.7
Financial Leverage 5.1 3.0 -- 15.1 3.3 5.4 16.8 2.4 4.6 2.7 6.5 115.1 1.9 2.4 1.1 3.1 7.1 3.6
Interest Coverage 3.8 3.1 10.0 13.9 25.2 4.3 (7.9) 4.4 (1.8) 28.0 4.4 21.1 3.9 5.9 2,768.1 21.9 3.8 2.4

ACTIVITY RATIOS A B C D E F G H I J K L M N O P Q R
Inventory Turnover -- -- 1.3 5.3 11.8 14.6 6.1 16.8 2.2 5.5 5.1 1.4 4.2 2.3 -- 37.2 59.1 6.2
Receivable Turnover -- 7.9 41.6 50.7 91.3 74.7 9.1 13.1 2.9 5.0 8.4 26.8 12.9 9.4 8.3 12.9 14.4 8.5
Payable Turnover 21.6 3.1 1.2 9.4 11.9 16.4 5.4 -- 5.3 3.2 12.3 6.6 7.7 1.9 15.6 3.1 43.3 2.9
Days Inventory Outstanding -- -- 271.4 69.2 30.8 25.4 59.5 21.7 166.9 65.8 71.6 268.7 86.1 158.7 -- 9.8 6.2 59.1
Days Sales Outstanding -- 46.0 8.7 7.2 4.0 5.0 40.1 27.8 125.4 72.7 43.5 13.6 28.2 38.9 43.9 28.1 25.3 43.0
Days Payable Outstanding 16.9 118.2 294.1 38.8 30.5 22.6 67.4 -- 69.1 114.9 29.7 55.6 47.2 191.4 23.4 117.3 8.4 124.9
Cash Conversion Cycle -- -- (13.9) 37.5 4.3 7.7 32.2 -- 223.2 23.6 85.4 226.7 67.1 6.1 -- (79.3) 23.1 (22.8)
Working Capital Turnover -- -- -- 13.4 90.5 52.2 11.2 7.9 2.0 6.3 5.2 2.0 6.4 12.6 9.1 -- 15.6 18.5
Fixed Asset Turnover 42.8 1.3 2.7 4.6 7.5 5.8 1.7 1.1 2.6 4.5 3.0 8.0 0.9 1.4 2.9 7.1 7.2 0.3
Total Asset Turnover 0.7 0.3 1.2 2.3 3.7 3.3 0.5 0.7 0.3 0.7 0.5 0.9 0.5 0.5 0.6 0.7 1.4 0.2

VALUATION RATIOS A B C D E F G H I J K L M N O P Q R
Price to Book Value 22.3 1.1 -- 165.0 8.0 3.7 -- 1.0 -- 6.0 3.8 540.0 1.1 0.7 4.4 10.0 2.5 1.9
Price to Earnings 99.9 8.8 13.4 28.0 32.9 16.2 -- 9.3 -- 12.9 14.2 18.0 17.6 9.2 17.3 19.0 40.9 19.0
Price to Cash Flow -- 4.4 10.0 20.3 17.7 7.7 -- 2.5 -- 14.3 23.6 12.2 8.0 5.4 12.9 14.4 4.6 7.1

© Bloomberg L.P.
◼ FINANCIAL STATEMENTS ANALYSIS / BLOOMBERG BUSINESSWEEK CASE STUDY
Case Study Notes
● HOW DISNEY MAKES MONEY
A previous Disney Case used the company’s financial statements
to determine how Disney makes money. A few pertinent points
have been summarized here as they relate to this Disney Case.
Disney has four operating segments--Media Networks, Parks,
Experiences & Consumer Products, Studio Entertainment, and
Direct-to-Consumer & International. The table below shows the
proportion of Disney’s total revenues and operating income that
come from each segment.
Disney Segment Revenues and Operating Income
All Data from Fiscal Year 2018 in Millions, Except Percentages
Revenues % of Total Operating Income
Media Networks 21,922 36.5% 7,338
PECP 24,701 41.1% 6,095
Studio Entertainment 10,065 16.7% 3,004
DCTI 3,414 5.7% -738
Eliminations -668 -10
Total 59,434 15,689
Source: The Walt Disney Company Annual Report (10-K)
● A NOTE ON RATIOS AND COMPARISONS
During routine medical examinations, patients often have their
blood drawn and tested. Blood test results are displayed in a
table of numbers. Each number is a ratio that specifies how
much of a particular substance was found in a particular mea-
sured volume of blood. In isolation the results are not partic-
ularly useful. To make better use of the data, test results are
compared to data from other similar healthy individuals as a
reference and benchmark.
Financial ratios act like a blood test for a company. They
often give analysts advance notice of operating or financial dan-
gers being experienced by companies when compared against
their healthy peers. But what exactly constitutes a peer.
Disney has four discrete operating segments. No other com-
pany in the world has a similar structure. Consequently, we
are not likely to find a strict comparable company to serve as
a benchmark for ratio comparison. Very few companies have
peers that are strictly similar.
● CASE CLUES
The four case questions are tied to particular ratio segments
and can be answered by limited assessment of Disney’s ratios.
The following clues may be useful in answering the final case
question.
The Walt Disney Company has four operating segments:
Media Networks, Parks, Experiences & Consumer Products,
Studio Entertainment, and Direct-to-Consumer & International.
Each of these segments operates within different environments.
8
● PARKS, EXPERIENCES & CONSUMER PRODUCTS
Parks, Experiences & Consumer Products revenue includes
ticket sales to Disney theme parks and cruises, merchandise sold
at The Disney Store retail locations, and more. The segment’s
revenues have been on a general upward trend. It seems rea-
sonable that this segment is subject to the success of the other
three segments, with the Studio Entertainment segment’s suc-
cess having the greatest imapct. Data shows that popular charac-
ter movies, like Finding Nemo, significantly increase purchases
of products related to the film. Disney also centers most of its
new theme park and experience entertainment on recent movie
success like the Star Wars park in Disneyworld. In your analy-
% of Total sis, consider the changes in operating margins in this sector.
46.7%
38.8% ● MEDIA NETWORKS
19.1% The company owns and operates a number of media networks,
-4.7% including ESPN, Disney, and ABC. With the advent of Netflix,
Hulu, and Amazon Prime, consumers have completely changed
how they view and consume media content. Using ratios like
operating margin and asset turnover, think about how you
believe Disney may be able to compete in this changing market.
● STUDIO ENTERTAINMENT
This is the company’s movie making business. Movie making is
often considered an “eat what you kill” business. This means
that movie makers are judged on the value of their current cre-
ation. A number of trends in this segment significantly impact
the company as a whole. Revenue growth is spotty with notice-
able periods of up and down. Assets have increased through
three purchases of competitive studios: Pixar, Marvel, and Lucas
Films. For this segment, focus on three things: the number of
films produced, the operating margin, and the average reve-
nue per film.
● DIRECT-TO-CONSUMER & INTERNATIONAL
The Direct-to-Consumer & International segment includes busi-
nesses like ESPN+, Disney+, and Hulu streaming services. These
businesses generate revenue from subscription fees charged to
customers/subscribers for Disney’s DTC streaming services. For
this segement, focus on programming and production costs, as
well as technical support costs.
© Bloomberg L.P.
◼ FINANCIAL STATEMENTS ANALYSIS/ BLOOMBERG BUSINESSWEEK CASE STUDY 9

Case Questions
● To answer these case questions, use the Terminal Tutorial and Case Study
Notes provided on the next pages.

① Is Disney liquid compared to its peers?

② Does Disney manage its assets effectively compared to its peers?

③ Does Disney’s debt load suggest trouble paying its creditors?

④ Compare Disney’s profitability to its peers.

© Bloomberg L.P.
◼ FINANCIAL STATEMENTS ANALYSIS / BLOOMBERG BUSINESSWEEK CASE STUDY 10

Terminal Tutorial
● Use the Bloomberg Terminal and the notes below to answer the case questions.
● Use these directions as a guide or watch the accompanying video tutorial.
▶ Web: https://vimeo.com/303744475/889fd37d0a
▶ Terminal: PLYR VOD 332918510 <GO>

① The financial statement ratios used for Disney and its ② Next, open the Excel student exercise file included with this
peers are to be downloaded into an Excel spreadsheet using case. Check that you are looking at the Peer Comparison tab.
Bloomberg’s API.
Disney’s primary entertainment peers in the media and
Note that students, either individuals or representatives entertainment facilities are in the column headings with their
from a group, will need access to the Bloomberg Terminal to names and equity tickers in row 7.
complete all of the case questions.
Ratio fields are in the rows, and the codes to import each field
Log in to the Bloomberg Terminal and open Microsoft Excel. are in column B.
Ensure that the Bloomberg tab is visible in the Excel ribbon
at the top of the page. This indicates that your Excel will read
and pull data out of the Bloomberg.

③ Use Bloomberg’s API to import the financial statement
ratio data required to answer the case questions. Data can be
imported using cell references or by entering the API codes
directly into the formulas in each cell. Both approaches follow
the same general syntax: =bdp(Ticker, Field). Let’s take a look
at the two methods.
④ Now complete the table. Use this tab and the Historical
Ratios tab (along with the remainder of the materials in this
Case Study) to answer the questions. Note that you will have
to be logged into the Terminal to view your spreadsheet data.

© Bloomberg L.P.