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Capital Structure

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Denieul camille

on 18 September 2013

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Transcript of Capital Structure

Capital Structure
Analysis of the capital structure and related finance parameters of
Created in 1923 by Walt Disney

World’s largest media conglomerate

Disney produces, distributes, and licenses television, movie and other entertainment

Significant barriers to entry

Walt Disney targets customers who have very specific needs and with solutions that are difficult to replicate. 
The Walt Disney Company
Time Warner
Merger of Time Inc. and Warner communications in 1989

Second largest media conglomerate

Four key strategic objectives :
- making, acquiring and distributing great content
- develop new models
- expand the presence of their brands internationally
- improving their operating and capital efficiency

Some of Time Warner’s strengths include a strong financial performance and strong brand equity.
Financial ratios
Price Earnings Ratio
Price to Book Ratio
Return on Equity
P/E = Current market share price / Earning per share
P/E ratios are highly dependent on capital structure
The company with a moderate amount of debt will commonly have a lower P/E than the one with no debt
Walt Disney P/E > Time Warner P/E  Shareholders expect higher earnings growth

Price to Book Ratio = Current share price / Share book value
Indicates whether it is over or under valued.
Disney seems to be valued correctly, in the industry.
A higher P/B ratio implies that investors expect management to create more value from a given set of assets

Return on Equity = Net Income / Equity
Shows how well a company uses its fund to create earnings
Cost of debt
The cost of debt for Warner is higher because their capital is made with more debt
than Disney.

Dividend Policy
Disney Annually

Warner Quarterly

==> relatively low, but as Warner has more debt then Disney, its WACC is lower
helps to determine the economic feasibility of opportunities and mergers
not a sensible discount rate for all of the Walt Disney and Time Warner's capital budgeting projects
The two companies have different capital structures.

It has concrete implications on their financial ratios.

Disney seems to be in a better position for the future.

The more debt the higher cost of debt the firms have

WACC are low for both companies and reflect their different amount of debt and equity
ALLAN Alexandre
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