The Walt Disney Company - Case Study Example

Section 1: Core competencies Walt Disney has a diverse range of core competencies from making imaginative and animated movies to creating theme parks (Ungson and Wong 107). The company has distinctive core competencies for adults, children and teenagers in the shape of illusion and imagination. Aggregately, the company has evolved into five business segments including parks and resorts (which is the initial business innovation by the Disney Brothers), media networks, studio entertainment, interactive media and consumer products (The Walt Disney Company). Competitive advantage Mickey Mouse, Goofy and Minnie Mouse are the main sources of competitive advantage. As the company owns exclusive rights to these characters, the company earns more revenue by utilizing these characters in different animated films and cartoons and products based on these characters that are sold through theme park shops (Hoskisson et al. 173). Although these are the results and innovations provided by Walt Disney, there are other manifestations of competitive advantages owned by the company. For example, “Patents shield the use of these characters protects the firm from imitation by competitors “ (Hoskisson 173). Additionally, the company is actively pursing innovation and creativity to longer its effective competitive position in the global market. For this purpose, it has developed a creativity strategy. “A creativity strategy has been developed and pilot projects have been identified and the creativity grants will support non-profits that nurture creative thinking skills in the afterschool/out of school time through multi-disciplinary learning (The Walt Disney Company). Business-level strategy On July 17, 1955, a unique destination was created by Walt Disney with the concept of parks and resorts. Due to the successful business strategy, Walt Disney Parks and Resorts (WDP&R) has become a preferred family travel and leisure destination. There are 11 theme parks and 43 resorts in Asia, Europe and North America. Additionally, the Walt Disney Studios has experienced a considerable expansion after its creation more than 85 years ago. The Walt Disney Studios provides music, movies and stage plays. Both animated and non-animated movies are released under the various titles: Disneynature, Pixar Animation Studios, Touchstone Pictures and Marvel Studios; the Disney Music Group includes Disney Music Publishing, the Walt Disney Records and Hollywood Records; the Disney Theatrical Group licenses and produces live programs including Disney On Ice, Disney on Broadway and Disney Live (The Walt Disney Company). All these business differentiations have experienced a considerable but careful business-level strategy. Additionally, “The Company employs 5 different business models to maximize revenue, delivering what customers want and advertisers need” (Murray). Section 2: Financial Analysis Walt Disney and Time Warner Ratios   2011 2010 2009 Gross Profit Margin 19.00% 43.70%(TW) 17.67% 44.13%(TW) 15.75% 44.01%(TW) Net Profit Margin 11.75% 9.96%(TW) 10.41% 9.59%(TW) 9.14% 9.57% (TW) Return on Assets 6.66% 4.26% (TW) 5.72% 3.88%(TW) 5.23% 3.75% (TW) Return on Equity 12.86% 9.63%(TW) 10.56% 7.83%(TW) 9.80% 7.39%(TW) TW= Time Warner Source: Walt Disney and Time Warner Annual Reports 2009-2011 Gross Profit Margin Walt Disney experiences a steady rise in the gross profit. The gross profit highlights the remaining amount after paying the direct cost of sales. From the year of 2009 to 2011, the company has increased its gross profit ratio from 15.75% to 19.00%; the aggregate rise of 3.25% has been posted by the company during the period. On the other hand, Time Warner has showed a significant increase in the gross profit margin throughout the entire period. Except the slight margin of fall in the year of 2011, Time Warner has been maintaining comparatively better gross profit margin during the year. This shows that the company has been successful in increasing its sales volume and decreasing the cost of sales during the period of 2009 to 2011. Net Profit Margin The net profit shows an amount available for shareholders of company who are the real owners. If the net profit is increasing, it suggests that company is earning more returns. Within this context, Walt Disney has posted a consistent increase in the net profit ratio during the period. From the year of 2009 to 2010, Walt Disney has recorded a mere growth of 1.27% and 1.34% net profit growth has been attained from the year of 2010 to 2011. Aggregately, the net profit figures suggest that the company is not experiencing a substantial growth. In contrast to the net profit margin of Walt Disney, Time Warner has been successful in maintaining a higher amount of net returns throughout the discussed period. This indicates that that Time Warner has financially performed better and has showed attractive returns in comparison with the net profit margin and financial performance of Walt Disney during the mentioned period. The aggregate trend of net profit margin of Time Warner indicates that the senior management has largely been able to enforce its policies and procedures effective enough to maintain and enhance the level of financial performance throughout the period. Return on Assets The Return on Assets (ROA) highlights how profitable a company is in comparison to its total assets. Additionally, it also represents efficiency of firm management to employing the firm assets for producing lucrative earnings. In the above mentioned three years, the senior management of Walt Disney has been successful in ensuring an un-interrupted flow of returns when analyzing the net profit with the total assets in a particular year. During this phase, the growth percentage remains less than one, highlighting that the senior management is struggling to generate attractive returns. However, Time Warner has been effective in utilizing its assets and enhancing their profitability, efficiency and performance during the mentioned period of time. From the year of 2009 to 2011, the company maintained return on assets 3.75%, 3.88% and 4.26% in 2009, 2010, and 2011 respectively. The aggregate trend indicates that the company has been putting its best efforts to increase the utilization of its assets. However, this asset utilization has resulted in a minimal rise in the returns, showing that the senior management has not been successful in enhancing the efficiency, effectiveness, performance and productivity of their assets. On the other hand, Walt Disney comparatively has obtained best returns from the efficient utilization of its assets. Although the provided trend has not been convincing but it has been better than the trend highlighted by the return on assets provided by Time Warner. Return on Equity Return on equity highlights utilization of shareholders’ equity. The returns represent whether a company’s management has been successful in efficiently and effectively utilizing the assets of shareholders’ equity. Walt Disney’s trend of Return on Equity highlights that the company has been successful in putting an improving direction, suggesting that the returns on equity keep increasing over a period of time. In the year of 2009, the returns on equity were 9.80% and reached 12.86% in 2011. This indicates that the company has been successful in enhancing the increase of around 3 percent over of period of three years. This cannot be termed as a satisfactory rise in the return on equity when considering the level of growth and market capitalization. Time Warner has not performed well. Over the period of 2009 to 2011, the company has recorded a growth of around 2.24 percent over a period of three years. This indicates that the shareholders’ equity has not been appropriately utilized over a period of time and this improper utilization has resulted in the less attractive returns over a period of time. Comparative Financial Analysis (ROA Analysis) Source: Annual Reports of Time Warner and Walt Disney 2009-2011 A comparison between Walt Disney and the Time Warner Co. clearly authenticates that Walt Disney has remained largely successful in efficiently utilizing its assets during the period of 2009 to 2011. The trend line of Walt Disney’s ROA indicates that a consistent rise has occurred during the period. In the year of 2009, ROA was at 5.23% and reached 6.66% in 2011. On the other hand, Time Warner’s ROA has increased less one percent during the period of three years. This establishes that the Time Warner senior management has not been able to considerably increase ROA during the period of three years. Section 3: Discussion Walt Disney has substantial and strong core competencies and competitive advantage over the competitors in the entertainment and film industry. It is the fruit of these core competencies that has enabled the company to outshine many of its competitors during the above mentioned period. The Walt Disney ROA has been comparatively better when compared to the ROA of Time Warner. However, the Walt Disney has not been as much successful as it should be. For example, the gross profit ratio, the net profit ratio, the ROA and current ratio have not experienced substantial growth when considering the strategic capabilities and core competencies owned by Walt Disney. Additionally, in the year of 2010, the company dropped its quick ratio to less than one, clearly depicting that its short-term obligations were more than the availability of its current liquid assets. On the whole, the company has not been able to fully exploit its current core competencies and the power of competitive advantage over its competitors in the film industry. Time Warner has been successful in maintaining better gross and net profit margin in comparison with the gross profit margin and net profit margin maintained by Walt Disney. On the other hand, Walt Disney has been successful in achieving higher returns on assets and return on equity by maintaining and retaining a higher level of performance during the period. However, the closer analysis indicates that the growth rate has largely remained the same as far as return on assets and return on equity is concerned. Works Cited Hoskisson, Robert E., Hitt, Michael A., Ireland, Duane R., Harrison, Jeffrey S. Competing for Advantage. 2nd Ed. Ohio: Thomson South-Western. 2008. Print. Murray, Ingrid. Competitive Advantage: challenging convention- clear water between you and your competition- more profit. 15. Jan. 2009. Web. 11 Nov. 2012. The Walt Disney Company. “Company Overview.” Walt Disney Company. 24 Oct. 2012. Web. Time Warner Annual Report 2009. “Time Warner Annual Report 2009.” 24 Oct. 2012. Web. Time Warner Annual Report 2010. “Time Warner Annual Report 2009.” 24 Oct. 2012. Web. Time Warner Annual Report 2011. “Time Warner Annual Report 2009.” 24 Oct. 2012. Web. Ungson, Gerardo R., Wong, Yim-Yu. Global Strategic Management. New York: M.E. Sharpe. 2008. Print. Walt Disney Annual Report 2009. “Fiscal Year 2009 Annual Financial Report and Shareholder Letter.” 24 Oct. 2012. Web. Walt Disney Annual Report 2010. “Fiscal Year 2010 Annual Financial Report and Shareholder Letter.” 24 Oct. 2012. Web. Walt Disney Annual Report 2011. “Fiscal Year 2011 Annual Financial Report and Shareholder Letter.” 24 Oct. 2012. Web. Read More