Question

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?  ​(Select all that​ apply.)

A.

Based on retained​ earnings, we see that Time Warner has about​ $86 billion in accumulated profits over the life of the​ business, while Walt Disney has accumulated profits of close to​ $47 billion.

B.

Time Warner has sold over​ $150 billion in common​ stock, compared to less than​ $34 billion by Walt Disney.

C.

Walt Disney has a larger size when it comes to total assets.​ Furthermore, the relative​ make-up of the assets is fairly similar.  

D.

Since Time Warner produces about​ $0.39 of sales per dollar of assets compared to Walt Disney generating about​$0.55 of sales per dollar of​ assets, Walt Disney is clearly using its assets more efficiently than Time Warner.

E.

Time Warner relies more heavily on debt financing with a debt ratio of about 56 percent compared to approximately 44 percent for Walt Disney.

Answer 1

Option A, B,C are not applicable because they are absolute values as compared to common size balance sheet. Common size balance sheet would offer ratios or percentages.

Option D is applicable because this means that Walt disney is more efficient at utilization of the resources by producing more ($0.55) sales per unit asset.

Option E is also applicable because debt as a total percentage of assets indicates that Time waner is less solvent and Walt Disney is more solvent