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ASSIGNMENT

FINANCIAL PERFORMANCE

STUDENT NAME

STUDENT ID
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Table of Contents
Introduction........................................................................................................................................................................... 3
Compare the two companies' long-term solvency using the income statement and balance sheet
abstracts below. More solvent firm?..........................................................................................................................3
The fact that Warner Bros. has substantially larger retained earnings than Prime Video
demonstrates that it is in a better financial position...........................................................................................5
As a financial analyst, what factors do you use to predict company profitability?..............................6
The company with the highest operating efficiency and profitability........................................................7
To stay in control, what money should a corporation prioritise? Shareholder equity calculation:
..................................................................................................................................................................................................... 8
Conclusion.............................................................................................................................................................................. 8
Reference.............................................................................................................................................................................. 10
Appendix.............................................................................................................................................................................. 11
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Introduction

We compare and contrast two of the most successful entertainment companies in the world,

Warner Bros. and Prime Video, in this comprehensive financial analysis. We evaluate how

efficiently they operate, how lucrative they are, how financially stable they will continue to

be, and how well they plan for the future. We will be able to have a better understanding of

their longevity and growth possibilities if we perform an in-depth review of their financial

records. We take a look at the financial difficulties that Warner Bros. is currently facing and

suggest a strategy that the company could implement to keep the news of its expansion under

wraps. We intend to provide substantial insights into the financial methods that can assist

these titans of the entertainment industry in analyzing their capital structure, making the most

of their advantages, and minimizing risks in the context of a highly competitive and rapidly

evolving entertainment industry. Our goal is to assist these companies in achieving success

that is both long-term and sustainable.

Compare the two companies' long-term solvency using the income

statement and balance sheet abstracts below. More solvent firm?

One popular indicator that is used to evaluate a company's financial health is the ratio of debt

to equity.

The debt-to-equity ratio is a financial metric that quantifies the proportion of debt a company

possesses in relation to its equity, which represents the funds available for the firm's
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operational financing. Higher ratios are indicative of increased amounts of debt and an

elevated probability of debt default for the business.

Debt-to-equity ratio = Total Debt / Equity

The total debt-to-EBITDA ratio is a metric that evaluates the ability of a company to repay its

debt by considering its profits before interest, taxes, depreciation, and amortisation

(EBITDA). A higher proportion implies that the business is facing greater challenges in

repaying its debt.

Company Total debt Equity Debt-to-equity EBITDA Total debt-to-

ratio EBITDA ratio

Warner $42,018,00 $93,000,000 0.45 $27,552,000 1.52

Bros. 0

Prime $12,440,21 $5,000,000 2.49 $7,716,234 1.62

Video 3

Total debt-to-EBITDA ratio = Total debt / EBITDA

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Chart
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4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Warner Bros. Prime Video

Debt-to-Equity Ratio Total Debt-to-EBITDA Ratio

On the other hand, considering the information at hand, we will use the Retained Earnings

instead. This indicator provides information regarding the proportion of a company's profits

that are retained by the business rather than being paid out to shareholders.

Firm Retained Earnings

Prime Vedio (Amazon) 149419

Warner Bros 889000

The fact that Warner Bros. has substantially larger retained

earnings than Prime Video demonstrates that it is in a better
financial position.

Based on the income statement and balance sheet abstract below, which corporation manages

shareholder capital better?

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This can be analyzed using the Return on Equity (ROE) statistic, which is computed by

dividing the net income by the total equity held by shareholders. This provides an indication

of how profitable the company has been.

Prime Video (Amazon): ROE = 2, 115, 760/5, 000, 000= 0.4231 or 42.31%

Warner Bros.: ROE = 11,054,000/93,000,000= 0.1189 or 11.89%

Through the achievement of a higher return on equity (ROE), Prime Video (Amazon) is

demonstrating to investors that they are increasing the amount of money that they are making

off of the capital that they have invested.

As a financial analyst, what factors do you use to predict

company profitability?

 The product and service portfolio of a firm can have a significant bearing on its

profitability, specifically in terms of how well it satisfies the requirements of the

market at the present time. Increasing or improving the variety of products and

services that are provided might result in increased income.

 It is absolutely necessary to do an analysis of the pricing policies, operational

efficiency, and expense management tactics utilised by the organisation. Increasing

profitability can be accomplished by lowering operating expenses, streamlining

business processes, and improving supply chain management.

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 The pricing strategy that a firm uses could be a significant factor in determining

whether or not it can earn a profit. To accurately forecast profits, one must have

information regarding the demand elasticity and pricing power of the company.

 The amount of money that a company makes, the size of its client base, the level of

loyalty and satisfaction of its existing customers, and the overall level of customer

satisfaction all have an effect on the company's bottom line. Earnings could benefit

from consistent income as well as recommendations from clients who are pleased

with the service.

 Recent Advances in Technology It may be beneficial to remain current on the most

recent advances that have been made in the field of technology. Profits can be boosted

by increasing a company's competitiveness and efficiency through the implementation

of current technological practises.

The company with the highest operating efficiency and

profitability.

The operating margin is a statistic that is used to evaluate the operational efficiency of a

business. This metric is calculated by dividing the operating income by the revenue of the

business.

Company Operating Margin Operating margin %

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calculations

Prime Vedio 2,604, 254/20, 156, 447 = 12.92%

0.1292

Warner Bros 11,851,000/69,570,000= 17.04%

0.1704

It appears that Warner Bros. has improved both their profitability and their operational

efficiency as evidenced by their increased operating margin.

To stay in control, what money should a corporation prioritise?

Shareholder equity calculation:

When it comes to the administration of operational tasks, a firm should, where it is possible

to do so, select debt financing rather than equity financing as their source of capital. This is

due to the fact that, in contrast to equity financing, debt financing does not include the issuing

of ownership interests in the firm. Rather, the money is used to pay down existing debt.

Instead, the money is put towards reducing the amount of debt that already exists.

When determining the amount of equity held by a company's shareholders, it is important to

determine the total amount of a company's liabilities and then subtract that amount from the

total amount of a company's assets. Alternately, it can be thought of as the entire amount of

capital supplied by shareholders, which would include both direct donations and retained
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earnings. This interpretation takes into account both of these types of contributions. If one

were to interpret the term in this way, it would be more accurate.

Conclusion

The results of the research are presented in the following summary, which is, of course, only

a shortened version of the full report:

 It would appear that Warner Bros. is in a healthier financial position than its

competitors due to the fact that it has a greater amount of retained earnings than those

competitors.

 When compared to Warner Bros.' ROE of 11.89%, the greater Return on Equity

(ROE) of 42.31% that Amazon Prime Video has exhibited for its shareholders shows

superior capital management on Amazon Prime Video's part.

 It is essential to take into account a variety of aspects, such as the extent of the

competition, the tendencies of the market, the rates of revenue development, and the

margins that were achieved in the past, while attempting to make predictions

regarding profitability.

 When compared to Prime Video, which has an operating margin that is 12.92% lower

than Warner Bros.' 17.04%, it is clear that Warner Bros. demonstrates a significantly

higher level of operational efficiency.

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 Companies that value their autonomy more than any of the other factors typically

choose to finance themselves through debt rather than any of the other available

options. The total amount of money supplied by shareholders is known as

shareholders' equity, and the amount of shareholders' equity can be calculated by

subtracting the total amount owed on liabilities from the total amount donated by

shareholders.

Reference

Chapter 13 from Small Business Management: Launching and Growing New Ventures,

Canadian Edition, 6th Edition by Longenecker, Donlevy, Champion, Petty, Palich, Hoy.
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Appendix
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