Walt Disney Solvency and Capital Structure free essay sample

Included in the assets are accounts receivable, office equipment and real estate, while possible debt items are short-term loan interest and long-term bond debt. Usually small debt-to-asset ratios indicates lower lending risk, and a bigger ratio could have as a consequence higher borrowing interest rate and the possibility of some denial of new loans. Time Warner Inc. s Debt to Total Assets Ratio increased from 2010 to 2011, by 9. 8 % and Walt Disney Co. s on the other side only increased by 4. 35 %. Both companies ratios are above the industry average but Walt Disney definitely had not only better numbers but also better behavior from 2010 to 2011. Long Term Debt to Equity Ratio Long Term Debt to Equity | 2011| 2010| Walt Disney Co. October*| 0. 29| 0. 27| Time Warner Inc. December*| 0. 65| 0. 50| Industry Average| 0. 56| 0. 49| The Long Term Debt to Equity Ratio expresses the relationship between long-term capital contributions of creditors as related to that contributed by owners (investors). Long-Term Debt to Equity expresses the degree of protection provided by the owners for the long-term creditors. We will write a custom essay sample on Walt Disney Solvency and Capital Structure or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page When a company has a high long-term debt to equity is considered to be highly leveraged. Walt Disney not only maintained a lowest ratio in relation to Time Warner between 2010 and 2011, but the increased was also smallest (7. 4 %) compared to Time Warner (30 %). Short Term Debt to Total Debt Short-term debt are the companys liabilities that are due to be paid within one year. Short term debt ratio measures whether a company will be able to meet its short-term  debt obligations using a comparison with the companys current assets. Short Term Debt to Total Debt| 2011| 2010| Walt Disney Co. October*| 0. 35| 0. 35| Time Warner Inc. December*| 0. 24| 0. 26| Walt Disneys Short Term Debt to Total Debt ratio stayed the same from 2010 to 2011 and Time Warners decreased by 7. 69 % indicating that the ability to pay for Time Warner is not only better in both years but it is also improving while Disney remains the same. Interest Coverage ratio (Earnings Basis) Interest Coverage Ratio | 2011| 2010| Walt Disney Co. October*| 24. 45| 17. 20| Time Warner Inc. December*| 4. 61| 4. 33| Industry Average | 11. 2| 9. 87| The Interest Coverage Ratio (Earning Basis)   is used to determine how easily a company can pay interest on outstanding debt  using its earnings before interest and taxes . This ratio is calculated by dividing a companys earnings before interest and  taxes  (EBIT) of one period by the companys  interest expenses  of the same period. A high  interest coverage ratio  could be a sign that the company is not using properly the opportunities to increase  earnings  through  leverage and is usually of a particular interest for lenders. The lower the ratio, the higher the companys debt burden and the greater the possibility of bankruptcy or default. Time Warner Inc. s Interest Coverage Ratio increased from 2010 to 2011, by 6. 5 %. Walt Disney Co. s on the other side increased by 42. 2 % with a clear greater ability for the company to take care of their debt interest. Interest Coverage Ratio (Cash Flow Basis) Interest Coverage Ratio| 2011| 2010| Walt Disney Co. October*| 29. 51| 22. 74| Time Warner Inc. December*| 5. 08| 4. 96| Interest Coverage Ratio (Cash Flow Basis) expresses whether the company can meet its interest payments on a cash basis. This can be important if the company has significant non-cash expenses (like depreciation) or non-cash interest expense. From 2010 to 2011, Time Warner Inc. s ratio increased by 2. 4 % and Walt Disneys increased by 29. 8 %. Free Cash Flow Free Cash Flow (in millions)| 2011| 2010| Walt Disney Co. October*| 2,679| 3,815| Time Warner Inc. December*| 1,679| 1,712| Free Cash Flow represents the cash that a company is able to generate after  laying out the money required to maintain or expand its asset base. Free  cash flow is important because it  allows a company to  pursue opportunities that enhance shareholder value. Without cash, its tough to  develop new products, make acquisitions, pay dividends and reduce debt. From 2010 to 2011 Walt Disneys cash flow had a considerable decrease of 29. 8 % clearly showing how Time Warners did much better with a small decrease of 1. 93 %. Solvency and Capital Structure Recap Taking in consideration the ratios used to analyze the solvency and capital structure for Walt Disney and Time Warner we can arrive to the conclusion that Walt Disney shows better results during the two year period from 2010 to 2011. Walt Disney has shown a clear better ability to