Company Synopsis
Disney Corporation. Founded in 1923, The Disney Corporation and affiliates have been committed to producing experiences of quality creative content and storytelling in entertainment (Disney Corporation, 2009). The Disney Corporation, subsidiaries and affiliates, are leaders in the globally diversified family entertainment and media enterprise with business segments in media networks, parks and resorts, studio entertainment and consumer products, just to name a few (Disney Corporation, 2009). Pixar's success branding it a leader of quality family entertainment by a creative team and global box office is more than apparent by the 20 Academy Awards being won (Disney Corporation, 2009).
Shang-wa has been identified as a target for a potentially hostile takeover and at this time if Shang-wa falls into the hands of a competitor, the effect would be devastating for LEI. Acquiring Shang-wa would provide a continuation of the business LEI already enjoys, add shareholder value by expanding capabilities globally and increase revenue with new business lines. "Just days into Bob Iger's new job (as CEO of Disney), Disney acquired Pixar Films, bringing in Apple's Steve Jobs onto the company's board in the process," (La Monica, 2006). Bob Iger took over as Chief Executive Officer (CEO) of Disney just a few years ago with big strategic plans. One of the first plans was to acquire Pixar before anyone else.
When Iger took over as CEO it was not with the warmest welcome. The prior CEO, Michael Eisner, recommended Iger to the board as his replacement and many didn't want another Eisner (Siklos, 2009, � 24). The only way for Iger to gain everyone's support was to earn it; he did so by creating a much-needed new strategy and ideas to get Disney where they wanted to be. "Growth would come from an emphasis on creativity, technology, and international markets," (Silkos, 2009, �36). Disney was lacking in the animation market, and the Pixar deal with Disney fell apart under the prior CEO. Iger's idea to acquire Pixar outright shocked many behind the Magic Kingdom walls.
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Another problem Disney facing was "brand fatigue" (Silkos, 2009, �43) by targeting only younger children. Through the acquisition of Pixar Disney has grown beyond Mickey Mouse and Winnie- the-Pooh. "In an industry with a miserably low success rate for mergers and acquisitions, Iger gets high marks for Pixar" by planning for Disney to continue acquiring new companies to add to the Disney brand name (Silkos, 2009, 55).
"Now Disney and Pixar can collaborate without the barriers that come from two different companies with two different sets of shareholders," said Jobs (La Monica, 2006, �3). Pixar movies have been an enormous success. Disney paid a high price for Pixar, but the consequences for Disney if they let someone else buy Pixar would have been would have been higher. "The acquisition of Pixar could help Disney increase revenue throughout all of its business lines," (La Monica, 2006, �23).
The use of financial statements and ratio analysis to assess organizational performance is what Iger used to make Disney a success at merging with Pixar. Understandable, relevant, reliable and comparable are the meaning of financial statements. An organization's financial position can be reported by assets, liabilities and equity. An organization's financial performance can be reported by income and expenses. An excellent method for determining the overall financial condition of a company is ratio analysis.
Ratio analysis can be affective by putting information into perspective by helping spot financial patterns in financial statements threatening the health of the company (Financial Pipeline, 2009). Ratios are also helpful tools in making comparisons between the company and other companies in the industry (Financial Pipeline, 2009). An indication a company is holding too much inventory or slowly collecting receivable can be found in comparing ratios. Such a comparison provides an indication of ways the company can improve operations.
Profitability is one of the most difficult attributes for a firm to conceptualize and measure (Ross, et al., 2004, pg 37). In a general sense, accounting profits are the difference between revenues and costs (Ross, et al., 2004, pg 37). Management will not have a complete way to know when a firm is profitable, but at best, a financial analyst can measure current or past accounting profitability (Ross, et al., 2004, pg 37). Disney business opportunities involved sacrificing current profits for future profits. With Disney's acquisition of Pixar, Disney opened up doors to a variety of all ages and not just to younger children.
The acquisition also increased revenue throughout all business lines of Disney. Lester Electronics should gain opportunities involving sacrificing current profits for future profits, all new products and services require large start-up costs and produce low initial profits (Ross, et al., 2004, pg 38). With acquiring Shang-wa, LEI would open doors of opportunities adding to shareholder value by expanding capabilities globally and increase revenue with new business lines and future acquisitions. Current profits can be a poor reflection of true future profitability. Lester Electronics' economic profitability is only greater than investors if profitability can be achieved in capital markets.
Profit margins are computed by dividing profits by total operating revenue and thus they express profits as a percentage of total operating revenue (Ross, et al., 2004, pg 38). The direct measure of profitability is the downside of profit margins because profit margins are based on total operating revenue and not on the investment made in assets or the equity investors (Ross et al., 2004, pg 38). Profit margins measure how much out of every dollar of sales a company keeps in earnings.
Profit margins can be very useful in comparing companies of similar industries (Ross et al., 2004, pg 38). A company's high profit margin indicates a more profitable company having more control over costs compared to competitors (Ross et al., 2004, pg 38). In 2004, LEI's profit margin was 7.38% and TEC's profit margin was 0.71%. This indicates LEI has better control over costs then their competitor.
One common measure of managerial performance is the ratio of income to average (ROA) total assets, both before tax and after tax. One of the most interesting aspects of return on assets is how some financial ratios can be linked together to compute ROA (Ross et al., 2004, pg.38). Lester Electronics can increase their ROA by increasing profit margins or asset turnover. Margins and asset turnover tends to face a trade off between each other because if one goes down the other has to go up to keep the ROA from failing.
The assets of the company are comprised of both debt and equity used to fund the operations of a company. ROA gives investors a notion of how effectively the company is converting the money it has to invest into net income. LEI's ROA jumped from 12% in 2003 to 24% in 2004. The higher the number in a ROA, the better the company is at earning more money for less the investment.
CVS Caremark. CVS pharmacy, the nation's second largest retail pharmacy chain has been in business for more than 40 years. Caremark was established in 1979 as Home Healthcare of America, one of the nation's leading pharmacy benefit management companies. Caremark merged with CVS in 2007 to become CVS Caremark. The merger created the largest provider for prescription drugs and healthcare services in the United States. Caremark offers an entire gamut of pharmacy care allowing them "to provide greater convenience and choice for patients, improve health outcomes, and lower overall health care costs for plan sponsors and participants" (CVS Caremark, 2008). The merger of CVS and Caremark strengthened retail pharmacy and the managed care industries tremendously.
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