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Time Warner Inc. (TWX)

Analysis of Investments

Difficulty: Advanced

Investment Accounting Policy

Investments in common stock in companies in which Time Warner has significant influence, but less than a controlling voting interest, are accounted for using the equity method. Significant influence is generally presumed to exist when Time Warner owns between 20% and 50% of the voting interests in the investee, holds substantial management rights or holds an interest greater than 3% in an investee that is a limited liability partnership or limited liability corporation that is treated as a flow-through entity.

Under the equity method of accounting, only Time Warner's investment in and amounts due to and from the equity investee are included in the Consolidated Balance Sheet; only Time Warner's share of the investee's earnings (losses) is included in the Consolidated Statement of Operations; and only the dividends, cash distributions, loans or other cash received from the investee, additional cash investments, loan repayments or other cash paid to the investee are included in the Consolidated Statement of Cash Flows. If previous equity method losses have reduced the carrying value of Time Warner's equity method investment to zero, Time Warner continues to record its share of equity method losses to the extent it has (i) other investments in the investee, (ii) guaranteed obligations of the investee or (iii) committed to provide further financial support for the investee.

Investments in companies in which Time Warner does not have a controlling voting interest or over which it is unable to exert significant influence are generally accounted for at fair value if the investments are publicly traded. If the investment or security is not publicly traded, the investment is accounted for at cost. Unrealized gains and losses on investments accounted for at fair value are reported, net of tax, in Accumulated other comprehensive loss, net. Dividends and other distributions of earnings from investments in companies in which Time Warner does not have a controlling voting interest or over which it is unable to exert significant influence are included in Other loss, net, when declared.

Time Warner regularly reviews its investments for impairment.

Source: Time Warner Inc., Annual Report

Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities

Time Warner Inc., adjustment to Net Income Attributable To Time Warner Inc. Shareholders

USD $ in millions

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12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net income attributable to Time Warner Inc. shareholders (as reported) 5,247  3,926  3,833  3,827  3,691 
Add: Change in securities 2  – 1  (14) 13 
Net income attributable to Time Warner Inc. shareholders (adjusted) 5,249  3,926  3,834  3,813  3,704 

Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)

Time Warner Inc., adjusted ratios

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net Profit Margin
Reported net profit margin 16.78% 13.39% 13.63% 13.99% 12.39%
Adjusted net profit margin 16.79% 13.39% 13.64% 13.94% 12.43%
Return on Equity (ROE)
Reported ROE 18.49% 16.13% 16.23% 15.64% 12.34%
Adjusted ROE 18.50% 16.13% 16.23% 15.58% 12.39%
Return on Assets (ROA)
Reported ROA 7.58% 5.95% 6.00% 6.05% 5.43%
Adjusted ROA 7.58% 5.95% 6.00% 6.03% 5.45%
Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Time Warner Inc.'s adjusted net profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders' equity. Time Warner Inc.'s adjusted ROE deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. Time Warner Inc.'s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Net Profit Margin

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income attributable to Time Warner Inc. shareholders (USD $ in millions) 5,247  3,926  3,833  3,827  3,691 
Revenues (USD $ in millions) 31,271  29,318  28,118  27,359  29,795 
Net profit margin1 16.78% 13.39% 13.63% 13.99% 12.39%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net income attributable to Time Warner Inc. shareholders (USD $ in millions) 5,249  3,926  3,834  3,813  3,704 
Revenues (USD $ in millions) 31,271  29,318  28,118  27,359  29,795 
Adjusted net profit margin2 16.79% 13.39% 13.64% 13.94% 12.43%

2017 Calculations

1 Net profit margin = 100 × Net income attributable to Time Warner Inc. shareholders ÷ Revenues
= 100 × 5,247 ÷ 31,271 = 16.78%

2 Adjusted net profit margin = 100 × Adjusted net income attributable to Time Warner Inc. shareholders ÷ Revenues
= 100 × 5,249 ÷ 31,271 = 16.79%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Time Warner Inc.'s adjusted net profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Return on Equity (ROE)

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income attributable to Time Warner Inc. shareholders (USD $ in millions) 5,247  3,926  3,833  3,827  3,691 
Total Time Warner Inc. shareholders' equity (USD $ in millions) 28,375  24,335  23,619  24,476  29,904 
ROE1 18.49% 16.13% 16.23% 15.64% 12.34%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net income attributable to Time Warner Inc. shareholders (USD $ in millions) 5,249  3,926  3,834  3,813  3,704 
Total Time Warner Inc. shareholders' equity (USD $ in millions) 28,375  24,335  23,619  24,476  29,904 
Adjusted ROE2 18.50% 16.13% 16.23% 15.58% 12.39%

2017 Calculations

1 ROE = 100 × Net income attributable to Time Warner Inc. shareholders ÷ Total Time Warner Inc. shareholders' equity
= 100 × 5,247 ÷ 28,375 = 18.49%

2 Adjusted ROE = 100 × Adjusted net income attributable to Time Warner Inc. shareholders ÷ Total Time Warner Inc. shareholders' equity
= 100 × 5,249 ÷ 28,375 = 18.50%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders' equity. Time Warner Inc.'s adjusted ROE deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Return on Assets (ROA)

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income attributable to Time Warner Inc. shareholders (USD $ in millions) 5,247  3,926  3,833  3,827  3,691 
Total assets (USD $ in millions) 69,209  65,966  63,848  63,259  67,994 
ROA1 7.58% 5.95% 6.00% 6.05% 5.43%
Adjusted: Mark to Market Available-for-sale Securities
Adjusted net income attributable to Time Warner Inc. shareholders (USD $ in millions) 5,249  3,926  3,834  3,813  3,704 
Total assets (USD $ in millions) 69,209  65,966  63,848  63,259  67,994 
Adjusted ROA2 7.58% 5.95% 6.00% 6.03% 5.45%

2017 Calculations

1 ROA = 100 × Net income attributable to Time Warner Inc. shareholders ÷ Total assets
= 100 × 5,247 ÷ 69,209 = 7.58%

2 Adjusted ROA = 100 × Adjusted net income attributable to Time Warner Inc. shareholders ÷ Total assets
= 100 × 5,249 ÷ 69,209 = 7.58%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. Time Warner Inc.'s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.