Financial Analysis for Electronic Arts, Inc. and Main Competitors Presented by: Everette Benjamin David Krasnowiecki Jacob Marco Scott Traver Steve Senft.

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Presentation transcript:

Financial Analysis for Electronic Arts, Inc. and Main Competitors Presented by: Everette Benjamin David Krasnowiecki Jacob Marco Scott Traver Steve Senft Tao Wang

Introduction Electronic Arts, Inc. In 2009, Net Income was -$1,088 million Revenue has increased over past three years No long term investments for the past three years No long term debt past three years

The Firm: Electronic Arts, Inc – Interactive software company – One of the world’s largest third-party publishers – Most successful products are sports games Madden NFL NBA Live – The Sims – Need For Speed Competitors: Activision, Inc. World’s first independent developer and distributor of video games Top video game publisher in 2007 Take-Two Interactive Software Own 2K Games & Rockstar Games Electronic Arts proposed acquisition in 2008

Market Value Ratios for EA Strengths – Price/Free cash flow is 8x higher than industry average – Future of companies health is stable Weakness – Big declining in market cap, due to big decrease in stock price – negative P/E ratio due to net loss – Big decline in P/B ratio due to stock price

A horrible ROE far behind average % compare to the industry average 8.04, also fall behind it’s competitors. 1.PM (Profitability): % to 6.08% as a industry average Main reason for poor performance 2. Asset Turnover (Asset management): slightly above average 3.Equity Multiplier (Debt management)1.49 compare to industry average1.9 Below average, can make improvement try to rely more on debt managenment. Du Pont Analysis for EA ATVITTWOAverage 0.65x 0.78x0.30x0.93x0.5x

Operating efficiency Declining Profit Margins due to Net Loss Declining BEP due to Net loss & misuse of Assets Positive Sales growth Gross margin higher than competitors ATVITTWOAVG. 60.8%50.8%49.5%42.0%25.9%54.6%

Asset Management Ratios TATO-above average, in the middle place. A ITO- Compared to the industry average, Electronic Arts has very good Inventory turnover, and in fact has had better inventory turnover than all of the competition. FATO- Electronic Arts hasn’t showed good efficiency and falls below all of its competitors. DSO- Electronic Arts is very efficient when it comes to DSO, and is better than the competition.

Debt management for EA Equity multiplier (1.49 compare to industry average 1.90) Debt to Asset relatively stable and shows no problem in financing in asset Current ratio and Quick ratio well above average ratios, high liquidity ratios no problem in paying back short-term debt. Differences of these two ratios can show inventory turnover.

Summary and suggestion Profitability—main problem of the company A net loss due to high general administrative cost and selling prices-----Improve managing efficiency, reducing unnecessary expenses Asset management– relative strong Improve is possible, especially in fixed asset Debt management can rely more on issuing debt.