Financial Analysis for Electronic Arts, Inc. and Main Competitors Presented by: Everette Benjamin...
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Transcript of Financial Analysis for Electronic Arts, Inc. and Main Competitors Presented by: Everette Benjamin...
Financial Analysis for Electronic Arts, Inc. and Main Competitors
Presented by:Everette BenjaminDavid Krasnowiecki
Jacob MarcoScott TraverSteve SenftTao 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
2009 2008 20070
20
40
60
80
Price/Free cash flow ratio
ERTSATVITTWO
A horrible ROE far behind average
-29.12% compare to the industry average 8.04, also fall behind it’s competitors.
1. PM (Profitability): -25.83% 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
2007 2008 2009 ATVI TTWO Average
0.65x 0.65x 0.78x 0.30x 0.93x 0.5x
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 competitors2007 2008 2009 ATVI TTWO AVG.
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 assetCurrent 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.