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.