Final Case Study 9 Dec

2

CASE STUDY: HISTORICAL FINANCIAL ANALYSIS 2

Case Study: Historical Financial Analysis

School of Business, Liberty University

Author Note

I have no known conflict of interest to disclose.

Correspondence concerning this article should be addressed to Nikita Chapman

Email: [email protected]

Case Study: Historical Financial Analysis

Historical Financial Statements and Trend Analysis for Electronic Arts

Condensed income statement with horizontal and vertical analysis for Electronic Arts (USD millions)

Item	2023	2024	2025	Change 2024 vs 2023 percent	Change 2025 vs 2024 percent	2025 as a percent of revenue
Net revenue	7,426	7,562	7,463	1.8	−1.3	100.0
Cost of revenue	1,792	1,733	1,827	−3.3	5.4	24.5
Gross profit	5,634	5,829	5,636	3.5	−3.3	75.5
Total operating expenses	4,302	4,311	4,116	0.2	−4.5	55.2
Operating income	1,332	1,518	1,520	14.0	0.1	20.4
Net income	802	1,273	1,121	58.7	−11.9	15.0

Source: Electronic Arts fiscal year 2025 Form 10 K consolidated statements of operations

Condensed balance sheet with horizontal and vertical analysis for Electronic Arts (USD millions)

Item	2023	2024	2025	Change 2024 vs 2023 percent	Change 2025 vs 2024 percent	2025 as a percent of assets
Total current assets	3,969	4,247	3,276	7.0	−22.9	26.5
Total assets	13,459	13,420	12,368	−0.3	−7.8	100.0
Total current liabilities	3,285	3,090	3,459	−5.9	11.9	28.0
Total liabilities	6,166	5,907	5,982	−4.2	1.3	48.4
Total stockholders equity	7,293	7,513	6,386	3.0	−15.0	51.6

Sources: Electronic Arts fiscal year 2025 Form 10 K and fiscal year 2023 results release

Condensed cash flow data with horizontal analysis for Electronic Arts (USD millions)

Item	2023	2024	2025	Change 2024 vs 2023 percent	Change 2025 vs 2024 percent
Net cash from operating activities	1,550	2,315	2,079	49.4	−10.2
Net cash from investing activities	(217)	(207)	37	−4.6	−117.9
Net cash from financing activities	(1,600)	(1,624)	(2,863)	1.5	76.3
Ending cash and short-term investments	3,127	3,448	2,707	10.3	−21.5

Source: Electronic Arts fiscal year 2025 Form 10 K consolidated statements of cash flows

Electronic Arts generates very stable top-line revenue over the next 2-3 years, with a gross margin of approximately three-quarters of sales, which indicates the scalability of its digital content and services business model. Mid-teens net margins in 2024 and 2025 are also characterized by high profitability compared to most entertainment counterparts but with a slight decrease in net revenue in 2025 because marketing and development expenditures favor future pipelines as opposed to short-term earnings. These trends are in line with the notion that profitability and activity ratios are mutually important in creating long run value in asset-light digital companies (Hasbiah, 2022).

According to the balance sheet, total assets are expected to shrink slightly in 2025 with a significant change in working capital, whereby current assets will fall, and current liabilities will rise leading to the negative net working capital to total assets ratio. This is common with companies that are dependent on deferred revenue, digital distribution and supplier financing as opposed to the heavy physical investment though it slightly raises the short-term liquidity risk. Akhtar et al. (2022) state that even with moderate leverage, and cash generation strength, these setups can be the ones that lead to high profitability which Electronic Arts has been able to achieve by showing positive operating cash flows in every year and only a few uses of debt.

Ratio Trend Analysis for Electronic Arts

Profitability Ratios

The net profit margin also increases to 16.8% in 2024 and to 15.0% in 2025 due to the constant income, strict cost of revenue, and reduced operating costs in the last year (Electronic Arts, 2025). The average ratio is improved to 9.5 in 2024 and 8.7 in 2025 (based on the average total assets), which is much higher than the value of 6.0 in 2023 (Electronic Arts, 2025). These trends show that Electronic Arts is continuously turning its asset base into income, in spite of the stagnant revenues, and that profits are very good in comparison with those of many tech and media companies. This aligns with the fact that the positive relationship between higher margins and return on assets with shareholder value in the digital industry (Hasbiah, 2022).

Liquidity Ratios

The current ratio is likely to rise to 1.21 in 2023 and drop to about 0.95 in 2025 as current assets are lower than current liabilities (Electronic Arts, 2025). The net working capital to total assets is changing by increasing to approximately 5.1% in 2023 and then to 8.6% in 2024 and then slightly negative at around minus 1.5 per cent in 2025 (Electronic Arts, 2025). This change is associated with an increase in deferred revenue and other short-term liabilities which are not substantially covered by liquid assets. As long as the firms have good operating cash flows and especially stable access to capital markets, moderate deterioration of traditional liquidity ratios should not be a performance killer as in the case of Electronic Arts (Khoza, 2025).

Leverage Ratios

The total percentage of liabilities to assets declines to about 45.8 percent in 2023 and 44.0 in 2024, but increases to 48.4 percent in 2025 (Electronic Arts, 2025). In the meantime, the debt to equity ratio is varying between about 84.5 percent and 78.6 percent and this is followed by a high of 93.7 percent within the period. These trends show that leverage will be moderate and relatively stable until 2024 and mildly higher in 2025, which will still leave the company far below the very high leverage levels of the private equity-owned or distressed issuers. According to Akhtar et al. (2022), moderate leverage has the potential to add value to a firm when it is coupled with high margins and high asset turnover, which is the case with Electronic Arts.

Activity Ratios

The total asset turnover is slightly enhanced, with Electronic Arts actually yielding a small amount more earnings on every dollar of assets every year, though the assets shrink, as in 2024, and 2025, the turnover stands at 0.56 times and 0.58 times, respectively. The turnover of receivables is also good with a 10.9 times and 12.0 times in 2023 and 2024 respectively, which is a days sales outstanding almost thirty days (Electronic Arts, 2025). These findings are consistent with the studies attributing high activity ratios to high profitability especially where digital industries are studied and the speed of cash turnover and effective utilization of non-material assets aid aggressive investment of content without substantial external capital needs.

Price to Earnings Ratios

Market-based valuation ratios are used to support the image of a high-quality growth franchise. The price to earnings ratio of Electronic Arts at the end of the year is set to grow due to the increment of approximately 34.0 to 36.8 and 58.4 of the price to earnings ratio in the year 2023 to 2024 and 2025 respectively on the basis of price to earnings and price to sales ratio respectively (Electronic Arts, 2025). The increasing multiples would indicate that investors are increasingly valuing long-term expansion out of live services, sports licensing, and possible corporate activity.

Ratio Trend Analysis for Take Two Interactive

Profitability Ratios

Take-Two Interactive records the net revenue of about 5,349.9 million, 5,349.6 million, and 5,633.6 million in the years 2023, 2024, and 2025 respectively. That said, it records massive net losses of about 1,124.7 million, 3,744.2 million and 4,478.9 million respectively which are mainly comprised of goodwill and intangible impairment relating to acquisitions (Take Two Interactive, 2025). Consequently, the net margin goes down to approximately negative 21 percent in 2023, and approximately negative 70 percent in 2024 and 80 percent. Return on assets also shows the same trend with an almost negative 7 percent ratio changing to near-negative, -27 percent and finally, near-negative, -42 percent despite the total assets decreasing during the period as it stands at about -15.86 billion to -9.18 billion (Take Two Interactive, 2025).

Liquidity Ratios

Take Two Interactive has fewer resources in terms of liquidity than Electronic Arts. In 2024 and 2025, the current ratio stood at about 0.94 and 0.78, respectively; the current assets in 2024 and 2025 were about 2,259.7 million and 2,815.9 million, respectively, and the current liabilities 2, 406.4 million and 3,615.8 million, respectively (Take Two Interactive, 2025). Approximately 0.60 in 2024 and 0.62 in 2025 are a quick ratio, which incorporates cash, short-term investments, and accounts receivable, which means that immediately realizable liquid resources do not cover short-term commitments. This liquidity profile, paired with recurring net losses, shows that it depends on external financing and blockbuster releases like the next Grand Theft Auto title to get its balance sheet strength back.

Leverage Ratios

The leverage ratios of Take Two Interactive emphasize the effect of the impairments in equity. The liabilities to equity ratio increase to above 300 percent in 2024 and 2025 as the total liabilities are 53.6 percent, and 76.7 percent of assets respectively, the ratio of liabilities to assets is 115.5 percent, and 1:1 respectively (Take Two Interactive, 2025). This capital structure is significantly more aggressive than Electronic Arts, and there is less space to take additional shocks without the need to raise additional capital. Akhtar et al. (2022) indicate that these amounts of leverage and performance of losses are major contributors to financial risk, regardless of the valuable intellectual property and robust future pipelines, which is an applicable factor to Take Two Interactive.

Activity Ratios

Take Two Interactive has lower assets utilization but has its losses. Total assets reduce faster than revenue, and asset turnover grows taking 0.34 times in 2023 and 0.38 times in 2024 and 0.53 times in 2025. Nonetheless, both 2024 and 2025 have negative working capital values since the current liabilities are higher than the current assets, which means that the company successfully finances its activities with the help of payables, deferred revenues, and other short-term sources (Take Two Interactive, 2025). The fact that the turnover of the assets increases together with the negative working capital is typical of the company that embarks aggressively at the huge development programs without full transfer of the revenue and needs the strong future sales to support the current balance sheet position.

Comparative Evaluation and Strategic Assessment

The comparison between Electronic Arts and Take Two Interactive in 2023 and the year 2025 illustrates two extremely divergent financial paths of the same sector. Electronic Arts has consistent revenue, gross margin, net income, middle leverage levels, which generate healthy profitability and activity ratios, and increasing market-based valuation measures. Take Two Interactive in contrast, has a comparable scale level of revenue and a very large net loss, with a more limited liquidity position, and a considerably greater leverage, despite the fact that its asset turnover increases as the balance sheet shrinks. Such disparities are consistent with the studies that associate sustainable profitability, low leverage, and efficient asset utilization with the best long-term shareholder performance, especially in creative industries where the earnings volatility is high (Hasbiah, 2022).

Strategically, Electronic Arts seems to be in a better financial position to invest in live services and sports franchises as well as new intellectual property, and yet soaks cyclical downturns or execution risk without putting its own solvency at risk. Take-Two interactive now has strong franchises and potential of superior upside of major releases; but its current ratio is lower than one, margins are negative, and liabilities are large compared with equity and it has less margin of safety and is more dependent on successful implementation of its release calendar and cost cutting strategy. In the historical window thus, Electronic Arts has a more balanced and buoyant financial profile which is compared to the higher upside and greater financial risk exhibited by Take Two Interactive as indicated by the negative price-to-earnings ratio and the high price-to-sales multiple in comparison with the fundamentals.

References

Akhtar, M., Yusheng, K., Haris, M., Ain, Q. U., & Javaid, H. M. (2022). Impact of financial leverage on sustainable growth, market performance, and profitability.  Economic Change and Restructuring,  55(2), 737-774. https://doi.org/10.1007/s10644-021-09321-z

Electronic Arts. (2025). Electronic Arts Inc. Form 10 K for the fiscal year ended March 31, 2025. United States Securities and Exchange Commission. https://d18rn0p25nwr6d.cloudfront.net/CIK-0000712515/a0cdeb54-a4a8-4ffd-b9a9-485d37859121.pdf

Hasbiah, H. (2022). Analysis of Liquidity, Leverage, and Activity Ratio on the Financial Profitability of the Indonesian Telecommunications Industry.  Golden Ratio of Finance Management,  2(1), 61-76. https://doi.org/10.52970/grfm.v2i1.203

Khoza, F. (2025). The Impact of Liquidity and Leverage on the Financial Performance of the Johannesburg Stock Exchange-Listed Consumer Goods Firms.  Journal of Risk and Financial Management,  18(9), 510. https://doi.org/10.3390/jrfm18090510

Take Two Interactive. (2025). Take Two Interactive Software Inc. Form 10 K for the fiscal year ended March 31, 2025. United States Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/946581/000162828025026694/ttwo-20250331.htm