Corporate Finance
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ElectronicArtsPresentationTemplate3.pptxElectronic Arts Analysis
Electronic Arts Inc. develops, markets, publishes, and distributes video game software and content
Popular Games include the Madden Series, FIFA Series, SIMS, Medal of Honor and more.
Founded in 1982, Traded on the Nasdaq- Symbol is ERTS
Background information
Activision- Traded on the Nasdaq as well, symbol is ATVI
Makes games like Call of Duty, Rock Band, DJ HERO, and others
First major Game was Pitfall on the Atari 2600
Founded in 1982
Key Competitor- Activision
Liquidity Ratios
ERTS
ATVI
Current Ratio
1.64 X
Acid Test Ratio
.97 X
Avg. Collection Period
24.97 Days
Accounts Recievable Turnover
14.6 Times per Year
Inventory Turnover
18.66 Times Per Year
Current Ratio
2.13 X
Acid Test Ratio
1.6 X
Avg. Collection Period
105.5 Days
Accounts Recievable Turnover
3.5 Times Per Year
Inventory Turnover
9.6 Times Per Year
Operating Profitibility
ERTS
ATVI
Operating Return on Assets
-14.77% on every dollar of assets
Operating Profit Margin
-18.74%
Total Asset Turnover
.79 sales per dollar in assets
Fixed Asset Turnover
6.8 more sales than fixed assets
Operating Return on Assets
-0.19% on every dollar of assets
Operating Profit Margin
-.61%
Total Asset Turnover
.311 sales per dollar in assets
Fixed Asset Turnover
31.007 more sales than fixed assets
Financing Decisions
ERTS
ATVI
Debt Ratio
41.26% of assets financed by debt
Times Interest Earned
No Interest Expense
Return on Equity
-24.808%
Debt Ratio
21.73% of assets financed by debt
Times Interest Earned
No Interest Expense
Return on Equity
1.051
Market Value
ERTS
ATVI
Price to Earnings Ratio
-31.75 Low growth Potential
Price to Book Ratio
1.87 Slightly undervalued In the market
Capital Asset Pricing Model
9.66% Required Return
2.66+1.31(8-2.66)
Price to Earnings Ratio
41.86 High Growth Potential
Price to Book Ratio
1.32 Slightly undervalued In the market
Capital Asset Pricing Model
5.54% Required Return
2.66+.54(8-2.66)
ERTS
Collects Receivables and turns over inventory Faster
Uses their assets to generate sales better
Relativley low required return of 7%
ATVI
Has more cash to pay off debt if need be
Has less of a loss on assets, as well as a better profit margin
Nearly Half as much of their assets are financed by debt
Investors are more comfortable investing
Final Look
I would not invest with ERTS. They have nearly half of their assets financed by debt as well as a negative return on their assets.
If something were to happen and they had to pay off their creditors they would have no assets or cash remaining.
ATVI is a much better investment in my opinion because of their relatively low debt and positive earnings ratios.
Final Decision
ATVI: Summary for Activision Blizzard, Inc- Yahoo! Finance. (n.d.). Yahoo! Finance - Business Finance, Stock Market, Quotes, News. Retrieved December 1, 2010, from http://finance.yahoo.com/q?s=ATVI&ql=1
ERTS: Summary for Electronic Arts Inc.- Yahoo! Finance. (n.d.). Yahoo! Finance - Business Finance, Stock Market, Quotes, News. Retrieved December 1, 2010, from http://finance.yahoo.com/q?s=ERTS&ql=1
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