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Homework answers / question archive / In this assignment you will complete a Financial Ratio Analysis on the Gaming Industry, focusing on Electronic Arts Inc

In this assignment you will complete a Financial Ratio Analysis on the Gaming Industry, focusing on Electronic Arts Inc

Finance

In this assignment you will complete a Financial Ratio Analysis on the Gaming Industry, focusing on Electronic Arts Inc. (EA).

You will compare this firm's financial ratios with its two main competitors: Activision Blizzard, Inc. and Take-Two Interactive Software, Inc.  

Download the file: Financial Ratio Analysis - Assignment One.xlsx  download  

In this file you will find the financial statements and the already calculated financial ratios for the two competitors, you only need to calculate the financial ratios for Electronic Arts, Inc. (that is your firm) and complete the financial ratio analysis in the "Financial Ratio Analysis" sheet in the  excel file. In this file I also set up the format that you must follow to make the comparison. See the Financial Ratio Analysis sheet. Use the formulas where the ratios are already calculated for the two other firms as a guidance for your calculations on your own firm, Electronic Arts.

There is a Video you should watch that includes detailed instructions for your analysis. It is available in the "Modules" tab. In this video, I use another firm as a sample but the procedure to calculate the ratios is the same.

Video Titled: "Assignment 1 - Financial Ratio Analysis Example" - See Modules.

Once you calculate EA's financial ratios and put them in the appropriate format, your final step is to interpret the financial ratios and provide an opinion on what your company is doing right and in which areas the firm needs some work. This is also explained in detail in the video above. You are going to use two approaches in your analysis.

Cross sectional analysis: compare the financial ratios of your firm against the benchmarks from at least two competitors

Time Series: use the financial ratios from the last five years.

Overall, you must state your recommendation based on your analysis of the firm’s overall financial situation and explain to me in your own words the reasoning behind your recommendation. Complete this analysis using both a cross-sectional and time-series analysis.   

The description and explanation for each financial ratio is shown in the textbook but to help you understand the ratios, you need to look at the numerator and the denominator and ask yourself what each one represents. For instance, the current ratio is current assets over current liabilities. You first notice that both are “Current”. This is telling you that the ratio is referring to assets and liabilities that will be used or paid within a year.  So basically, we are talking about the firm’s operating activities.

Let’s say the current ratio is 0.80.  Another way to state this is that for every dollar of current liabilities (denominator) the firm only has 80 cents in current assets (numerator). This does not seem good. Any number below 1 suggests that the firm does not have enough assets to pay off its short term debt if it becomes due now.

There may be a liquidity problem here. How will they fix it or what steps will the firm need to take to be able to cover their operating expenses? 

You can compare this to the benchmark financial ratios, do they also have a low Current ratio, this may be common practice in their industry. Then look at the time series, does the firm has had this values (under 1) each year or is it a recent event, it may be new and an indication of mismanagement in their liquidity needs in the last year. 

This is the kind of reasoning I am looking for. Do NOT just copy the definitions from the text, I want your perspective of what is going on here.

Submit one excel file with your analysis and all supporting financial data and financial ratios. Use formulas in excel to calculate the financial ratios. Assignment 1 - Part 1 is worth 60% of the overall Assignment grade; Part 2 is worth the remaining points. 

See the instruction videos and follow the format of the Assignment One excel file attached above and available on Modules.


Rubric for Part 1.

The total grade is divided 50% calculations and the presentation of formulas and financial ratios.

The remaining 50% is derived from the written part: explanation of ratios and proper ratio comparison (time-series, cross-sectional).

The weight of each family of ratios is divided in the following way.

Profit ratios 25%
Liquidity ratios 10%
Debt ratios 20%
Activity ratios 20%
Dupont analysis 25%

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