FINE 5220 (sections F and G) W2020 – Assignment #1  

Financial Analysis of Activision Blizzard, Inc. and Electronic Arts Inc.

Written report due at the start of class: March 9 (section G),                                                      and March 10 (section F)  

This assignment is to be done in self-selected groups of up to four students. Group dynamics are up to each group.  Your report should consider information from the annual general report, press releases, databases available in the Bronfman library and reliable media sources. Be diligent about references for any such information used. The assignment must be printed, and the text may be no longer than eight double-spaced pages using 11-font. This page limit does not include tables and exhibits contained in the appendices. The executive summary is not included in the eight-page limit. There is no limit on tables and exhibits but do show judgment.  Make sure you include an executive summary that summarizes the two firms, summary analysis and your conclusions.

Objective:  By comparing these two competitors and using financial ratios you will create a case for investing in one of the firms based on the success of its operating strategy/business strategy and operational performance and suitability of the capital structure.

Compare Activision Blizzard, Inc. (ACTVI) and Electronic Arts Inc. (EA). Both are traded on NASDAQ. Obtain the most recent annual report from the company website. Conduct a top down analysis of the company covering the following:

Requirements

1. Executive Summary: (5% of the mark) Explain the industry, firms, what is being analyzed, a brief summary of findings, conclusions and recommendations. This is a separate page and not part of your eight allowed pages.
2. Industry and company summary: (20% of the mark) In three pages, write a summary of the industry and a summary of the firms.  For the industry summary describe the major issues and use the analytic tools you have learned in other courses.  For the firm summaries, make sure you include what makes them suitable competitors.  Summarize their different business models.   Include any environmental issues in the industry.  Use the analytic tools that you have learned in other courses.   Make sure you understand how the firms are the same or different in terms of their how they create value, their different markets and their different structures.  What they do and whom they earn revenues from can explain difference in their balance sheets, income statements and consequently their ratios. Use the annual report, industry reports available through Bronfman Business Library*, and recent newspaper articles or any other materials.

This section of the assignment is important because it provides a business context in which to understand the financial situation and performance of the firms.

You will find that appendices that are referred to, numbered, and easy to find, will be useful for providing support for your analyses. You must also make use of sources external to the firm.  Be sure to reference any facts, analysis or opinions used from your research sources. *See note on industry research sources at the end of this document.

1. Environmental, social, and governance (ESG) factors: (5%) Compare any proactive environmental initiatives, share structure, key factors on leadership and reporting of scandalous behavior (if any) in the past three years.  Keep these differences in mind when doing subsequent sections.

1. Analysis of financial statements: (20%) Analyze the income statements and balance sheets for the firms for both fiscal years using the reported statements and apply common size analysis.  Explain any material financial changes over the two- year period within the firm. Explain any major financial differences between the firms.  Keep these differences in mind when doing subsequent sections.  The analysis belongs in the body and the data belongs in tables in the appendix.  The reader can see for themselves that something changed/is different.  Don’t tell the reader something changes or is different without telling them why it changes.  Use what you know about the business strategy of the firms and the industries to understand the changes.  Attach original copies of the Income Statement and Balance Sheets from the annual report as an appendix.

1. Ratio Calculations: (5%) Calculate the ratios on page 90, Table 3.8 in Ross et al. for the past two fiscal years for the companies.  Include the year over year percentage change.  State your assumptions, justify them if required.  Use table format and place in the appendices.  Real statements are messier than textbook statements.  In the appendix make it clear which numerical values went into the numerator and denominator.  Define your ratios in the appendix.  For example, debt/equity = line of credit + current portion of long- term loan + long- term debt/equity

1. Analysis and interpretation: (30%) Select representative ratio for each of the 5 types of ratios on page 90.  Discuss the differences within each company (year over year) and between the companies.   Don’t use all the ratios if you can make your point more efficiently with one or two.  When you compare the firms within and between, indicate the financial performance changes, explain why the ratio has changed and whether the change is an improvement or deterioration.  Do deteriorations indicate problems or will any of these deteriorations self-correct?  Use the information about the firm, its business model and the environment to answer these questions.  This should be relatively straight forward if you have done a thorough job in parts 2, 3 and 4.

1. Conclusions and recommendations: (10%) Based on what you have calculated, and analyzed and discussed, comment on the financial health of the firms.  From what you see of their financial statements and what you understand about the industry, which would be a better investment?  Keep in mind that ratios are based on historical information and we do these analyses to understand the future opportunities for the firm.  With that in mind, based on the financial performance of these firms, which would you recommend as an investment?  Support your recommendation using your research.

The final 5% of the grade is for style, grammar, organization, citations etc.  You should number your pages, have an index and both title the appendices and make your appendices easy to find.

If your citations are insufficient your grade will drop by 1 GPA point.  For example, an assignment in the B+ range will drop to a B.

Academic Integrity 

If you are unsure as to what academic integrity involves review the following:
https://spark.library.yorku.ca/academic-integrity-what-is-academic-integrity/

Please refer to faculty standards for academic honesty. http://schulich.yorku.ca/current-students/academic-honesty/

Every fact requires a source for that fact.  Make it clear when you are using your own words and when you are using information or opinions originating elsewhere by referencing all sources whether hard copy or electronic.  This link provides samples of proper citation whether from a newspaper article, database, or YouTube video. I ask you to use APA format since it is the standard in the business community.  http://researchguides.library.yorku.ca/bizcitations?hs=a

*A note on industry research.

These firms serve international markets. Of the many research sources and databases available, focus on those with research rather than opinions.   You might use the York University library system, Marketline and Passport for industry analysis.   Also, Statista has may short or single-page reports on very specific topics that might be helpful. Other databases such as D&B/Hoovers, Mergent, IBIS World are less useful for this assignment.