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Case Assignment - Electronic Arts

Case Assignment - Electronic Arts - MANAGEMENT 120A...

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MANAGEMENT 120A CASE ASSIGNMENT Electronic Arts Intangible Assets Electronic Arts (EA), headquartered in Redwood City, California, is the world's leading interactive entertainment software company. Founded in 1982, the company develops, publishes, and distributes interactive software worldwide for videogame systems, personal computers and the Internet. EA's homepage and online game site is www.ea.com. Using the excerpts from Electronic Arts’s 2007 financial statements and footnotes, please answer the following questions: 1. What is software development? How does the company handle software development? What are the guidelines for capitalizing software development? Is this similar or dissimilar to research and development (R&D) and if there is a difference, what would it be? 2. What is the percentage of operating tangible assets to shareholders equity in 2007? How has this changed from previous years? 3. What are the operating asset turnover, gross profit margin and net profit margin in 2007? How has this changed from previous years? 4. What are the major costs of Electronic Arts and how are these reflected on the financial statement in 2007? 5. What are the critical drivers of value creation for Electronic Arts and how are these reflected on the financial statements in 2007? 6. How would you adjust the accounting measures (if at all) if you are: a. Evaluating the performance of the management? b. Forecasting the future performance of the business? 7. Treasury Stock a. How much did Electronic Arts pay for the Treasury Stock it held at fiscal year-end 2007? b. How much cash did Electronic Arts pay to repurchase its own shares during 2007? c. Did Electronic Arts use these Treasury shares for anything during 2007? (For example, did Electronic Arts use these Treasury shares to issue shares for stock options that were exercised by employees?) 8. Issuance of stock a. How many shares of stock did Electronic Arts issue during 2007 due to employees through stock plans? b. If so, what was the value of shares issued from this activity? 9. Earnings per Share (EPS) a. What was the weighted average number of shares outstanding during 2007? b. What was the Basic net income per share? c. In addition to reporting Basic earnings per share, FASB requires firms to report an earnings number assuming that some shares had diluted EPS. What was Diluted EPS for 2007 and how does this compare to previous years? d. Why do you think diluted EPS is different than basic EPS? e. Which of these would be more informative and why?
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