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Take-Two Interactive Software Inc Analysis

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Take-Two Interactive Software Inc Analysis

Introduction

TTWO is a company that acts within the sphere of electronic entertainment and is regarded as one of the leaders of the sphere. Originally, as it is stated in the report by the company: “Take-Two’s product offerings include titles for the leading hardware platforms – PlayStation computer entertainment systems, video game, and entertainment system from Microsoft, Wii™, Nintendo DS™ and for the PC. The Company publishes and develops products through its wholly-owned labels Rockstar Games.” The paper aims to provide the business performance analysis of the company and define the entire industry environment, emphasizing the aspects of the company’s strategy, the restructuring, which the company experienced, the market share, and the financial performance in general. Moreover, the analysis will entail the competitor’s analysis and the perspectives of the further growth.

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Company Overview

In general, it should be stated that the activity of the company involves not only the elaboration and creation of the entertainment product but also the legal activity in the sphere of copyright and trademark protection. Originally, these are the additional points in the financial reports of the company, and they often play the defining role in the entire business performance of the company. Thus, it should be stated that lawsuits and various claims and investigations are common things for entertainment business activity. As it is stated in the Quarterly Report (35):

Depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our business, financial condition, results of operations, or cash flows. Except as noted below, there were no new material legal proceedings or material developments to the pending legal proceedings that have been previously reported in Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.

In the light of this statement, it should be emphasized that the financial analysis of the company will require the consideration of the supplementary activity, and the assets and liabilities values will involve the actual consideration of all the expenses and losses, associated with all the possible activity spheres. (Strickler and Neafsey, 45)

The global sales of the company total 604,1 million of the production units in 2009, and the 2010 estimated sales are 583,6 million. Thus, the growth perspectives are negative, which is associated with the increased competitive activity of the other companies. Thus, EA games offered an acquisition of the Take Two Software Interactive Inc in 2008, and the CEO of TTWO Inc had to refuse, as EA wished to decrease the competence in the sphere of sports games, and TTWO was the only serious competitor in this video game genre. Finally, EA had to increase the competitive performance of the company, which caused the fall of the share price and the sales levels of taking Two Software Interactive Inc. In accordance with the information stated in the Financial Report (2), the key aspect of the business activity, in general, is the distribution business and strategy, which entails the Jack of All Games subsidiary. The fact is that this subsidiary is involved in the distribution process of the software and the other production of the company for the North American market. The revenue of the distribution business is derived from the software titles sales, which also involves the names of the production issued by other companies. Thus, the entire operation margin of the TTWO’s business activity depends on the amounts of software and hardware sales and the costs of the brand names, offered for distribution by other companies.

As for the additional business activity, the company agreed to outsource the various pick, pack, ship, and warehousing functions, which are aimed to serve the publishing and distributions spheres of business. Moreover, the CEO agreed to adopt the plan, concerning the matters of reducing the number of units, aimed at the distribution, which is held in the inventory. This was provided for decreasing the high inventory margins, and for the entire improvement of the efficiency of business performance and economic operations.

Financial Performance Analysis

Profitability ratios entail several indexes, which are gross profit margin, return on assets, and return on equity:

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$ Thousand
Sales 893344
Cost of goods sold 348000
Gross Profit Margin 0,610452413
Net Income 25052
Total Assets 893344
Return on Assets 0,028042949
Shareholer Equity 510793
Return on Equity 0,049045308

Liquidity Ratios

$ Thousand
Current Assets 521340
Current Liabilities 273583
Current Ratio 1,90560086
Inventory 50662
Quick Ratio 1,720421225
Cash 105984
Marketable Securities 140000
Cash Ratio 0,899120194

As for the capital structure analysis, the following factors should be considered:

  • Taxes ($ 29,8 million)
  • Risk (Integrated risk management programs aimed at ensuring risks are identified, assessed and appropriately managed, and include regular reports to the Board on the status of business risks. The Audit and Financial Risk Committee also receives reports on financial risks by its charter and is further responsible for reviewing the effectiveness of the Group’s risk management and internal control system
  • Asset characteristics (including the calculated ratios)
  • Costs of financial distress ($ 29 million)

Thus, considering the ratios and return indexes, as well as the asset analysis (total asset rate – $ 521 million) and the liabilities (total liabilities – $ 382 million), it should be stated that the capital structure of the company is equity financed.

Market Performance Ratios

The p/e performance of the company is represented on the following chart:

Market Performance Ratios

  • P/E – 9,83
  • Vol. 2.30 M
  • Mkt cap 831.14M
  • EPS -1,57
  • Shares 84,55M

Asset Efficiency Ratios

Annual Credit Sales 62900
Accounts Receivable 45063
Receivable Turnover 1,395823625
Average collection period 261,4943561

Competitors Analysis and Capital Structure

Company Price Mkt Cap
Microsoft Corporation 28,87 254,59 M
Electronic Arts 18,80 6,20 B
THQ 6,47 440,56 M
Activision Blizzard 10,90 13,69 B
Midway Games 0,01 1,38 M
Konami Corp 18,69 2,51, B
Navarre Corp 2,12 76,73 M
TTWO 10,67 901,32 M

Thus, the market share of the company is comparatively large, and, it should be emphasized that the actual competitors of the company perform similar actions from the perspectives of their financial performance, and the financial structure of the business activity. As for the capital structure, Take Two Interactive Software Inc is one of the few companies, which operate on an investment basis. Thus, the financial actives of the company are 95% investment-based. (Strickler and Neafsey, 152) Originally, the actual needs of the investment practices are explained by the values of the traditional business approach, based on the active activity in the sphere of legislation. These investment practices presuppose wider financial support in the case of court sues, thus, these investments may be regarded as the financial insurance of the company.

Additionally, the company itself is deeply involved in the investment activity and support perspective software development projects, which may be further useful for the developmental processes of TTWO Inc.

Transaction Analysis

The transaction principles and practices of the company presuppose performing operations in various currencies. Moreover, the main part of transactions is registered in foreign currencies. As it is stated in Quarterly Report (6):

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The company uses forward exchange contracts to mitigate foreign currency risk associated with foreign currency assets and liabilities consisting primarily of cash balances and certain intercompany receivables and payables. We do not designate foreign currency forward contracts as hedging instruments and accordingly, we mark to market our foreign currency forward contracts each period and any gains and losses are recognized in net income or loss.

Thus, the company signed several forward contracts in January 2010 for purchasing the foreign currency and for purchasing US Dollars. The maturities of these contracts were less than one year, and, it should be stated that total losses, resulting from these transactions were only $ 72.

The actual values of these transactions are explained by the investment practices, of the company, and the outsourced spheres of business. Thus, the company needs to maintain the outsourced activity and develop the perspective projects by other developers (investment). The actual drive of these transactions caused the decrease of the total assets, as the investment operations, which required the performance of these transactions, are mainly long-term, and will not benefit within the nearest year. Thus, the company made the investment into the future of business development and required sufficient guarantees for this investment strategy. The necessity in these guarantees explains the arranging the forward transaction contracts, which inevitably mean the stable currency exchange rate, in accordance to which the transaction is performed.

Additional drivers of these transactions presuppose the existence of the solid financial equity-based activity of the company. In spite of the fact that the company’s financial structure is investment-based, it differs from debt-structured activity. Thus, the necessity to perform these transactions for maintaining the outsourced activity and the investment strategy is explained by the strategy, aimed at making the capital structure more equity-based, in comparison with the current position.

The transaction activity, in general, is also required for the extension of the company’s network, associated with the development of the software and hardware projects, as well as the distribution practices of the company. Originally, the brand name activity and distribution takes essential efforts and does not encourage the independent growth of software developers, thus, Take Two Software Interactive Inc creates the basis for further franchise activity and the extension of the development network.

Conclusion

Finally, it should be stated that the financial and business activity of Take Two Software Interactive Inc is closely associated with the necessity of the network development and the maintenance of the outsourced activity. Originally, all the required aspects of the business activity are aimed at maintenance and improvement of the software and hardware developmental activity, and the brand name distribution, performed by the third companies and TTWO Inc itself.

Works Cited

Annual Report. Take Two Interactive Software Inc. Software & Programming Industry Report, New York, 2010

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Quarterly Report. Take Two Interactive Software Inc. Software & Programming Industry Report, New York, 2010

Strickler, Zoe, and Patricia Neafsey. “Visual Design of Interactive Software for Older Adults: Preventing Drug Interactions in Older Adults.” Visible Language 36.1 (2002): 45

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