GROUP ASSIGNMENT – TAKE TWO AND THE VIDEO GAMING INDUSTRY

Our focus company is Take Two Interactive, a American known video game holding company with many classics under its
belt, such as NBA2K, Borderlands, Red Dead and GTA. Along with this company, we analyzed other six competitors:
Ubisoft, Bandai Namco, Tencent, Activision, EA, Sega.
Ubisoft was founded in 1986 by four brothers and now is one of the largest companies in the industry. Ubisoft titles include
masterpieces such as Tom Clancy’s Saga and Assassin’s Creed.
Moving to Japan, Bandai Namco Entertainment is the result of the merger between Namco a nd Bandai, one of the
entertainment companies in Japan. Titles by this company include the evergreens Pac-Man and Tekken. Tencent Holdings
Ltd., founded in 1998, is a Chinese multinational technology conglomerate holding company. Tencent’s titles are the
infamous League of Legends and PUBG. SEGA Sammy Holdings, a Japanese holding company formed from the merger of
Sega and Sammy Corporation in 2004. Arcade legends such as Mario and Sonic were produced by this company.
In the US, based in Santa Monica, Activision Publishing, Inc. is an American video game company. With the latest
acquisition of Blizzard, World of Warcraft and the Call of Duty Saga are in Activision’s roster. Based in Redwood City,
Electronic Arts Inc. (EA) is an American video game company founded in 1982. EA developed masterworks like FIFA,
Madden NFL and NHL.

TAKE TWO INTERACTIVE

• Take Two Interactive uses an indirect reporting method since the statement of cash flows begins with net income from the
income statement.
• The quality of income ratio can be calculated as the division between Cash Flow from Operating activities over Net Income.
Therefore, the quality of income ratio for Take Two is $923,318 / $588,886 = 1,55 (amounts in thousands). The amounts
which most influenced net income were: Selling and marketing ($444,985), General and administrative ($390,683), Research
and development ($317,311). The biggest amount which most influenced cash flow from operating activities were:
Amortization and impairment of software development costs and licenses ($144,263), Stock-based compensation ($110,472),
Software development costs and licenses ($-221,279), Deferred revenue ($152,466).
• Capital Acquisition can be calculated as the division between Cash Flow from Operating activities and Cash paid for
Property and equipment. In 2020 the capital acquisition ratio was $912,318 / $68,923 = 13.24, in 2019 the ratio was $685,678
/ 53,384 = 12.84, in 2018 the ratio was $843,515 / $66,969 = 12.60.
• The company has not issued any dividends.
ACTIVISION
• Activision uses the indirect reporting method since the statement of cash flows begins with net income from the income
statement.
• The quality of income ratio can be calculated as the division between Cash Flow from Operating activities over Net Income.
Therefore, the quality of income ratio for Activision is $2,252 / $2,197 = 1,02 (amounts in millions). The biggest amounts
which most influenced net income were In-game, subscription, and other revenues ($5,736), Game operations and distribution
costs ($1,131), Product development ($1,150), Sales and marketing ($1,064). The biggest a mount which most influenced cash
flow from operating activities was Software development and intellectual property licenses ($ -378).
• Capital Acquisition can be calculated as the division between Cash Flow from Operating activities and Cash paid for Property
and equipment. In 2020 the capital acquisition ratio was $2,252 / $78 = 28,87 In 2019: $2,252 /$ 116 = 19,41. In 2018 capital
acquisition ratio for Activision was $2,252 / $131 = 17,19. (using capital expenditures since I could not find cash paid for
property plant and equipment anywhere). Since the ratios are high, it can be deduced that Activision uses its operating activities
to finance its capital acquisitions.
• The cash flow from financing activities reports that dividends paid amount is ($316). Cash from operations: $2,252. Therefore,
$316 / $2,252 = 0,14.
UBISOFT
• Ubisoft uses an indirect reporting method since the statement of cash flows begins with net income from the income
statement. The quality of income ratio can be calculated as the division between Cash Flow from Operating activities over
Net income. Therefore, the quality of income ratio for Ubisoft is 169€/105.2€= 1.606 (€ in millions). The major cause of
differences between net income and cash flow from operations is given by net amortization and depreciation on property,
plant & equipment and intangible assets.
• Capital Acquisition can be calculated as the division between Cash Flow from Operating activities and Cash paid for
Property and equipment. In 2018 the ratio was 384.67€ / 74.403€ = 5.17 (€ in millions). In 2019: 86.4€ / 124.2€=0.695 (€ in
millions) and lastly in 2020: 169€/96.8€=1.745 (€ in millions). This ratio shows that in 2019, the company had less need for
outside financing for current and future expansions, while in the following two years the situation changed.
• The company has not issued any dividends.
ELECTRONIC ARTS
• Electronic Arts uses an indirect reporting method since the statement of cash flows begins with net income from the income
statement.
• The quality of income ratio can be calculated as the division between Cash Flow from Operating activities over Net income.
Therefore, the quality of income ratio for Electronic Arts is $1,797/$3,039 = 0.59. The main cause of difference between the
two. The major cause of differences between net income and cash flow from operations is due to the expense of deferred income
taxes, paying a total of $1,871 million.

LUISS Semester II Federico Rizzi, Simone Cesile, Damiano Gentili

Accounting Filippo Benetti, Filippo Quojani, Nicola Terzariol
• Capital Acquisition can be calculated as the division between Cash Flows from Operating activities and Cash paid for Property
and equipment. In 2018 the ratio was 0,74; in 2019 it was 1,15; lastly in 2020 0,53 The company is financing its capital
acquisitions throughout long-term investments.
• The company has not issued any dividends.
BANDAI NAMCO ENTERTAINMENT
• Bandai Namco uses an indirect reporting method since the statement of cash flows begins with net income from the income
statement.
• The quality of income ratio can be calculated as the division between Cash Flow from Operating activities over Net Income .
Therefore, the quality of income ratio for Bandai Namco is ¥43,131/ ¥57,908= 0,7448 (amounts in millions). The major
differences between net income and cash flow from operations is due to the amount of Income Taxes.
• Capital Acquisition can be calculated as the division between Cash Flow from Operating activities and Cash paid for
Property and equipment. In 2020 the capital acquisition ratio was ¥43,131 / ¥16,900 = 2,55, in 2019 the ratio was ¥79,811 /
¥10,093 = 7,91 in 2018 the ratio was ¥55,138 / ¥42,850 = 1,29.
• The company has issued dividends for ¥32,328, therefore, ¥32,328 /¥ 43,131 = 0,75. The portion paid to stockholders is the
75% of the final Cash Flow from Operations.
SEGA
• Sega uses an indirect reporting method since the statement of cash flows begins with net income from the income statement.
• The quality of income ratio can be calculated as the division between Cash Flow from Operating activities over Net Income.
Therefore, the quality of income ratio for Sega is $15,598/$8,874=1,75 The major cause of differences between net income
and cash flow from operations is due to the changes in working capital.
• Capital Acquisition can be calculated as the division between Cash Flow from Operating activities and cash paid for Property
and equipment. In 2020 the capital acquisition ratio was $5,598 / $11,726 = 1,330; in the year 2019 it was $15,668 / $13,261
= 1.181; and at last, in the year 2018 the ratio was $3,769 / $21,691 = 0,173.
• The cash flow from financing activities reports that dividends paid amount is ($7,047). The cash from operations is
($15,598), therefore $7,040 / $15,598 = 0,45179.
TENCENT
• Tencent Holding Ltd. uses a direct reporting method since the statement of cash flows does not begin with net income from
the income statement.
• The quality of income ratio can be calculated as the division between Cash Flow from Operating activities over Net Income .
Therefore, the quality of income ratio for Tencent Holding Ltd. is 元 194,119/ 元160,125 = 1,21 (amounts in millions). The
difference between net income and cash from operating activities should be consistent due to depreciation, depletion,
amortization expenses, which amount to 元181,955, but, on the other hand, the amount of cash used for investing activities
reduces significantly the gap.
• Capital Acquisition can be calculated as the division between Cash Flow from Operating activities and Cash paid for
Property and equipment. In 2020 the capital acquisition ratio was 元194,119/元34,070 = 5.70, in 2019 the ratio was 元
148,590/元22,766 = 6.53 in 2018 the ratio was 元106,443/元19,743 = 5.39. The ratios in 2020 and 2018 are quite similar,
while in 2019 the ratio goes up to 6.53%, thus meaning it needed less outsource financing in that year.
• The cash flow from financing activities reports that dividends paid amount is (元11,418). Cash from operations: 元194,119.
Therefore, 元11,418/元194,119 = 0.05%.

The indirect method is used by all companies except by Tencent Holdings Ltd., so it is by far the most common approach for
cash flow statement.
The quality of income ratio measures the portion of income that was generated in cash. A higher quality of income ratio
indicates greater ability to finance operating and other cash needs from operating cash inflows. Across the companies
analyzed, the mean quality of income ratio was 1.21. The best performing firm in this ratio is SEGA Sammy Holdings, while
the worst performing one is EA.
The capital acquisition ratio reflects the portion of purchases of property, plant, and equipment financed from operating
activities. A high ratio indicates less need for outside financing for current and future expansions.
In 2019, the mean capital acquisition ratio is 7.10. The best performing firm is Activision, while the worst performing one is
Ubisoft. In 2020, the mean capital acquisition ratio is 7.71. The best performing firm is Activision, while the worst
performing one is EA. Overall, we found a common trait across firms: this ratio is quite high mainly because software
developing companies do not have to spend a lot of capital on buildings, plant or property.
The mean portion of dividends is 0.19. The best performing firm is Bandai Namco Entertainment, while the worst performing
is Tencent Holdings Ltd. (excluding the firms that did not declare any dividends).
We accurately made graphs for comparing purposes, they are in the next page.

Looking at all ratios, it goes out without saying that the best performing firm overall is Activision. On the other hand, the
worst performing one overall is EA. However, the industry analyzed can be defined as profitable and steady.

LUISS Semester II Federico Rizzi, Simone Cesile, Damiano Gentili

Accounting Filippo Benetti, Filippo Quojani, Nicola Terzariol
 NAME OF CASH QUALITY CAPITAL CAPITAL PORTION OF
COMPANY FLOW OF ACQUISITION ACQUISITION DIVIDENDS
METHOD INCOME (%) 2019 (%) 2020 (%)
(%)
ELECTRONIC INDIRECT 0.59 1.15 0.53 NONE
ARTS
UBISOFT INDIRECT 1.606 0.695 1.745 NONE

TENCENT DIRECT 1.21 6.53 5.70 0.05

ACTIVISION INDIRECT 1.02 19.41 28.87 0.14

BANDAI INDIRECT 0.7448 7.907 2.552 0.75

NAMCO
SEGA INDIRECT 1.75 1.181 1.33 0.45

TAKE TWO INDIRECT 1.55 12.84 13.24 NONE

CASH FLOW METHOD

DIRECT
14%

INDIRECT
86%

0
QUALITY OF INCOME (%) CAPITAL ACQUISITION (%) PORTION OF DIVIDENDS

ELECTRONIC ARTS UBISOFT TENCENT ACTIVISION BANDAI NAMCO SEGA TAKE TWO

LUISS Semester II Federico Rizzi, Simone Cesile, Damiano Gentili

Accounting Filippo Benetti, Filippo Quojani, Nicola Terzariol
 URL LIST:

Activision:
• https://www.sec.gov/Archives/edgar/data/0000718877/000162828021002828/atvi-
20201231.htm#ib0ddcf3b6dfc48f1887e8f41dda6461e_160
• https://finance.yahoo.com/quote/ATVI/cash-flow?p=ATVI
• https://www.activision.com/company/aboutus

Bandai Namco:
• https://www.giantbomb.com/bandai-namco-entertainment/3010-382/
• https://www.bandainamco.co.jp/cgi-bin/releases/index.cgi/file/view/9863?entry_id=6622
• https://www.bandainamco.co.jp/cgi-bin/releases/index.cgi/file/view/9380?entry_id=6244

EA:
• https://www.marketwatch.com/investing/stock/ea?mod=over_search
• https://s22.q4cdn.com/894350492/files/doc_financials/2020/ar/885566_008_BMK_WEB.pdf

SEGA Sammy Holdings:

• https://in.investing.com/equities/sega-sammy-holdings-inc-cash-flow
• https://www.wsj.com/market-data/quotes/SGAMY/financials/annual/cash-flow

Take Two Interactive:

• https://www.sec.gov/edgar/search/#/category=form-
cat0&ciks=0000946581&entityName=TAKE%2520TWO%2520INTERACTIVE%2520SOFTWARE%2520INC%
2520(TTWO)%2520(CIK%25200000946581)
• https://www.marketwatch.com/investing/stock/ttwo/financials?mod=mw_quote_tab

Tencent:
• https://www.tencent.com/en-us/investors/financial-reports.html
• https://www.tencent.com/en-us/investors.html#investors-con-1
• https://en.wikipedia.org/wiki/Tencent
• https://www.wsj.com/market-data/quotes/TCEHY/financials/annual/income-statement
• https://www.marketwatch.com/investing/stock/tcehy/financials
• https://finance.yahoo.com/quote/TCEHY/analysis?p=TCEHY

Ubisoft:
• https://staticctf.akamaized.net/8aefmxkxpxwl/6PPKXqYvN3egZulrVbn9QB/60c0522438bcf6fc70d54e8cd92ff2e7/
Ubisoft_FY21_Earnings_PR_English_final.pdf
• https://www.ubisoft.com/it-it/?isSso=true&refreshStatus=noLoginData
• https://www.globenewswire.com/news-release/2021/05/11/2227490/0/en/UBISOFT-REPORTS-FULL-YEAR-
2020-21-EARNINGS-FIGURES.html

LUISS Semester II Federico Rizzi, Simone Cesile, Damiano Gentili

Accounting Filippo Benetti, Filippo Quojani, Nicola Terzariol