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Last update on 2024-06-06

Electronic Arts (EA) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Comprehensive Piotroski F-Score analysis of Electronic Arts (EA) for the year 2023 with a final score of 8/9, highlighting profitability, liquidity, and efficiency.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 8

We're running Electronic Arts (EA) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
1
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
0
Current Ratio is growing?
1
Number of shares not diluted?
1
Cross Margin is growing?
1
Asset Turnover Ratio is growing?
1

The Piotroski F-Score for Electronic Arts (EA) is 8 out of a possible 9. This score reflects a strong financial position and good overall health based on several key factors: 1. EA has a positive net income of $802 million in 2023, marking consistent profitability since 2015. 2. EA's Cash Flow from Operations (CFO) is positive, standing at $1.55 billion in 2023, showing strong liquidity over two decades. 3. The Return on Assets (ROA) increased slightly from 2022 to 2023, indicating improved asset efficiency, although still below industry median. 4. Operating Cash Flow exceeds Net Income, signifying robust financial health. 5. EA's Current Ratio has improved slightly, indicating better ability to cover short-term liabilities. 6. The number of outstanding shares has declined, reducing dilution for shareholders. 7. Gross Margin has grown, showing better cost management and enhanced profitability. 8. Asset Turnover Ratio has increased slightly, pointing to marginally better asset utilization. However, the leverage ratio has increased slightly, from 0.1361 in 2022 to 0.1397 in 2023, indicating increased reliance on debt.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score of 8, Electronic Arts (EA) appears to be a strong and healthy company with stable profitability and liquidity. Although there are minor concerns with the leverage ratio and asset efficiency compared to historical highs, the overall financial health is robust. Investors looking for a financially stable company with potential for long-term growth might consider EA a worthwhile investment. Nonetheless, it's important to continue monitoring debt levels and asset efficiency improvements over time.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Electronic Arts (EA)

Company has a positive net income?

The positive net income criterion checks for profitability, crucial for evaluating the financial health of a company.

Historical Net Income of Electronic Arts (EA)

Electronic Arts (EA) has posted a net income of $802 million in 2023. This is a positive figure, indicating that the company is profitable. Over the last 20 years, EA has had fluctuating fortunes with negative net income recorded during the years 2008-2011. However, in recent years, from 2015 onwards, EA has consistently maintained positive net income, showcasing a strong financial performance. Adding 1 point for the positive net income this year aligns with this ongoing trend of financial stability.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the cash generated by a company's core business operations. It is crucial for assessing a company's liquidity.

Historical Operating Cash Flow of Electronic Arts (EA)

The Cash Flow from Operations (CFO) for Electronic Arts (EA) in 2023 stands at $1.55 billion, which is a positive figure. Therefore, EA gains 1 point for this criterion. Over the last 20 years, EA's CFO has shown a generally upward trend, peaking at around $1.93 billion in 2021. Although there is a slight decline in 2023 compared to the previous two years, a positive CFO over two decades signifies robust operational health and liquidity management for EA. Hence, this trend is favorable and showcases the company's capability to generate sustained cash from its core activities.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) is a critical indicator that reveals a company’s efficiency in generating profit from its assets over time. An increase in ROA signifies improved management efficiency and profitability. Evaluating Electronic Arts using this criterion will demonstrate whether the company is effectively utilizing its assets to enhance its financial performance.

Historical change in Return on Assets (ROA) of Electronic Arts (EA)

Electronic Arts' ROA increased slightly from 0.0583 in 2022 to 0.0588 in 2023, indicating a modest improvement in generating returns from its assets. Since the ROA has increased, we add 1 point for this criterion. Although the increase is minor, it shows that Electronic Arts is moving in a positive direction. For a more nuanced understanding, let's consider the industry's context. Over the past 20 years, the industry median ROA hovered much higher, around 0.4789 to 0.6972. This long-term trend signifies that while EA's ROA is showing improvement, it is still far below the industry median, highlighting a potential area for future growth.

Operating Cashflow are higher than Netincome?

Comparing Operating Cash Flow (OCF) to Net Income helps gauge if a company's earnings are supported by actual cash flow, signaling financial health.

Historical accruals of Electronic Arts (EA)

In 2023, Electronic Arts (EA) reported an Operating Cash Flow (OCF) of $1.55 billion compared to a Net Income of $802 million. This means the OCF was nearly double the Net Income, reflecting positively on EA’s financial health as it implies that the company's earnings are well-supported by actual cash. Over the past 20 years, EA's OCF has shown a generally increasing trend, bolstering its ability to consistently generate cash which is crucial for liquidity and operational purposes. Moreover, the company's narrowing net income over the last few years further highlights the importance of strong OCF. Thus, EA earns 1 point for this criterion.

Liquidity of Electronic Arts (EA)

Leverage is declining?

This analyzes the company's leverage ratios, which show how much debt it uses to finance its operations. A decrease in leverage generally signifies financial stability.

Historical leverage of Electronic Arts (EA)

For Electronic Arts (EA), the leverage ratio has increased from 0.1361 in 2022 to 0.1397 in 2023. This increment means they are using more debt to finance their operations. Historically, EA has had fluctuations in leverage ratio, but the recent upward trend is not a positive sign. The current trend suggests reliance on debt is increasing, which could be riskier especially during economic downturns. Therefore, EA gets 0 points for this criterion.

Current Ratio is growing?

The Current Ratio is a liquidity ratio that measures a company's ability to cover its short-term liabilities with its short-term assets. A higher ratio indicates better liquidity.

Historical Current Ratio of Electronic Arts (EA)

The Current Ratio for Electronic Arts (EA) increased slightly from 1.1816 in 2022 to 1.2082 in 2023. This improvement in liquidity suggests that EA's ability to cover its short-term liabilities with its short-term assets has gotten marginally better. Over the past 20 years, EA's Current Ratio has seen a significant decline from a peak of 4.4758 in 2005. However, it is currently (1.2082) below the industry median of 1.2382 for 2023. This upward trend in the Current Ratio is a positive signal, although EA still lags behind the industry median. Nonetheless, given that the Current Ratio increased in 2023, we can add 1 point for this criterion.

Number of shares not diluted?

Change in shares outstanding measures the number of shares a company has issued to its shareholders. Increase in shares may indicate dilution, while a decrease could indicate share buybacks.

Historical outstanding shares of Electronic Arts (EA)

The outstanding shares for Electronic Arts in 2022 were 284,000,000, decreasing to 277,000,000 in 2023. Hence, the outstanding shares have decreased, which typically indicates a company engaged in share buybacks. Historically, EA’s shares outstanding peaked at 336,000,000 in 2012 and have generally trended downward thereafter. Given the data, a point would be added for a reduction in shares, signifying a positive trend for existing shareholders due to reduced dilution.

Operating of Electronic Arts (EA)

Cross Margin is growing?

Gross Margin compares sales revenue minus the cost of goods sold (COGS), all divided by sales revenue. It signifies the portion of revenue that exceeds the cost of sales.

Historical gross margin of Electronic Arts (EA)

In 2023, Electronic Arts (EA) exhibited a Gross Margin of 0.7587, compared to 0.7341 in 2022. This increase of approximately 3.36% is a positive trend because it indicates that EA has managed to reduce its costs relative to its sales, thus enhancing profitability. Over the last two decades, EA's Gross Margin has generally outperformed the industry median, which stood at 0.6972 in 2023.

Asset Turnover Ratio is growing?

This criterion examines how effectively a company is utilizing its assets to generate sales. An increase in asset turnover indicates better efficiency.

Historical asset turnover ratio of Electronic Arts (EA)

The asset turnover of Electronic Arts (EA) has increased from 0.5162 in 2022 to 0.5448 in 2023. This positive change means that EA has become slightly more efficient in utilizing its assets to generate sales. Over the past 20 years, EA's asset turnover ratio has shown a significant decline, starting from a high of 1.2231 in 2003, dropping to 0.5448 in 2023. While this year’s improvement is a good sign, it is crucial to consider the broader historical trend, which indicates a long-term decrease in efficiency. For 2023, EA earns 1 point for this criterion, implying it is moving in the right direction, albeit slowly.


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