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First, You Must Learn to Read

Many of us who hound the GameInformer website and write blogs, read the forums, or stick to just the news stories understand the importance of reading and gathering information about our favorite upcoming titles, systems, or general industry news. We use these stories and thoughts to formulate opinions on everything from our favorite systems and games to our opinions on controversial subjects like anti-piracy law, online passes, and the used game market. Yet there is one source that goes largely unused and is a wealth of information.

For many of us, this source of information is filled with complex ideas and acronyms, making it difficult to turn the data on the pages into usable information. This wealth of knowledge of which I speak is company financial statements.

Financial statements contain more than just numbers on a page to be deciphered by investors and accountants, the contain discussions and notes on pertinent company information including impending lawsuits, financial performance of IP's, the sale of IP's, the company's officer's opinions on the future of portions of the business, and a plethora of additional gems.

 

For example, if you are curious about the future of video game formats (i.e. digital distribution vs. disc-based distribution) you may be interested in this quote from EA's 2012 annual statements: "Our business is rapidly transforming. Historically we have derived most of our sales from disk-based videogame products that are sold through retailers. Now, however, the fastest growing part of our business is delivery games directly to consumers through online and wireless networks."

Not convinced, try this little bit of information, also from EA's 2012 annual filing: "In fiscal year 2009, we published over 60 [disked-based video games] with few or no online features, and in each fiscal year since, we have launched fewer titles on consoles, while building additional online features , content and services around each of our titles. This strategy has resulted in an increase in revenue per title and in our overall revenue...In fiscal year 2013, we plan  to offer only 14 titles on video game consoles and PC's and we plan to offer more than 40 titles for social, mobile and Play4Free platforms..."

This is just a small sampling of the wealth of information that can be gathered from these statements. What if I told you that the outcome of the West and Zampella vs. Activision lawsuits could be mostly determined from looking at Activision's fiscal 2011 report? In it, they explain that they have made accruals (recognized expense in advance of the actual expense occurring) to account for the high probability that they would lose the case to West and Zampella.

Many of you may say that I am an accountant and understand these "things". Sure, it helps, I won't lie, but these statements are not written in Aramaic. Anyone who takes the time to learn and use Google or Bing can figure these out. Let me lend a hand with a few of the common roadblocks.

 

GAAP and IFRS
On every single financial statement you look at you will run into one of these two acronyms if not both. They stand for Generally Accepted Accounting Practices and International Financial Reporting Standards. These are two sets of rules accountants must abide by when preparing financial statements. They make sure that a user of the statements can compare the information in one set of financial statements to those of another company. They are intended to level the playing field and make life a little easier for users of financial statements, like you.

Depreciation and Amortization
If accompany purchased a million dollar facility in one year and had to take the hit for all of the expense in that period, it would cause major fluctuations in expenses year over year and kills the concept of comparability. Depreciation and amortization allows companies to spread that expense evenly over the predicted life of the facility or equipment.

Form 10-K
This form is what the Securities and Exchange Commission (stock market police) requires companies to submit each year. These are the documents that should be of most interest to you.

Where to Find Financial Statements
The easiest way to find financial statements is to use a search engine and enter the company's name followed by "investor relations". This will generally take you to a company's webpage with information of most interest to investors and those seeking information, like yourselves. This is where you will find financial statements as well as the details of current majority shareholders, etc...

In Conclusion
While financial statements can be cold and boring, they are also filled with massive amounts of interesting data. Learning to read these statements is well worth the effort. Start slow; maybe even take an introductory accounting class at the community college. Trust me it will be well worth your time and effort, especially for those of you looking to break into the industry as a journalist. If you get stuck, use the good old search engine or feel free to ask, I am generally available on Twitter @brianseavey

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