Majesco Entertainment Co. :COOL-US: Earnings Analysis: 2016 By the Numbers : January 4, 2017

Majesco Entertainment Co. reports financial results for the year ended October 31, 2016.

Highlights

  • Gross margins widened from 47.95% to 79.70% compared to the same period last year, operating (EBITDA) margins now -306.68% from -38.74%.
  • Change in operating cash flow of -9.42% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 1.54 6.69 34.37 47.27 132.29
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings -4.64 -3.81 -16.2 -12.64 4.61
Earnings Growth (YOY) -21.82 76.48 -28.12 -374.05 -32.48
Net Margin -300.91 -56.91 -47.13 -26.75 3.49
EPS -5.08 -4.92 -15.12 -12.6 4.62
Return on Equity -101.09 -57.16 -126.52 -51.19 17.55
Return on Assets -38.01 -26.16 -65.97 -29.08 9.07

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Earnings Growth Analysis

The company’s earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from -38.74% to -306.68%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 47.95% to 79.70%. For comparison, gross margins were 47.95% and EBITDA margins -38.74% in the immediate last period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

COOL-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 2,484.34, compared to last year’s level of 571.66 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Cash Versus Earnings – Sustainable Performance?

COOL-US‘s year-on-year change in operating cash flow of -9.42% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin History
PreTax Margin History

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Company Profile

Majesco Entertainment Co. engages in the development, publishing and distribution of video game products primarily for the casual-game consumer. It publishes video games for major current generation interactive entertainment hardware platforms, including Nintendo’s DS, DSi, 3DS, Wii and WiiU, Sony’s PlayStation 3, or PS3, Microsoft’s Xbox 360 and Xbox One and the personal computer, or PC. It also publishes games for digital platforms, such as Xbox Live Arcade and PlayStation Network, or PSN, mobile platforms such as the iOS and Android phones, and online platforms such as Facebook and Steam. The company was founded in 2004 and is headquartered in Edison, NJ.

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