2. Recommendation Summary Li, Liang, Lin, Liu, Wan
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Situation Analysis
Pandemonium technology is a mature mobile game company. After two years’ deficit, Pandemonium reached its very first
profitable year. However, challenges still exist. The company want to replicate or even exceed past success of existing
games suite by increasing revenue and maximizing cash flow. We are requested to identify alternatives to minimize costs
on a permanent basis without damaging customer loyalty or future profitability and utilize data-driven analysis to develop
predictive modeling.
Introduction
After examining statement of operations, balance sheet and cash flow summary, together with PricewaterhouseCoopers’
consulting methodology, the thesis for this recommendation would be increasing revenue by increasing the number of
customers and minimizing cost. We divide data analysis into two categories, non-financial data analysis will mainly serve
for attracting new customers, and turning potential customers into existing customers. Financial data analysis will mainly
serve for accounting recommendations. However, cost and revenue changes mentioned in non-financial data analysis will
be covered in the financial projection.
Non-Financial Analysis
Researches on Customers’ Preferences
As mobile games are customer-oriented, customers’ preferences would be a key factor when thinking about development.
Suggestions for researches on customers’ behaviors are as followed:
Customers’ age group (Set as explanatory/independent variable)
Satisfaction rate
In-game purchase rate
Degree of loyalty (i.e. average daily time spent on games by Pandemonium, delete rate)
Knowing which age group welcomes the games the most will make it possible to figure out the target customers.
Marketing policies and future game development should base on these targets. Furthermore, by setting customers’ ages as
an independent variable, correlation between customers’ age and satisfaction rate, recommendation rate, in-game purchase
rate and degree of loyalty could be examined. This correlation will again, makes target customers and customers’
preferences clearer.
In-game Features Recommendations
In game features development should be based on customers’ preferences, however, there are some other
recommendations for attracting prospective customers, turning potential customers into existing customers, and keeping
existing customers.
Initiating players’ growth system and social networking system
Implementing promotional activities (e.g.: download one of the games in the games suite, get the other one for
free.)
Expansion to New Markets
Reaching out to new markets will be one of the alternatives to generate more revenue. New markets refer to both the
geographical market and online market.
Launching products for Android
Setting up expansion plans for new branches out of U.S.
o Volume of the current market
o Retention rate
o Age demographic of users at destination of expansion
o Purchasing power of users at destination of expansion
Financial analysis
3. Recommendation Summary Li, Liang, Lin, Liu, Wan
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Methodology used in examining income, asset, liability and revenue/expense include proportion reasoning and trend
analysis to examine.
Statement of operations
Net loss decreases over year, but still remains un-profitable.
Vertical Analysis: operating expenses accounts for largest expense, while there is significant decrease in operating
expenses annually, from 79 %( 2012) to 69% (2013).
Horizontal analysis: we noticed that there is a significant growth of research development expenses, with a
significant increase in return on investment (ROI).
Comparison of historical information
A notable decrease in “intangible assets” and “property, plant &equipment” in 2014 were shown in “balance
sheet”. The relatively low debt-to-equity ratio and negative stockholder equity shows that company may have
difficulty to pay the loans and debts.
The comparison between 2013 and 2014 “cash flow statement” shows a dramatic decrease in “net cash used for
financing activities”. Although the “net cash used for investing activities” increased significantly from 2013 to
2014, it still remains negative.
Financial Activities Recommendation
Based on financial data analysis, recommendations for future financial activities are as followed:
Reporting financial activities and investment to explore the net negative cash flow of these two areas
Different financial ratios need to be compared with our top 4 competitors and the whole industry as well. A full
competitive landscape analysis table has been created.
Collecting data on intangible assets and property plant & equipment to explore ways to increase assets
Closely work with banks to explore alternatives for decreasing long term debt
Financial Projection
After conducting a thorough evaluation of Pandemonium Technology’s financial position, identifying the potential market
and the best operational expansion plan, we are able to project your company’s performance within the next 7 years.
With the reasonable and conservative expectation, projection are based on the following assumptions:
the mobile game market will continue to grow and your company are able to capture at least 8% ( Please refer back to
previous marketing analysis) market share by adopting our marketing and operational strategies
Corporate tax rate will be 20% and inflation rate will be 5.2 %( Please refer back to your company’s operational data)
WACC is below D/E ratio.
To maximize profit, we carefully selected the sales mix of 2:1:1 ( Ultimate Juggle: Ultimate Jungle Warrior: Ultimate
Juggle Avenger) and slightly change the price for each product ( Ultimate Juggle is $1.4, Ultimate Jungle Warrior is
$1.2, Ultimate Juggle Avenger is $0.99)
As a result, we will be able to conservatively expect 20% revenue growth within the next 7 years.
In addition, we also break down and further analyze the cost behavior based on previous financial analysis, performed a
cash flow forecast and calculated the net present value ($40348.81).
