Financial Analysis International Game technology 1Financial A.docx

Financial Analysis: International Game technology 1
Financial Analysis: International Game technologyExecutive
Summary:
Financial analysis helps in brining into picture the performance
of the organization. With the help of the financial analysis a
company is able to analyze its past performance and is able to
predict its financial health and performance for the future. This
is one the major tools which is used by different investors so as
to analyze the financial position of the company. The financial
analysis is done through different tools like Ratio analysis,
common size statements, trend analysis, and comparative
analysis.
In this paper we will focus on doing the financial analysis of
International Gaming technology.
Introduction:
International Game technology is the company which is engaged
in the design, manufacture and marketing of the computerized
gaming equipment, systems and services. The company is
operating in US, Asia pacific regions, Latin America and the
middle east and Africa, and is listed under NYSE.
IGT is a leading supplier of gaming products to the world with
annual revenues of approximately $2 billion. The company
specializes in the design, manufacture, and marketing of
electronic gaming equipment and systems. It provides a broad
range of electronic gaming equipment and systems, licensing
and component parts that may be sold or placed under recurring
revenue arrangements. IGT's gaming equipment includes a wide
variety of video and physical reel slot machines that may be
tailored to meet specific needs. Customers can choose from an
extensive library of games combined with several new machine
cabinet models designed to maximize functionality, flexibility,

and player comfort. Additionally, IGT's AVP machines are
designed to support server-based gaming networks. IGT systems
products include applications for casino management, CRM, and
server-based player management.
IGT has a strong focus on research and development (R&D). In
FY2011, the company spent about $194.7 million on product
development. The company dedicates approximately 1,500
employees worldwide to R&D efforts covering multiple
engineering disciplines, including hardware, electrical, systems
and software.
IGT's R&D expenditure is primarily spent on the development
of new product base in various disciplines from hardware,
software and firmware engineering to game design, video,
multimedia, graphics and sound. The company's primary
development facilities are located in Nevada, the US.
It also has several design centers strategically located
worldwide, allowing it to respond to unique market needs and
local player preferences. IGT global design centers provide
local community presence, customized products, and regional
production. During FY2009, the company opened additional
development facilities in Beijing, China. Further, IGT’s strong
patent estate insulates the company from competition. As of
September 30, 2011, the company owned or licensed more than
5,600 patents and holds more than 3,100 trademarks
Financial Analysis:
Common Size Analysis
Common size analysis helps in finding out the proportion that
single item represents to the total group or a sub group. In this
the items are expressed as percentages of particular item in
respect of the main item taken into consideration.
Considering the common size analysis of the company we can

say that the highest expenses over the year pertains to cost of
goods that are sold to the consumers. The company holds
highest proportion of current assets and goodwill as compared
to the total assets of the company.
Common size - income statement
Years Ended September 30,
2011
2010
2009
2008
(In millions, except per share amounts)
Revenues
Gaming operations
54.83%
56.03%
56.65%
52.91%
Product sales
45.17%
43.97%
43.35%
47.09%
Total revenues

100.00%
100.00%
100.00%
100.00%
Costs and operating expenses
Cost of gaming operations
21.56%
22.51%
23.91%
22.14%
Cost of product sales
20.27%
20.78%
20.93%
21.74%
Selling, general and administrative
18.05%
17.23%
19.85%
18.13%
Research and development
9.95%
9.88%
9.60%
8.82%
Depreciation and amortization
3.56%
3.88%
3.84%
3.03%
Restructuring charges

Impairment and loss on other assets
0.81%
3.32%
3.86%
0.00%
Total costs and operating expenses
74.20%
77.84%
83.53%
73.93%
Operating income
25.80%
22.16%
16.47%
26.07%
Other income (expense)
Interest income
2.62%
3.19%
3.05%
2.67%
Interest expense
6.68%
8.43%
7.89%
3.96%
Other
0.13%
1.01%

1.07%
1.42%
Total other income (expense)
3.93%
6.25%
5.91%
2.71%
Income from continuing operations before tax
21.87%
15.90%
10.56%
23.36%
Income tax provision
6.93%
4.45%
3.19%
9.82%
Income from continuing operations
14.94%
11.45%
7.37%
13.55%
Loss from discontinued operations, net of tax
0.44%
1.75%
1.08%
0.00%
Net income
14.49%
9.70%
6.28%
13.55%

Common Size - Balance sheet
September 30,
2011
2010
2009
2008
(In millions, except par value)
Assets
Current assets
Cash and equivalents
11.07%
3.95%
3.34%
5.85%
investment securities
0.00%
0.00%
0.49%

0.00%
Restricted cash and investment securities
2.16%
2.20%
1.81%
2.37%
Restricted cash and investment securities of VIEs
0.06%
0.06%
0.00%
0.00%
Jackpot annuity investments
1.17%
1.24%
1.53%
1.48%
Jackpot annuity investments of VIEs
0.35%
0.39%
0.00%
0.00%
Accounts receivable, net
7.71%
7.24%
7.62%
9.58%
Current maturities of contracts and notes receivable, net
4.02%
4.59%
3.53%
2.05%
Inventories
1.76%
2.44%
3.60%
4.79%

Deferred income taxes
2.34%
2.10%
1.89%
2.54%
Other assets and deferred costs
3.31%
5.79%
4.32%
3.59%
Total current assets
33.94%
30.01%
28.11%
32.26%
Property, plant and equipment, net
13.29%
14.64%
12.73%
12.97%
Jackpot annuity investments
6.54%
7.46%
9.04%
9.29%
Jackpot annuity investments of VIEs
1.27%
1.54%
0.00%
0.00%
Contracts and notes receivable, net
3.04%
4.29%
5.68%
3.25%
Goodwill

29.64%
28.74%
26.24%
25.42%
Other intangible assets, net
4.10%
5.04%
5.91%
5.46%
Deferred income taxes
2.04%
3.41%
5.18%
3.00%
Other assets and deferred costs
6.14%
4.86%
7.10%
8.35%
Total Assets
100.00%
100.00%
100.00%
100.00%
Liabilities and Shareholders' Equity
Liabilities
Current liabilities

Current maturities of notes payable
0.00%
0.00%
0.12%
0.35%
Accounts payable
2.48%
2.11%
2.06%
2.32%
Jackpot liabilities, current portion
3.44%
4.47%
3.54%
4.16%
Accrued employee benefits
0.94%
0.60%
0.75%
1.42%
Accrued income taxes
0.08%
0.04%
0.21%
0.34%
Dividends payable
0.43%
0.45%
0.41%
0.94%
Liabilities of discontinued operations
0.14%
0.14%

0.00%
0.00%
Other accrued liabilities
5.37%
6.73%
7.14%
6.64%
Total current liabilities
12.87%
14.53%
14.23%
16.16%
Notes payable
0.00%
0.00%
49.44%
49.31%
Long-term debt
39.63%
41.78%
0.00%
0.00%
Jackpot liabilities
8.80%
9.78%
9.86%
10.12%
Other liabilities
3.93%
3.10%
4.43%
4.47%
Total Liabilities
65.22%
69.20%
77.96%

80.05%
Commitments and Contingencies
0.00%
0.00%
0.00%
0.00%
Shareholders' Equity
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Common stock: $.00015625 par value; 1,280.0 shares
authorized; 341.9 and 339.1 issued; 297.4 and 298.1 outstanding
0.00%
0.00%
0.00%
0.00%
Additional paid-in capital
37.13%
36.78%
28.81%
27.69%
Treasury stock at cost: 44.4 and 41.0 shares
20.59%
20.01%
18.21%
17.52%
Retained earnings
18.39%
13.77%
11.31%

9.73%
Accumulated other comprehensive income
0.21%
0.27%
0.14%
0.04%
Total IGT Shareholders' Equity
34.72%
30.80%
22.04%
19.95%
Noncontrolling Interests
0.06%
#VALUE!
0.00%
0.00%
Total Equity
34.78%
30.80%
22.04%
19.95%
Total Liabilities and Shareholders' Equity
100.00%
100.00%
100.00%
100.00%Comparative Analysis:
These financial statements are so designed as to provide time
perspective to the various elements of financial positions
contained therein. Comparative statements can be prepared for
both types of financial statements balance sheet as well as
Income statement. The comparative balance sheet shows the
effect of operations on the assets and liabilities i.e., change in
the financial position duding the period under consideration.
The comparative Income statement account will present a
review of operating activities of the business.

A comparative balance sheet shows the balance of accounts of
assets and liabilities on different term and also the extent of
their increase or decrease between these dates throwing light on
the trends an direction of changes in the position over the
periods. This helps in predicting about the position of the
business in future.
Ratio Analysis:
Ratio analysis is one of the most widely used tools of financial
analysis which helps in establishing the relationship between
individual items or group of items in the balance sheet or profit
and loss account and analyzing the performance of the
organization. It helps different stakeholders to analyze the
performance of the company and its financial health. Ratio
analysis helps in analyzing the financial health and financial
position of the company with the help of different ratios which
includes the liquidity ratio, solvency ratio, profitability ratio
and activity ratios.
Ratio Analysis
Fiscal year
2011
2010
2009
2008
Liquidity Ratio
Current ratio
Current Assets / Current Liabilities
2.64

2.06
1.98
2.00
Quick ratio
(Current Assets - Inventory) / Current Liability
2.50
1.90
1.72
1.70
Collection Period
Average Accounts Recievable / Sales/360
42.56
42.56
42.56
42.56
Capital Structure and Solvency
Total debt to equity
Total Liabilities / Share holder's equity
1.88
2.25
3.54
4.01
Return on Investment
Return on Assets
Net Income / Avg. Total Assets
6.83%
4.64%
2.89%
7.52%
Return on Common equity
Net Income / Average shareholder's equity
19.63%
15.07%
13.11%
37.68%
Operating Performance

Net profit margin
Net Income / Sales
14.49%
9.70%
6.28%
13.55%
Asset utilization
Accounts receivable turnover
Sales / Average accounts recievable
6.11
6.60
6.04
5.79
Inventory turnover
COGS / Average inventory
11.21
8.50
5.74
5.08
Total assets turnover
Sales / Avg. total assets
0.47
0.48
0.46
0.55
Liquidity Ratios: Liquidity ratios are used to measure firm’s
short term obligations. It helps in comparing short term
obligations with short term resources available to meet these
obligations. Liquidity ratios show the relationship of a firm’s
cash and other current assets to its current liabilities. The
liquidity ratios used for analysis of International Game
technology are:
Current ratio: This ratio indicates the extent to which current
liabilities are covered by those assets expected to be converted
to cash in the near future.

Current assets include cash, marketable securities, accounts
receivables, inventories and short term investments. Current
liabilities include accounts payable, short-term notes payable,
current maturities of long-term debt, accrued taxes, and other
accrued expenses.
Current Ratio=Current Assets/Current Liabilities Current ratio
of a company should be at least 2 times, i.e. current assets
should be twice as current liabilities of any firm. The current
ratio of the company is 2.64 for year 2011 and 2.08 for 2010.
We can say that the liquidity of the firm has deteriorated as
compared to the last year.
Quick/ Acid Test ratio: It is a more conservative measure of
liquidity. It refers to the extent to which current liabilities are
covered by current assets except inventories.
Quick Ratio = (Current Assets-Inventories)/Current Liabilities.
The quick ratio of the company has also decreased by about
20% from last year, this states that the company has increased
its inventory hold in 2011 as compared to 2010.
Collection Period: This ratio helps in calculating the amount of
time that it takes for a firm to receive payments owed by the
debtors of the firm. Collection Period = Accounts Receivable /
(Sales/360)
The average collection period of 2011 has almost the same as
compared to the previous years, which depicts the inefficiency
of the company to collect the cash from the debtors.
Days to sell inventory: It measures the number of days
inventory is held by the company. Days to sell inventory =
Average Inventory / (COGS/360)

Capital Structure and Solvency: These ratios help in analyzing
the long term solvency of the firm. These ratios are based on the
proportions of debt and equity in capital structure of the firm.
The debt contributed by the creditors to the firm requires fixed
interest payments and repayment of the loan. If there is a high
proportion of funds that are contributed by the owners, then it
indicates that there is a surplus of finance which shields the
firms leverage. These ratios include:
Total debt to equity ratio: This ratio indicates the relative
contribution of creditors and the owners of the firm. Total Debt
equity ratio = Total Liabilities / Shareholder’s equity. The
company has high debt equity ratio i.e. the company is highly
financed by debt. Thus it depicts high debt ratio.
Long term debt to equity: This ratio indicates the relative
contribution of long term creditors and the owner’s of the firm.
Long term debt to equity = Long term liabilities / Shareholder’s
equity. The total long term debt for 2011 is about 70% as
compared to 52% in 2010, which depicts that the company has
taken long term debt in 2011, which has increased its ratio.
Return on investment: These ratios help in evaluating the
efficiency of the assets utilized by the firm.
Return on Total Assets: Return of total asset measures the
amount of Net Income earned by utilizing each dollar of Total
Assets. The equation is: Return on Total Assets (ROA) = Net
income / Average total assets. The company has about 6.83% of
total return on assets in 2011 as compared to 4..68% in 2010,
which depicts that the return on assets of the company has
increased which depicts its inefficiency.
Return on Equity: Return on Equity measures the amount of net
Income earned by utilizing each dollar of Total common equity.
This ratio helps in finding out how much the shareholders are
going to get for their shares. Return on Equity = Net income /
Total common equity. The return to shareholders has increased

to 19.63% as compared to 15.07% in 2010.
Asset utilization: Asset utilization ratios are the financial
statement ratios that measure how effectively a business uses
and controls its assets.
Cash Turnover ratio: This ratio tests the efficiency of cash
utilization within the firm. Cash turnover ratio = Sales / Avg.
cash and cash equivalent. The company has been able to
increase its efficiency to utilize its cash in 2009 as compared to
2008.
Accounts Receivable Turnover: It helps in showing that how
many times does debtors turn in a year. Accounts Receivable
turnover = Sales / Average accounts receivable. The company
has been able to increase its efficiency in managing its accounts
receivables in 2011 as compared to 2010. The company has been
able to work on its credit policy so as to increase its accounts
receivables turnover.
Inventory turnover ratio: The ratio is tests the efficiency of
inventory and indicates the movement of merchandise in the
firm. Inventory turnover ratio = COGS / Average Inventories
The inventory turnover ratio has decreased in 2011 as compared
to 2011 as the company is not been able to flush on its
inventory well in 2011.
Total asset turnover ratio: The Total Asset Turnover measures a
company's effectiveness in generating sales revenue from the
total assets employed by the company. Total assets turnover
ratio = Sales / Avg. total Assets. The company has been able to
utilize its assets efficiently for 2011 as well as 2010.
Operating Performance Ratios: These ratios are also known as
Profitability ratio. Profitability ratios show the combined
effects of liquidity, asset management and debt on operating

results of the firm.
The sales of the company have increased by 2.08% in 2011 as
compared to the sales of 2010, but the profit of the company has
decreased by 52% as the operating expenses have decreased
incredibly. Thus with the increase in the operating cost and
expenses the comparative profitability of the company has
decreased.
Gross Profit Margin: Gross Profit Margin gives us the amount
of profits of a firm relative to its sales. Gross Profit Margin
(GPM) = Gross profit / Sales
Net Profit Margin: Net Profit Margin shows the earnings left for
shareholders as a percentage of net sales. Net Profit margin =
Net income / Sales. The company has been improve its net
income in 2009 as compared to 2010.
Duo Pont Analysis:
Du Pont analysis helps calculating the return on equity of the
firm. It refers to the effectiveness of two ratios: Return on
Assets, and Return on Equity. The equation simply states that
profitability can be increased or decreased through three
functions: Margin, turnover, and equity multiplier of the firm
i.e. Margin = Post-tax profit/sales, Turnover = Sales/total
assets and equity Multiplier = Total assets/equity
Profitability = Margin x Turnover x Equity Multiplier
Thus, through this equation, we can analyze that the companies
operating in different sectors can perform well in either of these
ratios but still have low profitability. In order to increase
profitability, companies can generate better sales based on more
efficient use of their assets or create a higher profit margin.
Conclusion:

Considering the current performance of the firm we can say that
the company’s performance has improved in 2011 as compared
to 2010 which depicts the operating capability of the firm
because of the increased expenses and operations in the
organization. The company needs to have a strong focus on
improving its financial health so as to have investment
opportunities. With a strong focus on its strategies the company
will be able to improve on its financials.
IGT can exploit the new and expanding opportunities in
domestic (the US) and international marketsto boost growth. In
the domestic market, legislative actions and the passage of voter
referendumsare providing new and expanding opportunities in
Illinois, Ohio, Kansas, Maryland, Pennsylvaniaand Florida.
According to industry watchers, the market potential is
estimated at up to 40,000machines in Illinois and up to 17,500
machines in Ohio. Furthermore, development projects
inMaryland, Kansas, and Pennsylvania received approval and
licensing in FY2009, and openings areplanned over the next few
years. State legislatures in Kentucky, Massachusetts, New
Hampshire,Alabama, North Carolina and Texas continue to
consider gaming as a way to provide tax revenuesin support of
public programs, which is expected to increase the demand for
the products of thecompany in the future.
Globally, while many areas around the world continue to feel
the impact of economic uncertainty,the center of gaming
industry growth has shifted decisively to Asia. Gaming in Asia
is back on pacefor record growth in terms of revenue and
expansion. According to Datamonitor’s estimate, theAsia-
Pacific casinos and gaming sector grew by 17.5% in 2010 to
reach a value of $164.7 billion.
Moreover, in 2015, the Asia-Pacific casinos and gaming sector
is forecast to have a value of $222.4billion, an increase of 35%
since 2010.

IGT has a strong presence in the US and also operates operating
centers and sales offices in growingAsia Pacific region. The
company is thus well positioned to exploit the opportunities in
its domesticand international markets and enhance its revenue
generation capacity.
References:
James C. Van Horne and Jon M. Wachowica, JR, (2006).
Fundamentals of Financial Management
Description
Your instructor will assign a major publicly traded corporation
from a nonregulated industry where you can obtain complete
financial statements for the most recent 5 years.
The instructor will post the company in the Announcements
section by the end of Unit 1.
The company that has been selected for you to study for your
final project is "International Game Technology" Ticker "IGT" .
This is a NYSE traded company that produces gaming machines
for the casino industry.
Let's really dig into this company and find out how it ticks.
Based on these statements and other information you will
prepare a financial statement analysis report.
You will work on this project throughout the term. Do not wait
until the last week to begin.
Directions
For your Term Project, turn to page 648 in our textbook, and
complete the assignment under Case CC-1, Comprehensive
Financial Analysis.
The final analysis should be set up as a research paper with the
following sequence:
• Cover page with your name, course number, your instructor,
date, subject, and a brief statement that you (and you alone)
produced the paper and all references are mentioned.

• Executive Summary (max. ¾ page in Bold)
• Table of Contents
• Introduction
• Body (8-12 pages)
• Conclusion and Recommendation(s)
• References

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