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Micro-Exercise 1: The Zero-Debt Equity Fortress & Retained Earnings
Micro-Exercise 1: The Zero-Debt Equity Fortress & Retained Earnings
🛡️ THE STORY BEHIND THE NUMBERS: The "Zero-Debt Fortress" — Why Video Game Studios Finance with 93,9% Equity!
🛡️ THE STORY BEHIND THE NUMBERS: The "Zero-Debt Fortress" — Why Video Game Studios Finance with 93,9% Equity!
THE STORY BEHIND THE NUMBERS: The Self-Financed Gamedev Fortress (Page 9 of Report)
In Module 3, Team 1 discovered that CD PROJEKT holds PLN 2.17 billion in Non-current assets (mostly capitalized game development costs for The Witcher 4 and Cyberpunk 2) and PLN 1.32 billion in cash, bank deposits, and Treasury bonds. Now, flip to Page 9 of the 2025 Consolidated Financial Statements PDF to see the Right Side of the Balance Sheet (Equity and Liabilities): how did CD PROJEKT pay for all of this?
1. The Equity Fortress (Accumulated Profits from Past Megahits):
Look at EQUITY at the top of Page 9. Almost the entire company (93.9% -> 94% of the Balance Sheet in 2025, up by +18.6% / +19% YoY from 2024!) is funded by Shareholders' Equity (3,289,859 thousand PLN). Inside that Equity, the biggest line by far is Supplementary capital (2,400,607 thousand PLN in 2025 and 2,069,034 thousand PLN in 2024) plus Net profit for the period (594,708 thousand PLN in 2025). As explained in Note 24 (Page 62), Supplementary capital is created from prior years' net profits kept inside the company -- meaning past blockbuster hits fund over 85% of the studio's entire Balance Sheet!
2. Zero Bank Debt, Missing Subtotal Trap & Crushing the Golden Rule (1541%):
Why don't AAA video game studios fund their games with bank loans? Because building a game takes 4 to 6 years of heavy cash burn with zero guaranteed cash inflows until launch day -- if a launch is delayed, fixed bank loan payments could bankrupt the studio! Look at CD PROJEKT's NON-CURRENT LIABILITIES (33,157 thousand PLN) and CURRENT LIABILITIES (180,304 thousand PLN) on Page 9: the studio has ZERO bank loans or bonds (confirmed on Page 81: "the Group has no external interest-bearing debt from loans and borrowings or bonds issued"). Also watch out for a layout trap on Page 9: CD PROJEKT prints Non-current liabilities and Current liabilities separately, but does NOT print a combined "Total Liabilities" row -- you have to add them together yourself (33,157 + 180,304 = 213,461 thousand PLN, or subtract Equity from Total Assets)! Because Total Debt is only 6% of the Balance Sheet, Permanent Capital (KS = KW + ZD) reaches 94.9% (95%), and the Equity-to-Debt ratio (KW / KO) hits an astronomical 1541% -- crushing both the Golden Rule (target >= 100%) and Silver Rule (target >= 50%) of Financing!
📋 WORKFLOW FOR TEAMS 1–5: Paper First, Screen Second!
Use your printed paper worksheet as a scratchpad to extract the Y2024 figures from the PDF report and calculate your ratios. Once you have written down and rounded your answers on paper (whole numbers only, no decimals!), transfer them into the interactive online form below and click Check until every box turns 100% Green! Keep your paper worksheet ready for our live classroom comparison!
Guided Exercise (Team 1 - CD PROJEKT): 4 Key Capital Structure Ratios & Financing Rules
Guided Exercise (Team 1 - CD PROJEKT): 4 Key Capital Structure Ratios & Financing Rules
Goal: Analyze the right-hand side of CD PROJEKT's Balance Sheet (Equity & Liabilities): check horizontal equity growth YoY, vertical capital structure (Equity vs. Debt and Permanent Capital), and test the Golden Rule (1:1, KW/KO >= 100%) and Silver Rule of Financing (1:2, KW/KO >= 50%).
Worked Example: Step-by-Step for 2024 (Page 9 of the PDF)
STEP 0: OBTAIN THE ANNUAL REPORT HERE
STEP 1: Find 4 numbers on the Equity & Liabilities side in 2024 (in PLN thousand, 31.12.2024* column on Page 9):
[A] TOTAL EQUITY AND LIABILITIES (Page 9, bottom row): 3,026,438
[B] SHAREHOLDERS' EQUITY - KW (Page 9, top row): 2,774,059
[C] TOTAL LIABILITIES / DEBT - KO (Page 9: Non-current 22,574 + Current 229,805, or [A] minus [B]): 252,379
[D] NON-CURRENT LIABILITIES - ZD (Page 9, middle section): 22,574
STEP 2: How the 4 Key Capital Ratios are calculated (2024 Example):
1. Equity Growth YoY (%): Base Year (In 2025, you will compare 2025 Equity against 2,774,059).
2. Equity Share in Balance Sheet (%): ([B] / [A]) * 100% = (2,774,059 / 3,026,438) * 100% = 91.7% -> 92% (Debt Share = 8%).
3. Permanent Capital Share - KS (%): (([B] + [D]) / [A]) * 100% = ((2,774,059 + 22,574) / 3,026,438) * 100% = 92.4% -> 92% (Short-term debt ZK is only 8%!).
4. Golden (>=100%) & Silver (>=50%) Rule of Financing (KW / KO): ([B] / [C]) * 100% = (2,774,059 / 252,379) * 100% = 1099.2% -> 1099% -> PASSES BOTH GOLDEN & SILVER RULES!
Your Turn: Task for Team 1 (Calculate 2025!)
Look at the 31.12.2025 column on Page 9 and complete the exact same steps for 2025 (round percentages to whole numbers, no decimals):
STEP 1: Find the 4 numbers for 2025 (in PLN thousand):
[A] TOTAL EQUITY AND LIABILITIES (Page 9, bottom row) = ....................
[B] SHAREHOLDERS' EQUITY - KW (Page 9, top row) = ....................
[C] TOTAL LIABILITIES / DEBT - KO ([A] minus [B], or 33,157 + 180,304) = ....................
[D] NON-CURRENT LIABILITIES - ZD (Page 9, middle row) = ....................
STEP 2: Calculate the 4 Key Ratios for 2025 (whole %, no decimals):
1. Equity Growth YoY (%) = (([B]_2025 - 2,774,059) / 2,774,059) * 100% = .......... %
2. Equity Share in Balance Sheet (%) = ([B]_2025 / [A]_2025) * 100% = .......... %
3. Permanent Capital Share - KS (%) = (([B]_2025 + [D]_2025) / [A]_2025) * 100% = .......... %
4. Equity-to-Debt Ratio (KW / KO %) = ([B]_2025 / [C]_2025) * 100% = .......... % (Passes Golden >=100% & Silver >=50%?)
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