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Micro-Exercise 1: The "Asset-Light" Illusion in Gaming & Tech (Capitalized Game Development)
Micro-Exercise 1: The "Asset-Light" Illusion in Gaming & Tech (Capitalized Game Development)
GROUP 1: CD PROJEKT S.A. (WSE: CDR)
GROUP 1: CD PROJEKT S.A. (WSE: CDR)
Welcome Team 1 (CD PROJEKT S.A.)!
In this guided exercise, you will learn how to read a real-world IFRS Consolidated Financial Statement from start to finish. Working with the Consolidated Financial Statements of the CD PROJEKT Group for 2025 (PDF), you will discover:
How AAA video game studios account for hundreds of millions of zlotys spent developing future games,
How the December 2025 sale (divestment) of GOG.com is separated from the core business, and
How to accurately extract and convert financial data without falling into the "units trap."
Educational Objective
To learn how to navigate an IFRS annual report, locate Continuing vs. Discontinued operations on the Income Statement, trace capitalized development expenditures (IAS 38) across the Balance Sheet, Cash Flow Statement, and Explanatory Notes, and properly convert financial statement units (thousands to millions).
💡 THE STORY BEHIND THE NUMBERS: Where Does the Money Go When You Build The Witcher 4?
💡 THE STORY BEHIND THE NUMBERS: Where Does the Money Go When You Build The Witcher 4?
Imagine you are running CD PROJEKT, one of Europe's largest video game studios. Developing a massive AAA game like The Witcher 4 (Polaris) or Cyberpunk 2 (Orion) takes 3 to 6 years and costs hundreds of millions of zlotys. During those years of coding, motion-capture, and world-building, the new game generates zero sales revenue because it has not been released yet.
The Accounting Puzzle:
If CD PROJEKT treated all developer salaries and production expenses as regular operating costs in its Income Statement (Profit and Loss) every year, the company would report massive financial losses during the years of production, followed by an artificially high profit in the launch year. That would completely distort the picture for investors!
How IFRS Solves This (Capitalization under IAS 38):
Instead of expensing game production costs immediately, accounting rules require CD PROJEKT to capitalize them—meaning the money spent building unreleased games is parked on the Balance Sheet as a long-term intangible asset called Expenditure on development projects. Only after the game is released is this asset gradually expensed (amortized) as Cost of products and services sold over the next few years.
The "Asset-Light" Illusion & The 2025 Strategic Shift:
Because of this rule, even though CD PROJEKT owns no heavy factories, mines, or refineries, its Balance Sheet is NOT "asset-light"! Nearly 62% of its total assets are Non-current (long-term) assets—dominated by nearly PLN 1.15 billion of capitalized game development and long-term bonds. Furthermore, on 31 December 2025, CD PROJEKT sold its digital store GOG.com for PLN 90.7 million to focus 100% on game development. Under IFRS 5, GOG.com's results were stripped out of regular lines and moved to a separate line called Discontinued operations, leaving the top of the Income Statement to show only the pure game-development business.
🎬 Watch Before You Start (3 mins): Check out the official 3-minute commentary on the 2025 results by CD PROJEKT’s CFO, Piotr Nielubowicz (English subtitles available): https://www.youtube.com/watch?v=tUNZDHrsNgc
📋 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!
Step-by-Step Walkthrough (How to Read the Financial Statement PDF)
Step-by-Step Walkthrough (How to Read the Financial Statement PDF)
Follow these exact steps in the Consolidated Financial Statements of the CD PROJEKT Group for 2025 (PDF). Do not skip any step—this is the exact workflow you will use in future financial analyses!
STEP 1: Check the "Golden Rule" of Financial Statements (Units & Currency)
Before looking at any numbers, always check the currency and rounding units used in the report.
Go to Page 2 (or look at the footer at the bottom of almost every page in the PDF).
Notice the sentence in parentheses: (all amounts in PLN thousand, unless stated otherwise).
What this means for you: Every number you see in the financial tables has three zeros cut off! For example, if a table shows 1 000, it actually means PLN 1,000,000 (PLN 1.0 million). To convert any number from PLN thousands to PLN millions, you must divide it by 1,000 (move the decimal point 3 places to the left).
STEP 2: Orient Yourself Using the Table of Contents & Summary Data
Go to Page 4 of the PDF (Table of contents): Look at how the report is structured. First come the primary financial statements (Pages 6–12), followed by the explanatory Notes (Note 1 to Note 45 on Pages 13–96) which break down the details behind every line item.
Go to Page 3 of the PDF (Selected financial data translated into EUR): (Note: Page 5 is just a section cover page). On Page 3, you have a high-level summary of the entire report in both PLN and EUR. Look at the first column (PLN 01.01.2025 – 31.12.2025) to get a quick preview of the top line (Net sales...) and bottom line (Net profit on continuing operations vs. Net profit on discontinued operations).
STEP 3: Inspect the Consolidated Income Statement (Profit & Loss)
Go to Page 6 of the PDF (Consolidated income statement):
Look at the columns: the left data column covers FY 2025 (01.01.2025 - 31.12.2025) and the right column covers FY 2024 (01.01.2024 - 31.12.2024* restated data).
Look at the very first line at the top: Sales revenue. Notice the small reference number 1 in the Note column right below it—this tells you that Note 1 (on Page 25) explains where this revenue came from (e.g., Cyberpunk vs. The Witcher, digital vs. box editions).
Scroll down to the bottom of the main table on Page 6: notice how Net profit (594 708 thousand PLN) is split into two parts:
Net profit on continuing operations (520 869 thousand PLN) – the core CD PROJEKT RED game development studio that stays in the Group.
Net profit on discontinued operations (73 839 thousand PLN, referencing Note 6) – the result of the GOG.com segment which was sold on 31 December 2025. Because GOG.com was sold, all the lines in the main table on Page 6 (from Sales revenue down to Net profit on continuing operations) represent Continuing operations only!
STEP 4: Discover the "Asset-Light" Illusion on the Balance Sheet & Cash Flow Statement
Go to Page 8 of the PDF (Consolidated statement of financial position – Assets side):
Compare NON-CURRENT ASSETS (2 168 647 thousand PLN, or ~PLN 2.17 billion) with CURRENT ASSETS (1 334 673 thousand PLN, or ~PLN 1.33 billion) out of TOTAL ASSETS (3 503 320 thousand PLN, or ~PLN 3.50 billion).
Look under NON-CURRENT ASSETS (3rd line down) and locate Expenditure on development projects (referencing Note 10). As of 31.12.2025, it stands at 1 148 143 thousand PLN (~PLN 1.15 billion)! This is the accumulated cost of building games.
Look at the financial reserves across Page 8 (detailed in Note 17 on Page 54 and Note 34 on Page 80): combining Cash and cash equivalents (114 115), Bank deposits over 3 months (520 813), and domestic/foreign Treasury bonds inside Other financial assets (689 982), CD PROJEKT holds over PLN 1.32 billion in liquid financial reserves!
Go to Page 12 of the PDF (Consolidated statement of cash flows – INVESTING ACTIVITIES):
Under Outflows, find the line Expenditure on development projects: in 2025 alone, CD PROJEKT spent 513 241 thousand PLN (~PLN 513.2 million in cash) developing games and capitalized it instead of expensing it in the Income Statement!
Optional Deep-Dive into the Notes (Use Ctrl+F or scroll to the page):
Pages 22–23 (Operating segments): Explains why only the CD PROJEKT RED segment remains in continuing operations after the sale of GOG.COM.
Pages 34–36 (Note 6. Discontinued operations): Shows the exact details of the GOG.com sale on 31 December 2025 to co-founder Michał Kiciński for PLN 90.7 million (90 695 thousand PLN), as well as GOG's separate revenue (189 129 thousand PLN) that was excluded from Page 6.
Pages 43–47 (Note 10. Intangible assets and expenditure on development projects): Look at the table on Page 47 (bottom row: Net carrying amount as at 31.12.2025). It splits the 1 148 143 thousand PLN of development expenditure into unreleased games in progress (992 347 thousand PLN—Witcher 4, Cyberpunk 2, etc.) and already released games being amortized (155 796 thousand PLN).
🎯 Task / Question for Team 1 (Y2024 Data)
Please complete STEP 3 (Consolidated Income Statement on Page 6) and STEP 4 (Balance Sheet Assets on Page 8 & Cash Flow Statement on Page 12) for Y2024 data (using the right-hand comparative column 2024* / 31.12.2024*)!
📋 WORKFLOW: Paper First, Screen Second!
Use Your Printed Worksheet First (Scratchpad): Before typing anything on the screen, use the printed paper worksheet provided by your instructor to extract the Y2024 figures from Pages 6, 8, and 12 of the CD PROJEKT 2025 PDF report and calculate the Non-current assets percentage share by hand.
Whole Numbers Only (No Decimals!): Enter exact values in PLN thousand directly from the 2024 column, and round percentages to the nearest whole number (e.g., write 52 instead of 52.01%).
Transfer Your Answers to the Online Form Below: Type your 10 answers into the interactive Y2024 Checker below and click Check until every box turns 100% Green!
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