August 19, 2014 at 2:11 pm
I am in middle of preparing my project analysis. The company I am assessing prepares its accounts in pounds (£), and the comparator company prepares in euros (€). Do I have to translate the euro into £s or I can just leave it like that? Is there any problem with this? Please helpAugust 20, 2014 at 7:07 am
@akonda – This should not be a problem as in your evaluation you will mainly be dealing in ratios rather than absolute figures. However this is something that you will need to mention in your Limitations section. Remember too that the PESTLE factors affecting them may be different if they are not based in the same country and these may account for some of the variations in their performances. You may also find that the specific market factors e.g consumer tastes in their main country of operation / home country are also impacting on the results so will need to be mentionedAugust 22, 2014 at 4:32 pm
@trephena – Thank you so much, this is so helpful indeed. Talking about PESTEL factors and other specific markets being different if they are based in different countries, that I do understand – but what if they are airlines companies and both based and fly in Europe only, will there be much of the different between them? Remember one is using £ and the other €. ThanksAugust 22, 2014 at 6:03 pm
@akonda if they are both based in the same country then the PESTLE differences affecting them should be minimal. However as you have mentioned airlines a couple of tips for evaluation – try to tailor your ratio analysis to the business (this applies of course to every business) – with airlines revenue per passenger kilometer (or mile), load factors, aircraft utilization are fairly important so DON’T try a text book approach here. In fact don’t even think about doing the quick ratio – service industries don’t tend to hold trade inventory by definition of being a service industry so it is totally pointless.
When doing the business analysis you may want to look at the cost of fuel as this is significant cost and fluctuations in its price and the dollar can really impact on profitability. Other things that may account for differences in operating costs is whether the airlines buy or lease their aircraft and the age of the aircraft (new planes are more fuel efficient). And also of course a short-haul operator will tend to have higher operating costs in this respect (just like long car journeys are more fuel efficient than doing town driving). Normally the annual reports will have all the seat/load factor type and revenue per passenger km info so go through and extract anything that is useful. Try to get a feel for the industry by reading the CEO and directors’ reports and that will help you to understand their strategies and focus
Hope that gives you a few ideas. 😀August 23, 2014 at 4:08 am
@trephena, you have just open my eyes on how I should tackle this project, I think I was going on the wrong direction. Thank you so much for that information.August 23, 2014 at 7:42 pm
I have chosen a commercial bank for my project analysis . what ratios should i use and i would also like to know is there any criteria for choosing competitor bank ? I just selected one from the same stock exchange listing..August 29, 2014 at 1:19 pm
@mariam I have answered the ratio part off this in an earlier post on a Forum called ‘Banking liquididty ratios for Topic 8’. In addition to the ratios mentioned there you will also need to consider investor ratios.
As long as there are a few commonalities (which makes the comparisons more valid) there are usually no parituclar rules on selecting a comparator. In the UK Santander would probably not be the best choice for matching with any of the other banks as it has a major part of its operations in Spain . Lloyds was taken over by the Government during the financial crisis and has most of its shares sold back to the market in the last few years so again this scenario is possibly a major limitation. Barclays and HSBC would be suitable or either of these with Standard Chartered as all 3 have global opeations. Overseas banks should be matched with one in the same country ideally. If a good match is difficult you will need to explain the limititations of using that particular comparator. However having two companies from the same stock exchange is a good startSeptember 17, 2014 at 7:12 pm
I’m also preparing for submission in November 2014. My question can i use industry average as my comparative? With respect to my ratio analysis or does it make more sense to use an actual company instead?September 18, 2014 at 7:22 am
@nicolealleyne – I am trying to rationalise the number of forums we have in the effort to keep our forums tidy 🙂 If you use our search facility, as in most cases, you will find that we already have a forum dealing with your query, it is called ‘Comparator company’ so please post your question there and I will answer itSeptember 18, 2014 at 1:51 pm
I have chosen to do Dutch Shell and use BP as the comparator do you think that’s a wise choice?September 19, 2014 at 12:59 am
@nicolealleyne Yes that is a much better idea than using industry averages. I have detected a trend in markers wanting more ‘quality’ in the comparator analysis – just describing differences by how much is not sufficient – they want explanations. Industry averages can be used for additional comparisons but should NOT be used in place of a specific competitor.September 19, 2014 at 4:19 pm
Your advice is greatly apperciated.September 23, 2014 at 11:28 am
Thank you so much for your contributions towards this forum it is really helping me alot in my RAP preparation.
My question is that whilst analyzing the published group financial statements of my comparator which is part of an international company which operates in 3 different continents i discovered that the operation of the comparator in my country only contributes 2% of the total revenue of the group, so will i pass if i use this comparator.September 27, 2014 at 1:04 am
The question is;
Are you using the subsidiary company or its holding company as benchmark?
I believe both are separate entities.
Any comparator you chose to use must have its own financials – atleast IS and SFPSeptember 29, 2014 at 1:24 pm
@marquez – Thanks for your response, I am using the subsidiary company as a benchmark.
There are no available separate financials for the subsidiary as it is 100% owned by the holding company. They only publish consolidated financial statement for the whole group and my main concern is the low percentage contribution of the comparator company to the group performance and its operating environment.September 29, 2014 at 10:22 pm
My reply would be more effective if you give me specs.
On the overall, you should know that you are evaluating the performance of A COMPANY and not a company in conjuction to another. In this case you will be using the fs of the holding co not that of the subsidiary whose fs is not published.
BTW you have barely 6 weeks togo and you have to move on…although this stage is the one of the most critical phase of the RAPApril 29, 2015 at 2:18 pm
I have chosen topic 8: but i am confused about how to do competitor analysis appropriately means whether to do competitor analysis with my main company or do it separately and whether to do it on single year or over three years.April 30, 2015 at 7:25 pm
@ahmar – The whole point of the comparator analysis is to put your company in a relevant context. You need to integrate your whole RAP – the SWOT & PEST influence management decisions so DON’T apply them isolation. Similarly with the comparator analysis it should NOT be in a separate section you should aim to have the trends either on the same graph or more or less side by side. You need to account for the differences in their performances not just state that one did better than the other (this is a statement of the obvious as anyone could either see differences merely from the graph/chart or looking at the financial statements). Read the FAQs where I covered the importance of comparator analysis and also my article on Evaluation & Analysis – both can be found via our homepage http://www.opentuition.com/obu
The main company analysis is 3 years but you only have to do 1 year for the comparator (although some students choose to do comparisons over the 3 year period). EIther approach is acceptable but as I try to impress on students it is the explanations about what has caused the changes (management decisions and SWOT/PEST factors) that are vital when explaining the difference in the companies’ performancesMay 1, 2015 at 6:51 am
I cannot find a reliable source I can use to find the average benchmark for pharmaceuticals company. I have looked but unable to find it. Can anyone guide me ?
BarbaraMay 1, 2015 at 4:25 pm
You need to type some key words into the search facility e.g. Topic 8 industry average as this has been dealt with before.
PLEASE can you search first before opening yet another topic? I am attempting to keep our forums tidy and as you will see this saves everyone time when the same question comes up again….May 14, 2015 at 4:06 pm
@trephena I noticed you said its ok to do a one year analysis for the comparator just want to be double sure am right as I cant find any reference in the info pack and I’m guessing the most recent fs (year ) of the comparator would be most appropriate?May 14, 2015 at 5:04 pm
@simplyj – this is the minimum requirement. You are right, at the moment apart from telling you that if doing T8 you must have a comparator to put your company in an economic and business context the Information Pack does not stipulate how many years the comparison must be for. However I think this is one area that may be tightened up in the next Information Pack due out at the end of July / beginning of August.June 21, 2015 at 8:18 pm
I was initially intending of submitting my RAP during the May 2015 period, but decided to wait till November to produce a better less hurried RAP. I chose topic 8. I understand that my decision to delay necessitates that i update my appendices to include the most recent financial statements (in this case 31 December 2014) of both the main and comparative organizations.
This has been fairly easy for my main company, but there is an issue with the comparator. Very late in 2014 they acquired a number of subsidiaries, thereby expanding the group. They also changed their name.Their 2014 financial statements carry the new groups figures, as well as restate the comparative figures of 2013 to the present group structure. I understand that I will include the 2014 figures of the current group structure, but should I update my 2013 figures to comparative figures included in the 2014 annual report, as they are seemingly the most recent or keep my previous 2013 figures, as the restated 2013 figures in the 2014 annual report might only be for comparative purposes.June 21, 2015 at 9:42 pm
@montelik – Is your main company also a group? If not then you may be able to use the company as opposed to the group accounts for your comparator if they are published in detail.
Assuming however that you use the group accounts – unless the comparator company has restated its 2013 figures you could still use the ones you already have – this (and the change of name) are issues that you discuss in Part 2 (the section where you set out any limitations and any other relevant issues)
In fact if the acquisitions took place in late 2014 then I wouldn’t expect the Income statement itself to have been much affected (thus no real justification for you to have to revise the previous year, 2013 figures). I would however expect the acquisitions to have impacted significantly on the year end balance sheet especially in terms of gearing, loan stock and liquidity and possibly other investments. So when comparing the 2014 figures remember that any significant changes between the two companies’ positions in these areas may be directly related to the change in the comparator group structure.June 21, 2015 at 11:41 pm
@trephena. Thanks for the help. The acquistions took place from September through to October 2014. My main company is also a group. I had used the group figures for both organizations to ensure proper comparability, but I could consider using the company figures of both instead to avoid the limitations of the change in structure of the comparator.
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