Trend analysis

I don’t believe it is forbidden, until and unless it’s sensible, and 1 Jan to 31 Dec is your company’s financial year. Plus it lies within THREE year limit set by OBU.

Considering that you will do this for all ratios, and it’s for topic:8

Have to taken word limit into consideration? It’s really constraining..
Furthermore, you also have to do good rival analysis and possible for same years.
Lastly, you also have to do good business analysis, not just writing couple of lines.

If you can, good, or else take more prudent approach with suggestion of your mentor.

My fav approach is doing trend analysis from FY13 TO FY14, and incorporating ay significant event for FY13,

Regards,

The most important thing with evaluation and analysis is that you do not just repeat numbers from the graphs and describe increases and decreases without explanations. As @Ehsan has mentioned significant events need to be mentioned but also importantly you need to link the factors from the models to the financial analysis. This neans showing how the management have built on strengths and favourable environmental factors etc.and how management decisions relating to specific strategies have impacted on the financial results.

In this respect these decisions transcend year ends and may cover several years in terms of lasting influence

Dear Trephena,

I just want to take your view on my analysis.

So, I have calculated 3 years ratio, FY13, FY14, and FY15, and I have plotted these on graphs, thus, they show trend and fluctuations. So, I have analysed performance in this way, FY14 fluctuation with FY13 and FY15 fluctuation with FY14. In few instances, I have also linked my company’s decision made in 2013 with FY14 and FY15 as they had affect on those years.

I have seen few samples doing this, which I followed, and few of them which add an extra year FY12, lets say in my case, so it makes per year analysis. So, which technique is wrong?

Furthermore as my company is an Airline, I have used yield, load factor, ASK, for revenue analysis and Companies fleet decision for Profit analysis, with addition their strategic move in diversifying their Loyalty arm. I have also linked my Business models with Financial, I guess there are 5-6 links.

So, what you think?

Regards

OK – it is always good to try to link management decisions and performance and show how strategies have impacted on results (the reason I ALWAYS recommend starting the analysis with application of the models having also suggested that students start their research by reading the CEO / directors’ reports to the shareholders to get a ‘feel’ for the business and what has gone on).

AfTER applying the models then do the financial analysis and start each section with a good CLEAR graph. Time after time I warn against drowning the marker in a ‘sea of numbers’ and suggest allowing the graphs to do ‘the talking’ but every session I am told by markers that they suffer ‘death by numbers’ at the hands of the majority of students. The way to avoid this is to give your work to your best friend and ask how easy is it to follow what has gone on from your commentary (and don’t shoot the messenger when they say it was very muddled or it bored them rigid 🙂 )

When analysing what students forget is that decisions are not taken on the first day of each financial year and finish at year end! Therefore it does not necessarily make sense to do a year by year analysis fir every single ratio and looking at the general trend over the 3 year period is more realistic. It depends on the ratios under scrutiny though: sales/revenue and profits/ COS I would tend to discuss as a trend put focus on anything significant that may have happened e.g. with an airline maybe there were new larger aircraft introduced on key routes part way through the 3years (something you would have found by reading the CEO report for example). This would have impacted potentially on revenue and COS (newer aircraft tend to be more fuel efficient) and probably gearing / shareholder equity (where did the millions to buy the aircraft come from???)

Other ratios like current ratio and EPS and dividends can be looked at on a year by year basis as long as you bear in mind the trend from profits and retained earnings underlie these.

Good you are using KPIs from the industry and no, apart from reading the earlier year CEO/ directors reports to understand the business you don’t need to do 4 years

Yes that sounds good @Ehsan 🙂 There is no definitive number for reasons for fluctuations and depending on the ratio it is often a case of looking at the 3 year period as a continuous whole not as a year by year analysis. This is because the environmental factors and management decisions and application of strategies transcend years (they do not start on 1st Jan and end on 31 Dec !!!)

@Ehsan – If the reasons are good and the graphs are clear there is often no need for dense amounts of pages of text – it is quality not quantity that you will be judged on

Graphs in the report need to be referenced but the apart from referencing to the financial statements in the annual report no further referencing is normally necessary in the Spreadsheet worksheets.

Fluctuations in gearing are often accompanied by changes in shareholder reserves or equity. If the company is an airline you need to look at the fixed assets too as acquisition of new aircraft (or sale of old ones) can also affect the gearing and also whether the company buys or leases its aircraft.

Yes sounds good! As long as it is well presented and explained and you are not subjecting the marker to ‘Death by Numbers’ you could be well on you way to at least a B grade @Ehsan. 😀

As a check as to how well your work reads and whether there is ‘percentage overload’ get a knowledgeable family member or friend to read it. Watch their facial expressions – if they wrinkle their brow or have to keep re-reading passages you can assume that the marker will too. The more brow wrinkling and re-reading the marker is forced to do the lower the grade! 🙁

My marker friend says every RAP starts out potentially as an A grade but rapidly ends up as a C or F when it fails to deliver on quality analysis, clarity, presentation and referencing…. when a marker gets frustrated they just want to end their misery – and hit the fail button! 🙁

Haha thanks I hope so,

Nope no numbers, except couples here and there!

Thanks again

A bit of both really. The PEST will influence and will have influenced management decisions, the direction of the company and impacted as potential threats and opportunities in the SWOT in the past but could also affect the future (depending on the particular factors).

It’s good that you are seeing the big picture and ‘inter-connectedness’ here so bring in the PEST (and SWOT) when evaluating the financial performance where you can – the markers like this kind of thing 🙂