Ratios

The models should inform the analysis and evaluation i.e. the factors identified in the model would have influenced the management’s strategic decisions and it is those decisions that will have impacted performance. The ratios and trends are evidence of the success of those decisions – so everything is linked and the models play a key role as the backbone to your report. Some factors in the models may have persisted for a while, but some may have occurred more recently e.g. the sudden rise in world energy prices.

The Board does not sit down in 2018 and make decisions that will necessarily impact immediately. So 2019 performance may have been based on decisions possibly taken years before based on prevailing trends then e.g. the actual decision to build a new facility may have been taken 5 years before and then the lead time for it to come on stream taken several years after then. For example Boeing made the decision to produce the 737MAX aircraft in 2011 and by making short-cuts and bolting new engines on an existing design it came to the market in 2015 [because a totally new design that was fully tested would have taken far, far longer and in 2011 it was focused on other aircraft]. So examining Boeing’s recent performance a student would need to track back for about 10 years…. I appreciate you are not doing Topic 4 but I am citing this as an example of how you have to take a long view if you want to do a good report as you may need to take a broader approach to research.

Some factors will impact the whole industry but some factors will be company specific [such as the company’s strengths].

The 3 year period is up to the latest published annual report [but you do not have to use any financial statements published within the 3 months before the submission period opens, e.g on or since 1 Feb for May submissions and 1 August for November submissions – though you may CHOOSE to do so].

If you feel that your work would benefit by the use of / reference to interim financial statements that have been issued since the last published annual report then you may use them.

They are forward looking – in the hands of management

However you are looking at the performance and what underlies this and has influenced that performance and that is usually the decisions that have been taken – which as I have explained will depend upon a number of factors that emerge in the external and internal environment and trends [the company building on its strengths and seizing the opportunities the business environment presents for example – T5 or failing to do so – T4]

The difference is the approach you would take if you were on the board [where in a big company you would be supported by a team doing strategic forecasting and data analysis with sophisticated programs] and where you would be projecting forward but basing a lot of your projections on past events, performance and trends.

Whereas the approach you need to take for the RAP is someone analysing the company performance after the event – as the titles say ‘ has performed’ /’has faced’. Your brief is to try to piece together from the evidence of what may have contributed to that position. Ratios just show a trend – they on their own do not provide potential answers to questions that are needed if you are to do a ‘critical analysis’ or to show what the strategic/ operational challenges have been.