Comparator company

@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 mentioned

@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. 😀

Hey
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..

Good Afternoon

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?

I have chosen to do Dutch Shell and use BP as the comparator do you think that’s a wise choice?

Thank You

Your advice is greatly apperciated.

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 SFP

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 RAP

@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’ performances

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….

@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.

@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.