FR Performance Analysis Question Approach

I thought I’d share in case this helps anyone else.

I went through all the exam papers since Sep 2016 to review the performance analysis questions. I read the answers and broke them down to create a ‘process’ to approach them. I used this in the exam and think I did enough to pass.

First identify what the situation is and look for specific factors that are likely to come up for each which could distort the ratios and profit.

– Acquisition – Mid Year, Share for Share/Loan Notes, Fair Value Adjustments

– Disposals – Profit or Loss in Op Ex, Other One Off Costs

– Intra Group Transactions – Lower Margin, Other Costs – Op Ex, Finance Costs, NCAs

– Specific Co./Limits – Seasonal, Year End & Period Matches, Luxury v Discount, Industry, Intangibles, Own v Rent, Valuation NCA & Inventory, Accounting Policies, Ratio Definition.

Use the appropriate Performance and Position headings and for each ratio comment on the difference and significance of the increase/decrease. Then, if significant –

Reason – why it has changed – use info in the question or logical conjecture.
Remove & Restate – if needed for a large one-off which distorts the real performance.
Risk – is there a risk and if so what is the risk of not correcting the issue?
Recommend – how to resolve this concern.

Conclusion – Overall – Profitable/Which is Best/Good Decision to Acquire/Dispose.
– Concerns – Restate Key Concerns.
– Recommendations – Restate Key Recommendations.
– Investigate – Further information needed to understand the situation.

This is not exhaustive, just based on past exam sample questions. It helped me to feel more prepared and to know where to start and what to look for. I had a single entity compared to industry averages in the exam so the Acquisitions/Disposals and Intra Group Transactions didn’t apply.