RAP - Part 3 Findings, Analysis + Business Models

@jofayo The business analysis is normally confined to the main company (but remember that the PESTLE is likely to be more or less the same for both companies). When looking at the business analysis you will need to explain the differences in their performances (not just describe by how much one exceeds the other). This is the main thing students do wrong - they fail to explain and think all they ever need to do is talk in numbers. The business& financial analyses are connected and the financial analysis is not just about numbers. Graphs! Graphs! And more graphs! Words should be used to furnish proper explanations. Good clear graphs show the trends so throwing more numbers in is not going to add anything as it does not advance or enhance the analysis unless there is something really worthwhile in doing so.

hi Thank You Trephena. I am really trying my best to conquer part 3 and your answer helps tremendously. I think the difficulty for me is linking all the information together because there is so much and it is conflicting. I am currently analysing ROCE for both companies. My company calculates ROCE using PAT and the comparator uses underlying operating profit. Capital employed is calculated differently as well. It would not be a meaningful comparison. Shall I calculate ROCE using information from SOCI and SOFP, or shall I use 'their' figures. Forever Grateful

@Fatema If they are using different bases then this is one case when you would have to adopt one commonly accepted formula for ROCE and apply to both. In the end it is what you make of the figures that counts - on its own ROCE is of limited use - it is the trend in it that is more significant and the component parts e.g. whether there has been a material change in the capital base. So rather than tie yourself in knots on this look at gearing, changes in share issues (or repurchase of shares) and focus on the funding side and the strategies the companies are using. The two areas you really need to focus on are Profitability and the Investor ratios. There is a very limited amount you can say about ROCE on its own. Linking the info is the hard part which is why well linked RAPs are the ones that get the better grades. However try to see how the companies are building on their strengths and employ both equity and debt to manage their strategies (investing in New markets/ products or expanding) and how they deal with the challenges from the environment (PESTLE factors) rather than taking a 'text book' approach. I am not saying this is easy but this is what you need to try to do. Sadly I'll bet my boots in 3 weeks time we will have students on here puzzled as to why they failed on analysis. The short answer will be that they took the wrong approach - crunched lots of numbers, just described movements (increases & decreases) did not explain anything except in terms of yet more numbers and mistakenly thought this was 'Evaluation & Analysis'!

Hi Trephena I have taken your advice and have started a SWOT and PESTLE analysis of both companies as I had not started this before the financial analysis. There are some you tube videos from business analysts who have done SWOTs for both companies. I am using this as a basis for my analysis. How do show this? Do I, after my analysis copy the www link to the videos, or do I actually write down that these ideas are from so and so... I don't want to be accused of plagiarism! Also do I do separate analyses for each company and end with a conclusion or do one SWOT/PESTLE and compare the strengths of one with the other and do the same for other factors. Regards

Thanks for your help, Trephena, I really appreciate.

@Fatema OK let's work our way through this: 1. Well done for finding some relevant SWOT / PESTLE analysis. First you only need to put the ones for the main company in the RAP (but hang on to the comparator one to help with the evaluation & if you have already done it how about having it as an appendix?) 2. Don' t depend just on this one source for the SWOT etc. try to find another source or two and certainly don't copy and paste extensively. Although you always have to reference, using long passages from other people's work is considered to be bad academic practice and lazy scholarship so try to avoid this. You must discuss the ideas rather than expect the marker to access the link. 3. The reference in the text would be e.g. (Vimeo.com, n.d) but put the link in the reference list. If there is a date put it in. 4. Try to link the SWOT & PESTLE when doing the financial analysis and as mentioned as you have done one for the comparator you can draw on this too. It is this type of reasoned and thoughtful analysis which will get you a pass and hopefully a good grade

hi Trephena Thanks for replying. Would it be ok for me to email you part 3 to just have a look at after I have finished it? Just to get an opinion. Kind Regards

@Fatema Unfortunately this puts me in a difficult position as I have to be both impartial in dealing with students and independent. I cannot favour one student over another but try to adopt a position where I will try to answer queries and help students on the forum regardless of race, religion and gender etc but for transparency reasons cannot deal with email requests. I don't know if you have a mentor yet but this would be something a good mentor would do for you. At OT we have recognised that finding a good mentor is a problem and we fear that the requirement to have an OBU listed mentor from P31 will not prevent unsuitable people from acting as mentors in the short-term. We are are so concerned about this that we have decided that we will be producing a list of OT 'recommended' mentors and are hoping very shortly to announce who our hand-picked mentors are. As your forum moderator, students can rest assured that our list will only include the very best as I will only endorse those who have an exceptional reputation and have been vetted.

Hi No problem I thought that was the case, but as I have not found a mentor yeti just thought I would ask. Regards

Hi Trephena I am currently analysing investor ratios. What should I be looking for apart from the fact that eps is falling because of declining profits Regards

@Fatema you may be able to look at trends in dividends and dividend policy (there may be some comments on this in the CEO Report). Also look at changes in long term debt and gearing. Are profits falling because the interest charges have risen? Is this all part of a longer term strategy e.g. to take on more debt (or issue more shares) to fund future plans (product development or expansion for example)? You have to try to stand back and see the big picture and how everything is usually inter-connected

@Fatema re my post of 29 August 2014 We have now included an article on How to approach Evaluation & Analysis on our home page. Part I deals with hints on how to tackle this for Topic 8 Part II deals with the other topics (briefly) and Primary data collection

Hi Trephena Thank you for the article which I will be reading. I just wanted to ask another question. I am currently on part 3 and it is challenging. I have already asked you about the ROCE figures for my companies which are calculated on a different bases. I know you advised better ratios to analyse but I really would like to explain the change in Roce for both companies. Instead of calculating my own ROCE figures can I mention that both companies have used different formulae to calculate ROCE in my limitations in part 2, and mention that I am analysing the trend rather than the actual figures? Or is this not a good idea? Or shall I just calculate my own ratios

My dear @Fatema I think you are starting to obsess about this and putting far too much emphasis on it than it requires. The danger of ratio analysis is that you start to tie yourself in knots about it and fail to see the wood for the trees... you need to stand back and take a few deep breaths :-) . If they are using different bases then you either have to use the same formula for each or alternatively, as the trends are just as important, plot the trends for each company on graphs and make comparisons that way e.g. how each's trend has moved in relation to the other's trend. GP and NP and investor ratios are far more important in the grand scheme of things. By all means mention your concerns about ROCE in the Limitations section. However I really think you need to read how to approach Evaluation before you proceed further otherwise I fear that you are going to end up with what I call the 'dreaded sea of figures' that does not usually enhance your analysis and evaluation. When it comes to the latter there is probably an inverse relationship between the number and density of figures calculated and presented and the actual quality of the analysis. It is: Explanation! Explanation! and explanation! that provides the necessary quality to meet the assessment critera :-)

Hi Trephena Question for part three: In the conclusions I have given a brief summary of the company's overall performance and mentioned their current performance based on interim results, is that ok? In the recommendations I am stumped. I have already recommended actions the company can take in the opportunities section of the SWOT. Shall I just repeat these? Also the company was already in the process of making these changes in the current financial year. What do you think? Regards

@Trephena Mine is about SLS, since its uploaded separately, do we include a title page as well with our names and ACCA numbers? If yes does it count towards the word count? thanks @ Fatema thanks for those questions i don't need to ask again..

@Fatema - Recommendations section is not mandatory - it is probably more relevant for some of the other topics so do not worry as long as you have done a good evaluation. And if any recommendations are elsewhere as part of your SWOT then that is fine. The Conclusions section should be a summary of your main findings and if possible try to link back to your objectives so that you briefly show how you have covered them. No don't repeat too much information unnecessarily as it does not add any value to your work and just wastes words. If you are referring to the company having implemented the changes after your period of study then you do not have to mention it as it is not actually within your brief as it outside your reference years. @lamech311 - A title page and contents for the SLS are not mandatory but if produced will be captured by the word count. If you have sufficient words left you can do them if you want. Otherwise if words are tight why not do your name and Reg No as a header as I don't think headers (or footers for that matter) are included by Microsoft Word in the word count?

Thanks very much @trephena

Hello I'd appreciate getting your suggestions regarding application of Porter's five forces model. My understanding is that this is to be done on a single SBU (strategic business unit) like a particular line of products of a particular industry. So let’s say the company I chose provides majorly telecomm services and a minor transport business too. Does that mean the 5 Forces are to be based on the telecomm part of the business (since major revenue is from there)? What’s the best approach to go about this? Lastly, in a single RAP, it is possible to do PEST, SWOT and Porter’s 5 forces? I mean realistically speaking I know I’ll be constraint on word count…last thing I want is for any of the model application to be inadequate just because I was trying to squeeze in all three. My PEST and SWOT are going well so far. But during the process I thought 5F could have potentially added more value. I’m just concerned about the industry-focus bit since the company has diversified products in different industries (while core activities are in one industry and that counts for the lion share of the revenue). I’m not that clear on how to apply the 5F in this case. Any tried and tested suggestions? Thanks a lot!

@avian will When it comes to T8 I am not a great fan of Porter's 5 Fs as I think it is of limited use in this particular context. You are far better off doing a SWOT and PESTLE well than attempting 3 models and doing them superficially. Remember you need to link your business and financial analyses when doing your evaluation. This means that you should reflect on how the PESTLE factors impact on the company's performance and decisions and how the management strategies build on the company's strengths and how they try to overcome weaknesses (like the example of Laura Ashley I gave in my article on Evaluation). So don't fret about Porter's - it is not mandatory to include it. :-)

Great! Thanks @trephena... much appreciate it :)

hi which company u r doing?

which company you are doing?

Hello, When performing my ratio analysis on my selected organization, I know I am to investigate what factors have caused the ratios to change from year to year. My question is am i also suppose to investigate what factors caused the ratios of my comparator company to change from year to year or am I only to do it for my selected organization. Your response will be kindly appreciated.

You need to provide reasons for movements in ratios (internal as well as externals) of both companies as you need to compare financial performance of your main company with opponent company.

@trephena - I am preparing my ratio table for the two companies on excel. On this I have two separate sheet tabs for the companies. I have included extracts from SOFP and SOCI and then used excel formulae to generate ratios. Both the companies are very much comparable. They are both prepared on similar basis. Few queries I have in regards to this. 1) since I have used excel formulae do I still have to separately show ratio formulae, next to the ratios in words, eg.(Current ratio = C.A/C.L?) 2) most of the ratios that I calculated do match but some of the ratios are close but not exactly the same as published on the annual reports/other sources. Strangely some of the ratios on the annual reports don't even match the ratios calculated by other reliable sources, eg.Stock exchange websites. I am really confused because I don't know which number is right? In the exams we were if we were asked to calculate current ratio, we would divide C.A by C.L. Here if I pick up those figures from the financial statements and apply the same formula , the numbers don't match because SOFP and SOCI both have notes along. When I follow the notes, 10-12 more numbers come into play which I have no clue about. I don't know if I should add or substract from the figures on financial statements. Please help, I am going absolutely cuckoo.

Hi there, while trephena is away I will try to answer your queries, and if there is any problem she will add up. 1. yes make a separate sheet to display ratio formulas, there is copy paste option in excel which you may use to copy and paste formulas. Prove you IT skills with bang bang. 2. Don't worry about minor differences in calculations,you have to prove your calculations not others, your formula and calculations should be correct. Other sources use their own formulas and figures. Mind you, you are doing your own research and not copying others. 3. companies restate previous years statements after taking into account post balance sheet events. Good Luck

Hey, Thanks for your reply. I have another couple queries 1) To calculate ratios like P/E ratio, I need EPS and market value of shares. The EPS can be found on annual reports but the market value of shares are not given. P/E ratio itself can be found in the annual reports of the company. Can I simply take the ratio from the annual report and use in my ratio table? If i do this , I am not calculating but simply stating with reference to the annual reports. Is that acceptable? 2) how do I reference the ratio table on the spreadsheet? I would have to reference all the relevant annual reports from the last three years relating to both the companies. Along with them I would reference a couple more website database. Do I put citations in a cell? How should I reference the table?

hello, I too am doing topic 8 for November 2014 submission and have a few doubts myself id like to clarify with @trephena . I just recently found the OBU forums here and am I excited to read around more. my two companies are from the beverage industry and their year end is December 31. so I have taken 3 years as (2011, 2012, 2013) so here are my doubts. -it is acceptable for me to take latest as 2013 and not 2014? as im assuming because year end is 31 December, my latest is 2013? -my mentor asked me to take four years while calculating ratios so I discuss the variances of ratios as (2010-2011) (2011-2012) (2012-2013) in my RAP. is that accurate? I was afraid that I will get penalized for using four years instead of three. in my graphs however I have been asked to use 3 years figures. so I am a bit confused -in part 1 of the RAP, what is the difference between objectives and research question? because under that I have just written for example; to perform financial analysis through ratios for company xx and compare it with company xx etc -where and how do I include segmental revenue figures and industry averages? thanks in advance x

@sadsingh 1. There is no problem in using the company's own ratios provided they are referenced accordingly 2. Why not use footnotes to reference your tables? If you go into the Insert tab on Ms Word it will do it for you or look up how to do it first if you are unsure about what to do and want to practise first