RAP - Part 3 Findings, Analysis + Business Models

@pallavirai You are required to use the latest FSs. So yours are the 3 years ended 31st Dec 2013 for P29 according to the info you have given and therefore the 3 years you look at are 1st Jan 2011 to 31st Dec 2013. Please read my article on Evaluation on our homepage www.opentuition.com/obu as far too many students fail E&A. This is because they fixate on number crunching and do not EXPLAIN the real factors that underlie the trends. I suggest you read the CEO / Directors reports and get 'a feel' for the company before you set about any analysis. If you read through the earlier pages of the annual report you may find some segmental information and other useful info possibly including relevant KPIs. You are advised to choose a comparator rather just industry averages as markers seem to expect some detailed analysis (not just comments that one is better than the other and by how much) Please use our site search facility to find posts about objectives and research questions as these have been dealt with before elsewhere

@Amarain - it isn't quite so clear cut as strengths & weaknesses tend be something that build up over time although the opportunities & threats usually are more recent factors. PESTLE factors can be both too but usually have at least a medium to long-term impact. The important thing to remember is to bring in the factors wherever you can in your financial analysis. For example you may be able to show that increases in online sales are related to more apps on smart phones (but you would require a reference to support this statement) as a technological factor and if you see my article on Evaluation on our homepage you will see that I mentioned in connection with Laura Ashley strengths and weaknesses that covered more than one year. The approach to take for this is to read all the CEO & Directors reports for all the years as these will help you discover what is significant

@trephena thankyour for your reply, you've cleared my doubts :) im new to the whole forum system and my notification went into junk mail, so I didn't realize you replied, therefore created a new forum asking the same question. sorry! now im struggling to find the forum to delete it as the questions are the same! *technologically challenged*

@pallavirai - no worries - I've probably removed the duplicate anyway :-) It's just I answer a question in one place then another student asks a similar question in another place so I end up repeating the answer and then the answers are all over the place and nobody can find anything so it all becomes a self-perpetuating muddle :-D

@trephena i totally understand. (y)

@trephena im doing my RAP on Coca-Cola Company (Global) and comapartor company PepsiCo.(Global) so id like to know if your comment above saying that PESTLE analysis is better than Porters is for topic 8 or for @avianwill's industry/company, as it is telecom so being technological, Pestle covers that area. if so, would PESTLE still be a more appropriate choice compared to porters in my case as well? and is it true that Porters has to be performed on a SBU and cant be performed on the company as a whole, like in my instance KO? do let me know what you think :)

@pallavirai - as I have stated above and probably elsewhere I am just not convinced that Potter's 5Fs is particularly useful for T8 as it cannot really help that much in linking the business & financial analyses. If students want to use it then it's up to them. However as markers are increasingly looking for deeper explanations of the financial performance and have criticised students for not tying in their models to the financial analysis I recommend focusing on SWOT & PESTLE as models :-) (Take a look at my article on Evaluation www.opentuition.com/obu )

Dear Amarain, You can use BPP as reference book or you can use other books and websites to explain Ratio Analyis. You need to explain "Ratio Analysis" in general along with some major categories of ratios (e.g. Profitability Ratios, liquidity ratios, Working capital ratios,etc.). Moreover you also need to explain advantages and limitations of Ratio analysis. Thanks. PS: 100% copy paste from web/book (even you provide reference) is not allowed.

alright thankyou @trephena. As you Suggested,I have done SWOT and PESTLE analysis, but considering word count restrictions, would it be okay to stick to PEST instead of PESTLE, I do feel I have strong points for the four factors (PEST)? for environmental analysis, I haven't found much info on significant factors. for legal, I did see bans being placed on junk food, namely, NY soda ban and mexico taxing junk food and beverages. but couldn't that be placed under political? regards

@pallavirai -yes fine to do PEST. Yes probably difficult to find things for environment but you could possibly look at their CSR and see if there is anything relevant - being 'greener', encouraging recycling of cans and bottles, reducing carbon footprint by using local facilities manufacturing under license. The soda ban and junk food tax can be used as part of the legal and/or social factors as they are a consequence of both. To trim word count look at parts I & II as usually it's best to cut there than in findings and analysis, make sure you have adequate graphs then you don't have yo go into much detail about changes in trends as the reader can see them and then you don't over do figures - just concentrate on mentioning the important ones

@trephena. thankyou for clearing my doubts. will go over part one and two to cut down on word count. that's a good idea. I do understand that there needs to be a link between business analysis and financial analysis but I want to ensure Im not wasting words by repeating the same thing again. so for example, when im doing horizontal analysis of sales/revenue growth over the years of the company under financial analysis, I feel as though a lot of points I talked about in SWOT and PEST would apply here. so do I just say something along the lines of "as mentioned in SWOT/PEST this factor would affect the revenue" im not exactly sure on how to bring the points in without repeating myself. on a slight tangent, i did read the OT article on evaluation and analysis of part 3 but im still a little confused towards the depth of analysis i would need to go into in say for example, ratio analysis due to word count restrictions. what I've been doing for each ratio is to make a graph showing the trends and increases/decreases for the 3 years of the company and its comparator and talking about the reasons for the increase/decrease of the company over 3 years and then how the company has fared up against the comparator. is that enough or do i need to go into more detail than that and talk about how the reasons came out to be etc? kind regards

@trephena Hi, I'm doing Part 3 of the research and my chosen company is a pharmaceutical one in Vietnam. My mentor suggested me to use SWOT and Value chain. This is the first time my mentor help with an OBU research so she does not have much experience. I want to ask if Value chain is acceptable or not? I'm also quite confused about the structure. I found this on the internet and I wonder if it's a good example (REMOVED BY TREPHENA) Normally how many words I need for ratio analysis and how many for business analysis (SWOT and Value chain)? Right now I aim at 2,500 words for ratios, 1,000 for SWOT and 500 for Value chain. What are your suggestions? Thank you so much.

@Ha - It is not so much whether the value chain is acceptable (yes it is) but how helpful it will be.The value chain analysis is not as useful for linking the business & financial analyses as the SWOT & PESTLE. Regarding the sample you had posted the link for: This is a service that offers to write work for students and you are advised not to use such services as they are in breach of the ACCA code of ethics (and the work is of dubious quality anyway). A quick assessment of this piece of work: - it was written when the word count was 6,500 (this has now increased to 7,500). however it contains far, far too many numbers that do not advance the analysis. There are not many detailed explanations - the GP section is very poor in terms of real analysis and evaluation and the statement with regard to net profit "The main reason for this was that fluctuating direct and indirect costs over the periods, caused the operating expenses to fluctuate to high levels" is useless - it tells the marker absolutely nothing of any merit. The writer of this piece of work does not explain anything but thinks that all you have to do is calculate lots of numbers. (Take a look at my article on Evaluation Part I on our home page www.opentuition.com/obu for some advice on how to approach analysis) Referencing and the amount of information gathering are also fairly poor. The only thing that you could use this report for is to give you an idea of layout. I think it is very doubtful that a RAP like this submitted in 2014 would be given a pass. It is difficult to be precise about the word count for different sections but you should focus on Part 3 as your findings and evaluation and analysis section will be the most important in terms of whether you pass or fail. I am worried by your statement that you are devoting 2,500 words to ratios - I hope you mean explanations of the trends rather than calculating number after number. You must read widely about your company so that you can discover what has happened over the 3 years: the strategies that the management have used (see the Ceo/Directors reports) usually based on the SWOT factors and consider how the PESTLE factors have affected revenue and performance. This is how to produce a successful RAP - NOT drowning the marker in a sea of dreadful figures that tell the reader nothing they couldn't see for themselves if they looked at the financial statements.

@pallavirai - your approach in your penultimate paragraph sounds as if it is on course. If your graphs are good then you do not need to waste words telling the reader what they can see for themselves from the graphs. You cannot over do the explanations provided they really are explanations of factors that have influenced and impacted on the company's performance. As you are mentioning the actual factors from the PESTLE then you probably do not have to keep repeating it but do not just make a general statement such as "as discussed in the PESTLE" it should be (see the PESTLE where the effect of economic factors was discussed or where the political factors were discussed) for example. Try to mention a few of the significant things that have affected the comparator's performance (particularly in the profit sections) as I have seen comments by markers indicating that they are expecting more in this area and maybe in relation to share price too. You will probably find that you can trim some of your words in Part 1 & 2 and this is a much safer bet than skimping on Part 3. (Sorry I am not sure what you mean by "how the reasons came out to be etc?" without a specific example. BTW I couldn't go into a lot of detail in my article I just wanted to show that evaluation is not really about numbers on their own and stress how you relate information to performance rather than just calculating ratios)

Hi people will I be penalized if I do my graphs in power point and then export them into my RAP as I am finding it difficult to input the data in excel???

yes you can do this as there is no issue on this approach.

@trephena thanks, I just came across a issue this is my example: Current Ratio: (bar graph inserted showing years 2011, 2012, 2013 for company A and same for comparator B side by side) the figures are: company A, 2011- 1.05, 2012-1.09, 2013- 1.13 Comparator: 0.96,1.10,1.24 I haven't been able to find information for the changes in the ratio in either annual report or internet, I tried searching for differences in current assets, liabilities, inventory, cash etc. the only reasons I found are earthquake in japan affecting inventory(not enough to make much of a movement though), cash management system changing,transferring some cash items into short term investments (but that wont affect current assets as its just a movement from one asset to another), and an asset for sale in 2012(sold off the same year). in such cases where I cant find much of significant reasons, can I just mention these small differences and then talk about comparator performance. maybe include industry average? if not, please advice on what to do when sufficient info cant be found. also is it necessary to do quick ratio as well if the trend is literally the same as current ratio? just for a little background, my industry is beverage and my companies are the top two rivals in this industry the ratios I have planned to perform analysis on are: Profitability ratios: gross profit margin net profit margin Return on capital employed Liquidity Ratios current ratio quick ratio Activity Ratios recievable turnover days payables turnover days inventory turnover days Leverage Ratios interest cover debt/equity ratio Investor Ratios average market price during year dividend per share earnings per share price earnings ratio also have performed horizontal analysis on revenue growth (total and segmental)

@pallavirai I received this question via a private message (not something I like or encourage as the idea of the forums is for everyone to have access to the questions and answers): "its tough to give some external reference for some ratios like efficiency and liquidity as they are more internal in nature. I thought referring annual report and linking with other ratios outcome is enough" Here was my answer: 'Yes agreed that those ratios normally are more difficult to explain and there are no external sources. You may find something relevant in the CEO/ Directors reports but otherwise as you say you have to make do with the annual report. Don’t worry unduly but focus on trends in turnover, GP, NP, gearing and investor ratios and try to explain those well instead.' The reason for my answer: The Market and analysts tend to look at these ratios (Turnover, GP etc) because they greatly affect the share price and investment decisions. Think about it: companies like Coca-Cola are not going to go bust - IF they need money they would either raise it via an issue of new shares or long-term loans so in the grand scheme of things current ratios are not that important. What is more important is the back-lash against all the high sugar content and health implications of fizzy drinks which does affect sales. This is why linking your SWOT & PEST is so important and segmental analysis and discussion of areas they have diversified into in the business analysis can be useful too e.g. PepsiCo has diversified into snack foods, fruit juices and porridge oats....

@trephena Thank you for your advice. Actually my ratio analysis I just wrote was about 3,500 words but my mentor said I should cut down and aim for 2,500 words. I think this number is definitely not enough for what I want to explain. So as I read some of your comments on this page, in my part 3, I should first look at my SWOT and my other model (whether it's value chain or PEST), then financial ratio would be the major part, right?. Recommendation I intend to write about 500 words. I wonder if this structure is OK. One more thing I want to ask is about literature review. As my friend did topic 15, she included findings of others about working capital and its importance in literature review. In topic 8, instead of these, do we only need to explain our models and their limitations?

@Ha - although you need to comply with the word count the last area you skimp on is Part 3 as it actually says on p.22 of the Info Pack "the grade that you are awarded for your RAP will be significantly influenced by ‘how well’ you demonstrate your evaluative and/or analytical skills in your RAP.” Do not waste words telling the reader what is showing in the graphs - this is both unnecessary and tends to annoy markers who want you to tell them instead what has gone on "behind the scenes" in the company and factors that they cannot see or read for themselves in the FS. A literature review is not really so relevant for T8 as most of your info comes from the annual reports and business articles -whereas some topics you need to consider more models and theories or development (like T6 and T17) so as you quite rightly realise the limitations of the data and models is more appropriate

@trephena Thank you so much. I'll ask if I have more question.

@trephena. I had a doubt in the depth of analysis that is required. here is an example NET PROFIT MARGIN. say for example net profit margin increased from 2011-2012.(will have a bar graph showing the results for 2011,12,13) so my reasons are: this is mainly due to operating charges reducing by this% and also effective tax rates decreasing. effective tax rates decreased due to increase in grants given and also increase in sales in emerging markets where the tax rate is lower than the standard 35% in US. these benefits were partially offset by other income decreasing by this%, and therefore the increase is very marginal. (insert comparator performance) so my doubt is, is that amount of analysis enough, or do I need to mention why the other income decreased and why the operating charges reduced. because most of this information is hard to find.

@pallavirai - you need to ensure you reference most of this. If I am brutally honest most of this reads like notes to the accounts (all the stuff about tax rates and the statement about other income decreasing). If you have read my posts elsewhere you will know that I try to encourage a 3 year view rather than a year by year approach. This is because students struggle to come up with reasons for each year and then find that the only comments they can make are based on the actual movements (increases/decreases) or notes to the accounts rather than more detailed explanations that may have affected more than one year. How to get round this? Do good sections on Turnover and GP and then it may be alright to say that there was a negligible change in net profit over the period. Focus to on gearing and investor ratios as these are ratios are the ones that the Market and financial analysts concentrate on. You will need to come up with a few explanations of the difference between the company and the comparator rather than just mentioning whether one has performed better than the other.

Hi I just want to ask a quick question here. Within PESTEL analysis, is it alright to state the external factor affecting a company and then say how the company is dealing with it? For example, in my PESTEL; if I state for 'environment' that 'increasingly corporations are expected to reduce carbon footprints' then in the same statement can I say that 'CompanyA has committed towards this end and have modified their processes to reduce carbon footprint by XX% within 2020.' I guess what I am getting at is that should the PESTEL just include external factors that affect a company or can we add how the company is dealing with the effect of these factors also?

Hi @trephena. I am doing my thesis based on topic 8. I have selected my main company "Tesco PLC". I am having serious word count issues and have crossed 12,000 words. Could you guide me as to which ratios are relevant to the retail industry for Tesco ? Also, what proportion of analysis do I provide for my comparator ? Thnx

@Zaheen - are you including the ref list in this? Word count starts at the title page and ends with the last word of the conclusions & recommendations. If this is 12,000 words you do have mega problems! Trim parts 1 & 2 (I have discussed this on recent forums so look at my posts in the last week or so for hints on what to cut) Read the Board reports (CEO & Directors including their interim/quarterly statements) and home in on the Highlights as these should guide you and help you to pick up on what is really currently important and significant. I advise especially focusing well on GP, Net Profit. Gearing and investors ratios and ensuring that you can discuss some of the factors that lie behind the comparator's performance for these

@trephena - I'll have a look at those posts and work on them. When I do the ratios, I have repeated the information in some ratios. Is that appropriate ? For example: "crisis resulted in low sales, which have impacted the gross profit" and the same reason for inventory turnover - "low sales volumes, have resulted in increased inventory" Another point, ratios like receivables and payable turnover, do not have sufficient information, as they are internal issues. In this case, what do you suggest I should do ? Lastly, what comes under the conclusion ? Regards

@avian will - the SWOT and PESTLE should be related to the specific main company, so stating how the company is dealing with the factors is expected. If you can, you need to show how these factors have impacted on the financial performance e.g. are the measure you have outlined above pushing up transport costs and reducing margins or are technological factors helping increase margins - that sort of thing....

I think the problem that I have with years is also the problem that most people have , 2011 - 2012 analysis is 3 years but it means two columns of comparisons and people are wondering 2 columns , 3 years or do we also have the movement between 2010 -2011 in order to have three columns of analysis ...........I am still confused ???????????????????

you should provide 3 column (e.g 2011, 2012 and 2013) and explain overall analysis by keeping 2011 as base year....