RAP - Part 3 Findings, Analysis + Business Models

@kellann - no you focus on factors over the 3 years for the SWOT and PESTLE but these factors often influence management decisions and impact on financial performance. So as I mention in my article on Evaluation and Analysis it is worth spending time on doing a good SWOT and PESTLE , reading the CEO and directors' reports for the 4 years up to the latest financial report BEFORE you even attempt to analyse any ratios as you will have a better idea of the company's strategies and direction. Personally I don't think there is a need to discuss each year for each ratio as you should be looking at and explaining the trends over the period. Remember for the management it is,a continuous operation with regular reviews-they do not meet together on the first day of the new financial year and say 'what shall we do this year about our gross profit?' nor assemble on the last day of the financial year to discuss the liquidity position. Strategies can take several years to implement fully e.g. entering a new market and there is often a time lag between making a decision and its effect to impact on performance e.g. discontinuing a product. Therefore the CEO reports etc. are often 'pointers' that help explain subsequent performance as I try to explain in my article on Evaluation and Analysis on our homepage.

thanks a bunch Trephena !

Hiya I would really appreciate a quick answer. I am doing T8 and using PESTEL, SWOT and F5. I have done Part 1 and 2 in my project but my mentor's feedback is "in terms of definition and explanation of the models, I am scratching the surface" but I am finding very difficult to find detail explanation/definitions/limitation about these models outside ACCA text book. Can anyone please help me?

Dear Trephena, I failed the RAP in the period 30 submission, I passed the presentation and skills and learning statement. My RAP was about Tesco. I have just gathered myself since I had put in a lot. The marker said I failed on the financial analysis of the ratios. Please advise as I really want to pass it this time round.

You need to appreciate what evaluation really entails. Financial analysis is NOT just about ratio calculations - it involves much more. Read the article on Evaluation & Analysis on our homepage www.opentuition.com/obu and look at our forums on financial analysis (read some of the postings above) where I try to explain the correct approach to take

Hey Trephena, I proof reading my completed RAP, I have done operating profit margin but wondering if it's better to do operating profit margin as one of my profitability ratios? Also with investors ratios I have done EPS and dividend growth , would you recommend , EPS & Dividend per share instead? Thank you for your help. Best regards, Kell Ann

I don't think you need to do a major change at this stage unless it involves strengthening the actual analysis. Your operating margin should logically come after a good discussion of gross profit. So as long as you are explaining the key factors that have impacted on profitability and this is not what the markers call 'descriptive' - that is it just talks about increases/decreases and by how much (telling the marker what they can already see from the graph or just looking at he FS) then it should be fine. Regarding dividend per share - depending on how competent you are with Excel you might be able to incorporate dividend per share in the same graph as dividend growth. (Although I always recommend lots of graphs, where they can be combined this can be useful e.g. bars for the actual dividend per share with a line graph superimposed for the trend line in growth). However don't worry if you can't do this. The trend in dividend growth and the proper reasons for this are probably more important than the actual dividend per share. So you may be able to just mention this amount for either the first or last year in your text as part of your explanation. At all costs you want to avoid 'death by numbers', that is boring the marker to death by just inserting figures (the dividend for XYZ was .. in 2013, ... in 2014 and ... in 2015 and for ABC ... in 2013,.... in 2014 and ...in 2015). Too many obvious numbers in any RAP (those the marker can see in a graph or could discover simply by looking at the FS) will make the marker retreat to the feedback sheet to avoid being drowned in a flood of figures -they will just switch off completely, stop reading and start writing. That is why I tell students to get someone to read their work as if your aunt/brother/friend starts to get bored and overwhelmed by all the numbers the marker certainly will (because by the time they reach yours they may will have had weeks of being bombarded by such material ) Make your work interesting, make it thrill not kill (surprise them with the depth of your research and knowledge) and they will hang on in there and read it to the end and give you a decent grade [I showed the article by TLL on our homepage (under New Articles) about the 5 common reasons for failing to an experienced marker for their comments and asked about the last point. They laughed and said yes that is exactly what happens sometimes except they are not glad because although they can fail a RAP like this in 10 minutes without even bothering to read to the end they then have to spend another 30 minutes writing the feedback before they can pick up the marking fee! What they would much rather do is spend about a total of 20 minutes on each report and be able to put at least a C in the grade box and then move on to the next!]

Thank you Trephena, I meant net profit margin..I have done an analysis of operating profit margin(OPM)instead. So for OPM,this is what stated that caused the decrease: one off charges like impairment , onerous contract provision,huge advertisement and skilled labour costs which caused a decrease.Does this sound ok? I'm so tight with word count, I wish part wasn't that many,I think this should have been lower and more toward part 3.As a result I have used Acronyms,like OPM,EPS..,is this acceptable? Your dividend explanation makes sense. Your response is very interesting indeed,especially the last bit!Its funny that, as I got my colleague to proof read it 4 days ago, he said the same that I killed him with so many numbers so just changed format a bit. Thanks for the pointers,such invaluable advise as ALWAYS. Best regards, Kell Ann

Well, value your colleague who probably found it hard to criticise you to your face but has your best interests at heart so is a good friend :-) As long as your objectives and research approach are clear and you consider limitations, the markers are just not interested in why you chose the company/topic or details of your sources (they can see the proof of the latter in Part 3). So trim the superfluous bits of parts 1 & 2 if word count is a problem. It is WHY the impairment charges and advertising costs etc.are high that you need to discuss - otherwise it just reads like notes to the accounts or a 'text-book' type of approach (and again will cause the marker to groan and roll their eyes in despair). Did you read my bit on page 3 of 'Top Tips for the RAP' where someone asked how to get a higher grade? Spend a few minutes reading the hints from me and the marker -and more importantly -apply them! :-)

Sure thing Trephena .My colleague asked me why am I waffling on so much in Part 2. I would rather trim it down in P2 and add more to Part 3 , this will make a more conclusive report.I wasn't sure on the rules , as I thought I needed to stick to P1 = 1000 ,P2 =2,000 , I did not realise that I could trim it down as long as whole RAP = 7,500.Do you know what is the minimum word count in Part 1 & 2 that I could have ? say 900 & 1,800 for each part? I will read the hints straight away. Many thanks for all your help!:) Best regards, Kell Ann

Dear all, Should I use passenger load factor as one of the ratios for my airlines analysis or I could just mention about it when discussing about passenger yield? Best regards

@darkangel5 Hi, Hope you are well! Answer to your question is: As per definition, this ratio is dimensionless ratio of passenger-kilometres travelled to seat-kilometres available. Hence, i will recommend to use other ratios too. You should use this factor in cost analysis and sales trend analysis. You cannot relate this ratio directly to FS but it is an indirect useful ratio. Regards, Hammad Ahmed Qureshi – OBU Registered Mentor.

@darkangle5 - to an extent it depends on how you are fixed on word count. KPIs related to passenger loads are used in the industry and although Hamnad is right it doesn't directly link to the financial statements it does impact on results and a good business analysis is equally as important for T8 as the financial analysis. Load factors are a performance measure and indicate how effective strategies are - the right routes are being flown, whether the right size aircraft are being utilised if the percentage is low ( this would be analysed on a flight by flight basis but obviously you don't have this level of detail) They are also measures of efficiency: a high load factor shows assets are being well utilised and efficiency in use of resources -it costs almost as much to fly an aircraft with 20 passengers as it does to fly the same with 200. They are particularly relevant in two specific contexts (1) if an airline wants to raise seat prices then it is more likely to have less impact on demand if that route has an existing high load factor -in this sense they are critical in the business model of low cost airlines (2) where a competitor has a consistently higher load factor or where load factors start to fall but competitor's do not then they indicate that something in the operations and potential in the marketing mix is wrong. Another thing to remember is that although accounting practices and treatments vary (aircraft dep'n rates, revenue recognition etc) passengers per kilometre is a simple and reliable measure that is a constant in the sector which makes it a very useful tool for evaluating performance and making comparisons in terms of efficiency

Thank you @Hammad sir Thank you so much for the details @trephena Also, should I include cargo business as well in the analysis?

@darkangel5 No, i believe this measures their passenger seat KM available vs passenger seat KM occupied. For cargo, you need to look at the weight or space available vs weight or space taken. Regards, Hammad Ahmed Qureshi – OBU Registered Mentor.

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@darkangel5 First of all you will see core services of your main company and have to evaluate the significance of Cargo business and it's revenue. If it is then you need to highlight separately you can not ignore major line of business of the company. Regards, Ali Farooq OBU Registered Mentor

@darkangel5 - if you can find the figures then yes you should cover this as a separate but important business segment. Like load factors there are usually stats that relate to kg/per kilometre flown. It is worth remembering that when looking at the capacity of a jumbo jet for example that only a small part of the available hold space is used to transport passenger baggage - most of it will be used for freight. Cargo tends to be more important for medium to longhaul flights (rather than shorthall) this is because alternative forms of transport are available (road/rail). So anyone doing an airline that focuses on shorthaul flights (those under about 1,500 miles) can probably ignore cargo. It is not so relevant therefore for Ryanair and Easyjet as their strategies are more directed to transporting the maximum number of passengers in the most efficient way (with the quickest turnarounds possible) and therefore they tend not to use aircraft with much freight capacity

Hi everyone, I have a query concerning the analysis and evaluation. In the info pack it says the first you describe the results and analysis them later. my question is do the OBU markers follow the prescribes layout of rap when marking? because there is to much discouragement about describing the results and yet the info pack clearly states that you have to first describe and a critical analysis later. kind of confused please help.

@sipo Yes, they are concerned on description and analysis both but it is in context that you provide results and must do analysis, don't just state results by writing that sales up by 10%, cost up by 12% etc. They want analysis, reason for changes i.e. what drives these changes. So when you write sales up by 10% and state that it is as result of new product launched in 2016 with reference, this is analysis of result. A good analysis example: 2010 was a good year for ABC company because its margin went up from 6.1% to 7.8%. Car market showed an improvement of 32%, while ABC company sales grown by 58%. Despite economic crisis and low GDP growth of 2.4% compared to 4.5% in last-year ABC company done well. It has been able to control its cost as its cost-of-sales were 93.8% in 2009 and 92.1% in 2010. ABC company has also done well against XYZ Company, its GPM grown by 1.7% compared to 0.2% of XYZ Company. Reason for this is poor cost control as costs are approximately same as a percentage of sales in both years of PSMC besides 63% sales increase. Increase in sales was also due to launch of 1300cc swift. (All facts were referenced). Above para contain both analysis and results. Regards, Hammad Ahmed Qureshi - OBU Registered Mentor.

@trephena While we are doing the swot, is it more preferable to mention how company is using their strengths/opportunities in the swot itsslef? I' am not sure if swot here is all about just plainly mentioning the companys strength/weakness/opportunity/threat or its about showing how they are utilising/overcoming it?

@darkangel5 - the basic SWOT is just a straightforward statement of the company's strengths, weaknesses etc (with as much referencing as possible to show that the statements you are making are valid). You explore some of the SWOT and PESTLE factors when doing the financial analysis as you should be linking the strategic decisions and directions (i.e. found in the statements from press releases, company highlights, the CEO and directors' reports ) that have produced the results and these are based on the company's strengths and opportunites and the environmental factors found in the SWOT & PESTLE. I have tried to show this type of linkage in my article on Evaluation & Analysis and how to approach it on our homepage www.opentuition.com/obu

What if I calculate Profitability, liquidity and solvency ratios using the spreadsheet and take the Investment ratio and efficiency ratio figures from the Annual report? Will that be enough to show my IT skills?

That is fine to use ratios calculated by the company in the annual report -justify this by saying they are reliable and likely to be more accurate (however as the basis of the calculation is not known the comparisons between companies may not be so valid). However as long as you acknowledge this and provide proper explanations this should be ok.

Hey hi, I was wondering on how to write the business models and the frameworks, like do i have to relate the framework or the business model with the most recent 3 years or can i relate with over all .history of the organization?

Hey hi, I was wondering on how to write the business models and the frameworks, like do i have to relate the framework or the business model with the most recent 3 years or can i relate with over all .history of the organization?