RAP – Part 3 Findings, Analysis + Business Models

Hi Trephana,

Please can u help me to answer my query above concerning business modelling? (SWOT ANALYSIS)

Hello, can anyone tell me do we include Profit after taxation or Total Comprehensive income while calculating Net Profit margin?

@rosalemu – you only normally need to apply the SWOT to your main company. Although you don’t have to apply the PESTLE to the comparator it is worth remembering when doing your evaluation that the PESTLE for both companies will be very, very similar (if not identical) anyway.

When considering strength of brand in the application of the SWOT you would normally only apply it to the main company. However what you should also try to do when looking at market share, revenue or gross profits etc. is consider the impact of the SWOT and PESTLE factors on these. If the comparator has any obvious strengths and weaknesses then it may be appropriate to mention this when explaining the differences and making comparisons between the companies.

It is this practical application of the models in practice (linking theory to the reality of what has gone on in the 3 years) which lead to good analysis and higher grades

@rosalemu – well the fact that you have done the SWOT for both may allow you to at least use some of the factors for the comparator when assessing the financial results so the effort will not be totally wasted. Cut the actual formal SWOT for the comparator though to save your words. Another area to save words is in Part 1& 2 – do not go into unnecessary detail.

When you do your evaluation you need to look at how the SWOT and PEST have influenced management decisions and strategies and how these have impacted on the results so the factors from both sets of SWOTs and the PEST are extremely useful. It is difficult to say exactly how many factors you need, all I can advise is that integrating the application of the models and linking these factors to your explanations is key to passing and therefore you should spend adequate time assessing the factors. Read and research widely so that you have strong strengths and definite weaknesses etc.

Hi,

Does anyone know that if my net profit is a loss, can i still calculate net profit margin? im doing topic 8, to compare the company financial performance for 3 years.

Thanks for your help.

Dear Trephena,

I need clarity on the analysis of financial and business performance for years 2013 to 2015.For example for the revenue growth,net/gross profit operating margins do I need to split each year and explain why there is an increase or decrease ? eg 2013 why there is a decline in revenue and so on.Would this approach be the same for business analysis using PESTEL & SWOT models?

I’m not clear on the approach , can you please advise me.

Thanks you for your help.

Regards,
Kellann

@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.

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?

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 http://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

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!]

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! 🙂

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

@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